李维斯 (LEVI) 2026财年第三季度业绩电话会：利润率扩张，DTC重置及更新后的业绩指引

核心要点

• 李维斯（Levi Strauss & Co.，NYSE: LEVI）公布2026财年第三季度按报告口径净营收增长4%，有机净营收增长5%。今年迄今有机营收增长7%。
• 毛利率扩大450个基点至66.2%。扣除再投资后的关税退款净贡献了370个基点；其余80个基点的提升反映了产品成本降低，但部分被外汇因素抵消。
• 全球直接面向消费者（DTC）业务营收增长2%，可比销售额持平，原因在于美国和欧洲客流量疲软抵消了电子商务的双位数增长以及亚洲和拉丁美洲的持续强劲表现。
• 全球批发业务营收增长6%，国际业务营收增长8%。亚洲连续第三个季度实现双位数增长，营收增长10%，其中中国市场增长13%。
• 管理层预计2026财年有机营收增长约6%，报告营收增长约7%，调整后稀释每股收益为1.54美元至1.56美元。
• 公司录得约8000万美元关税退款，并计划将其中的约四分之三再投资于市场营销、供应链能力及有针对性的假期促销活动。

核心财务数据

公司在第三季度收到了约8000万美元的关税退款，这代表了几乎所有预期的退款额。本季度已将约2500万美元进行再投资，第四季度计划再投资约3500万美元。

业务与运营表现

李维斯（Levi’s）品牌增长4%，男装和女装营收均录得中单位数增长。Levi’s牛仔下装以外的品类贡献了该季度约一半的营收增长。上装增长7%，主要由女装上装10%的增长带动。

管理层表示，市场对女装宽腿和低腰版型（包括Low Loose和Cinch Baggy）的需求保持强劲。在男装下装方面，成熟产品的更新版本（包括501 Loose和501 Relaxed）继续受到市场青睐。随着Levi’s拓展至羊绒、高端针织衫和日本赤耳牛仔等高单价产品，Blue Tab系列录得双位数增长。

全球DTC营收增长2%，但可比销售额持平。由于返校季营销表现不及管理层预期，且推广重点放在宽松版型上，而消费者兴趣转向低腰产品，导致美国客流走弱。在欧洲，异常温暖的天气导致客流减少，但管理层表示随着气温恢复正常，趋势有所改善。

电子商务录得又一个季度的双位数增长。Levi’s还在美国推出了AI购物助手；管理层表示，使用该工具的互动用户将商品添加至购物车的频率约为平均水平的三倍，不过该举措仍处于早期阶段。

批发业务营收增长6%，包括美国在内的各个板块均实现增长。管理层指出动销健康、平均单件零售价上升以及销量增长。欧洲批发业务2027年春夏预订量录得高单位数增长。

国际业务营收增长8%。在日本、印度、澳大利亚和中国的支持下，亚洲业务增长10%，其营业利润率扩大220个基点至14.2%。中国业务营收增长13%。拉丁美洲增长10%，欧洲在批发业务双位数增长的推动下增长5%。

在核心牛仔、外套、宽松剪裁以及孕妇装等新兴品类的支持下，Signature品牌营收增长13%。Beyond Yoga在两个渠道均增长9%。

李维斯任命John Vandemore为下一任CFO。在公司任职14年的Harmit Singh表示，这是他作为CFO最后一次出席财报电话会议。

管理层业绩指引

对于2026财年第四季度，管理层预计报告营收增长约3%，有机增长约4%，两者差异由外汇因素导致。毛利率预计约为61.8%，同比增长100个基点。

调整后EBIT利润率预计为11.4%至11.6%，调整后稀释每股收益预计为0.36美元至0.38美元。第四季度调整后SG&A预计将包含约3000万美元的关税退款再投资成本。

