LEVI Q2 2025: Record 62.6% Gross Margin, 9% Organic Revenue Growth
- Robust demand and strong brand momentum: Executives highlighted broad‐based organic growth across channels—including high single-digit increases in DTC, wholesale, and international segments—with the Levi's brand resonating globally through innovative product offerings and key collaborations (e.g., with Nike and Beyonce) that continue to drive consumer enthusiasm.
- Improving margin profile: The call emphasized record gross margins with significant improvements driven by increased full price sales, disciplined SKU management, and effective cost-management strategies in the DTC channel, fueling bullish expectations for sustained margin expansion.
- Significant international growth opportunity: Particularly in Europe, the leadership noted mid to high single-digit growth, strong demand signals, and positive order books, indicating a large addressable market with substantial potential for further expansion and revenue capture in the international segment.
- Tariff Uncertainty: The management assumed a specific tariff scenario (30% on China and 10% on other countries) that, if worsened, could further pressure gross margins and EPS due to higher cost impacts.
- Wholesale Channel Risks: Wholesale remains a channel the company does not control fully. Its growth is uncertain, and any slowdown or misalignment with order books could negatively impact overall revenue growth.
- Asia Underperformance: The Asia business is currently weak or flat with certain markets underperforming, requiring a significant reset (e.g., in China). This could delay growth and margin expansion in a region making up a substantial part of their business.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Organic Net Revenue Growth | FY 2025 | No specific percentage provided, but full‐year outlook remains unchanged | Increased expectations by one percentage point to 4.5% to 5.5% | no prior guidance |
Gross Margin | FY 2025 | Expected to increase by approximately 100 basis points | Expected to be up 80 basis points to prior year | lowered |
Adjusted SG&A Rate | FY 2025 | Expected to be around 50% | Expected to be around 50% | no change |
Adjusted EBIT Margin | FY 2025 | Expected to expand for the full year, though no specific percentage provided | Expected to be 70 to 90 basis points expansion with full‐year EBIT margin expectations at 11.4%–11.6% | no prior guidance |
EPS | FY 2025 | No specific full‐year EPS guidance provided | Raised by $0.05 to between $1.25 and $1.30 | no prior guidance |
Reported Net Revenue Growth | FY 2025 | no prior guidance | Increased by three percentage points, equating to 1% to 2% for the year | no prior guidance |
Organic Net Revenue Growth | Q3 2025 | Expected to be 3.5% to 4.5% | Expected to be up 4% to 5% | raised |
Gross Margin | Q3 2025 | Expected to increase by 80 to 100 basis points | Expected to be flat to up 30 basis points | lowered |
Adjusted EBIT Margin | Q3 2025 | Expected to be in the range of 5.5% to 6% | Expected to be in the range of 10.8% to 11.2% | raised |
Adjusted Diluted EPS | Q3 2025 | Expected to be approximately $0.11 to $0.13 | Expected to be in the range of $0.28 to $0.30 | raised |
Reported Net Revenue Growth | Q3 2025 | no prior guidance | Expected to be 3% to 4%, including a FX tailwind and a business exit headwind | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Brand Momentum & Consumer Demand | Consistently discussed in Q1 2025 ( ), Q4 2024 ( ), and Q3 2024 ( ) with emphasis on market leadership, youth engagement, and cultural relevance. | Q2 2025 emphasized strong brand momentum, broad‐based growth, product resonance, and effective cultural partnerships ( ). | The narrative remains uniformly positive across periods with a continued emphasis on consumer engagement and growth, reinforcing an optimistic long‑term brand outlook. |
Margin Expansion & Profitability Improvement | Addressed in Q1 2025 ( ), Q4 2024 ( ), and Q3 2024 ( ) – highlighting gross margin gains, EBIT margin improvements, and disciplined cost management initiatives. | Q2 2025 reported record gross margins, significant EBIT margin improvement, and effective cost management despite external pressures ( ). | Margin performance has been on an upward trajectory across all periods with consistently positive sentiment, indicating sustained profitability enhancements. |
DTC Growth vs Wholesale Channel Risks | In Q1 2025 ( ) and Q4 2024 ( ), strong DTC growth was noted while wholesale channels were approached with caution; Q3 2024 highlighted robust DTC performance with some wholesale challenges ( ). | Q2 2025 reiterated robust DTC growth with a 10% increase and maintained a cautious tone for wholesale channels ( ). | The focus remains on leveraging DTC strengths while acknowledging ongoing wholesale risks, with sentiment stable and execution strategies consistently emphasized. |
Tariff Uncertainty & Cost Pressures | Q1 2025 mentioned new tariff challenges and cost pressures with scenario planning ( ), and Q4 2024 briefly touched on tariff uncertainty ( ), while Q3 2024 contained little to no discussion on this topic. | Q2 2025 provided detailed assumptions on tariffs (30% on China, 10% elsewhere) and proactive mitigation measures reducing net impacts ( ). | There is a noticeable increase in emphasis on tariff uncertainties and cost pressures in early 2025 compared to the prior periods, indicating a heightened focus on navigating external cost challenges with proactive strategies. |
International Expansion & Regional Performance Variability | Q1 2025 ( ) and Q4 2024 ( ) described international growth in key markets, while Q3 2024 ( ) focused on performance variability, especially challenges in China and mixed results in Latin America. | Q2 2025 presented a comprehensive review across regions—Europe, Asia, LATAM, and the Americas—with strong growth in several markets and clear strategic emphasis on regional nuances ( ). | The global expansion theme remains steady with persistent optimism, though there is more granular regional analysis in Q2 2025, reflecting an adaptive strategy amid varied market performances. |
