Levi's Q3: Wholesale Up 6%, Tariff Refunds Drive Margins

Tariff refunds contributed 370 basis points of the 450-basis-point gross margin expansion Levi Strauss & Co. reported for Q3, propping up profitability in a quarter when net income fell nearly 23% to about $169 million.

The denim giant's overall net revenues rose 4% to $1.6 billion, the company reported Oct. 8, 2026. But the channel mix told a split story: wholesale rose 6%, with growth in all segments and particular strength in Europe and Asia, while direct-to-consumer net revenues rose just 2% year over year and comps were flat.

The DTC result coincided with the brand's first net revenue miss in two years, per Wells Fargo.

Why did DTC stall while wholesale grew?

Back-to-school traffic and demand came in weaker than expected, in part because Levi's over-emphasized loose fits at a moment when U.S. consumers turned to low-rise ones, CEO Michelle Gass told analysts Wednesday.

"The good news is the team got after it very quickly, and we sharpened our focus," Gass said. Loose styles remain "an important business" and "big volume driver," she added.

Europe's brutally hot summer also took a toll on DTC sales there.

"When the temperature started cooling and weather moderated, we saw the trends come back," Gass said. "In Europe right now, DTC quarter-to-date, the trends are very robust, very positive and robust. So you should feel good about that. The other thing worth mentioning in Europe is that we had an incredible wholesale business. So suffice it to say, like I said, the brand is very healthy there."

Distribution costs in the U.S. also remain higher than expected, Chief Financial Officer Harmit Singh said during the call. Research shows DTC margins often fall short of wholesale margins partly because of marketing costs — retail partners shoulder much of that expense in wholesale arrangements.

How is Levi's spending the tariff refunds?

The company took in about $80 million in tariff refunds in Q3 — almost all of what it expects, Singh said.

Levi's is plowing roughly three-quarters of that back into the business to fund "incremental marketing to drive demand, enhanced supply chain capabilities to improve competitiveness over time and sharper value for consumers during key holiday promotional moments," Singh said.

About $25 million was spent during Q3, and about $35 million is slated for Q4.

"Our view is, the tariff refunds were timely," Singh said.

Thanks in part to a concerted marketing effort, DTC sales are already recovering since the Q3 slump, per the company.

The roughly $35 million earmarked for Q4 signals where Levi's believes the DTC turnaround will be won or lost: the holiday promotional season.