Supply Chain Resilience & Pricing Flexibility | In Q1 2025 ( ) emphasis was placed on global sourcing and agility, and Q3 2024 ( ) discussed preparedness for port strikes and operational disruptions; Q4 2024 had limited explicit discussion on these topics. | Q2 2025 highlighted enhanced supply chain efficiency through SKU rationalization, global assortment commonality, agile product tracking, and a tactical approach to minimal, targeted price increases ( ). | The focus on supply chain resilience remains consistent, with Q2 2025 expanding on initiatives and pricing flexibility measures, underscoring a proactive stance in operational and margin management. |
Macroeconomic Headwinds & Fixed Cost Structure Risks | Q1 2025 ( ) addressed tariff and cost challenges, Q4 2024 hinted at macro uncertainties ( ), and Q3 2024 ( ) mentioned issues in China and Mexico while emphasizing cost-efficiency projects. | Q2 2025 reiterated the challenging global environment with specific tariff-induced cost pressures and outlined mitigation strategies to manage a high fixed-cost base ( ). | There’s a heightened focus in 2025 compared to 2024, with a more detailed, proactive approach to macroeconomic headwinds and fixed cost risks, reflecting increasingly volatile external conditions. |
Strategic Transformation & Portfolio Rebalancing | Q1 2025 ( ) and Q4 2024 ( ) underscored transformation to a DTC-first model and portfolio streamlining, while Q3 2024 ( ) discussed evaluating and exiting non-core businesses. | Q2 2025 showcased an accelerated DTC transformation, with clear strategic shifts including exiting non-core businesses (Denizen, footwear) and a confirmed sale of Dockers ( ). | The strategic transformation remains a constant theme with a deepening focus in 2025; the ongoing portfolio rebalancing is consistently used to enhance brand focus and profitability, signaling long‑term growth ambitions. |
Rising SG&A & Distribution Costs | Q1 2025 ( ) and Q4 2024 ( ) reported rising SG&A driven by higher advertising, compensation, and distribution expenses; Q3 2024 ( ) also noted moderate increases tied to DTC and transitional costs. | Q2 2025 acknowledged rising SG&A costs and temporary distribution expense increases due to distribution center transitions, with mitigating sales leverage and anticipated efficiency gains in later periods ( ). | While rising costs persist as a recurring concern, the narrative across periods shows a disciplined approach to cost management, with current messaging being cautiously optimistic about normalization post transition. |
Divestitures & Non-Core Business Exits | Q1 2025 ( ) highlighted reclassification of Dockers and exit of Denizen/footwear; Q4 2024 ( ) provided detailed exit plans; Q3 2024 ( ) similarly discussed evaluations and strategic exits. | Q2 2025 confirmed the sale of Dockers along with reiterated exits of Denizen and footwear, reinforcing a clear focus on the core Levi's brand ( ). | The consistent portfolio streamlining across periods suggests a long‑term commitment to focusing on core strengths; current period messaging projects confidence and clarity in executing these exits. |
Cybersecurity & Operational Disruptions | Mentioned only in Q3 2024 ( ) with reference to a cybersecurity breach affecting Mexico wholesale and port strike preparations; no substantial discussion in Q1 or Q4 2024. | Q2 2025 did not mention cybersecurity or operational disruptions. | The topic has receded in current communications, suggesting either resolution of prior issues or a lower-significance perception in the current operating environment compared to the previous period where specific incidents were highlighted. |
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Gross Margins
Q: What drove improved gross margins?
A: Management emphasized a record 62.6% gross margin, boosted by higher full‐price sales, stricter SKU discipline, and a shift toward a higher-margin DTC mix—all contributing to a resilient margin profile despite tariff headwinds. -
Sales & Demand
Q: What underpinned strong sales growth?
A: The company delivered 9% organic net revenue growth with robust performances in DTC and wholesale, strengthening market share both domestically and internationally, reflecting solid brand momentum. -
Price Increases / AUR
Q: What is driving AUR improvements?
A: Targeted pricing actions and a focus on reducing promotions have led to healthier AURs, as the mix shifts to higher full-price sales without sacrificing volume. -
Guidance & SG&A Outlook
Q: How will SG&A and outlook evolve?
A: Management projects SG&A efficiency stabilizing around 50%, aided by new store openings, ERP upgrades, and operational streamlining, which supports their full-year guidance for improved earnings. -
Wholesale Channel Outlook
Q: What is the outlook for wholesale growth?
A: Wholesale is expected to remain flat to slightly positive, with low to mid single-digit organic growth supported by robust order books and strengthened partner relationships. -
Tariff Impact & Mitigation
Q: How are tariffs affecting earnings?
A: With assumed tariffs of 30% for China and 10% for other regions, the net margin headwind is kept to about 20 basis points through proactive cost mitigation and supply chain diversification. -
Europe Market Momentum
Q: How is the European market performing?
A: Europe is showing high single-digit to mid-single digit organic growth, driven by better DC performance and locally relevant product assortments, indicating significant medium-term upside. -
Brand Marketing Initiatives
Q: What new marketing activations are planned?
A: Collaborations with high-profile partners like Nike and Beyonce, along with impactful cultural activations, are reinforcing brand strength and driving consumer demand globally. -
Enhanced Loyalty Program
Q: What impact does loyalty have on the business?
A: Although detailed US contributions weren’t disclosed, management noted that a stronger loyalty program is leading to increased purchase frequency and higher spend among members. -
Operating Efficiency
Q: How are operating efficiencies improving?
A: Efforts to shorten go-to-market cycles, rationalize SKUs, and boost revenue per square foot in DTC operations are enhancing overall efficiency, laying a solid foundation for future growth.