管理层预计全球DTC业务在第四季度将恢复至至少中单位数的增长，全年实现高单位数增长。公司还重申了其中长期经营模式，即营收实现中单位数增长、毛利率扩大以及向15%的营业利润率迈进，但未说明具体完成时间。

风险与关注领域

• 第三季度美国和欧洲的DTC客流不及预期。第四季度的改善取决于更强有力的营销、更高的转化率、充足的产品供应以及成功的假期活动执行。
• 管理层承认牛仔领域的竞争加剧，且市场促销力度加大，尤其是在重大节假日活动期间。
• 预计外汇因素将拖累第四季度报告营收增长约100个基点（相较于有机增长）。
• 由于过渡复杂性、并行运营以及火灾导致的干扰，美国分销网络改造成本高于预期。管理层预计效益将于2027年开始显现，但未提供具体时间表。
• 第三季度的盈利能力获得了来自关税退款的重大非经常性收益。公司正将退款的约四分之三进行再投资，因此在跨期比较时，底层利润率趋势至关重要。

分析师问答环节亮点

管理层将美国DTC放缓主要归因于返校季执行不佳，而非牛仔需求放缓。Levi’s已将营销和商品推广转向低腰产品，为更畅销的版型增加了库存，并报告第四季度初期美国DTC录得正增长。在天气状况恢复正常后，欧洲DTC也以中单位数的增速运行。

在利润率方面，管理层表示，2026财年约12.1%的调整后EBIT利润率应构成未来比较的基准。管理层预计部分偏高的营销和分销费用将在2027年有所缓和，如果营收实现中单位数增长，将有助于提升经营杠杆。

关于关税退款再投资，管理层将约6000万美元的资金分配描述为：约三分之一用于营销，三分之一用于分销与物流，三分之一用于促销活动。预计第四季度的支出将更加侧重于广告、营销和分销，促销活动将少于第三季度。

管理层表示，尽管各季度发货时间存在差异，但批发需求依然健康。预计第四季度批发业务增长将慢于第三季度，但公司将其归因于铺货和交货时间节点，而非需求放缓。

在Blue Tab系列方面，管理层强调Levi’s在高端牛仔领域的市场份额有限是一项长期机遇。该系列正在向价格大致在200美元至500美元之间的全身穿搭产品扩展，不过门店陈列仍在完善中。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Company Third Quarter Fiscal 2026 Earnings Conference Call for the period ending August 30, 2026. [Operator Instructions] This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. This conference call is being broadcast over the internet and a replay of the webcast will be accessible for one quarter on the company's website, levistrauss.com.

I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Co.

Aida Orphan

Thank you for joining us on the call today to discuss the results for our third quarter of fiscal 2020. Joining me on today's call are Michelle Gass, our President and CEO; and Harmit Singh, our Chief Financial and Growth Officer. .

We'd like to remind you that we will be making forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially.

These risks and uncertainties are detailed in our reports filed with the SEC. We assume no obligation to update any of these forward-looking statements. Additionally, during this call, we will discuss certain non-GAAP financial measures, which are not intended to be a substitute for our GAAP results.

Definitions of these measures and reconciliations to their most comparable GAAP measure are included in our earnings release available on the IR section of our website, investors.levistrauss.com. Please note that Michelle and Harmit will be referencing organic net revenues or constant currency numbers, unless otherwise noted, and information provided is based on continuing operations.

Finally, this call is being webcast on our IR website, and a replay of this call will be available on the website shortly. Today's call is scheduled for 1 hour. So please limit yourself to 1 question at a time to allow others to have their questions addressed.

And now I'd like to turn the call over to Michelle.

Michelle Gass

Welcome, everyone, and thank you for joining us. Over the past several years, we have transformed Levi Strauss & Co into a more diversified, higher growth company. We have sharpened our focus on the areas where we see the greatest opportunities to win, expanded internationally, build a more balanced DTC and wholesale model and evolve Levi's from a denim bottoms business into a leading global denim lifestyle company.

While we delivered strong results across much of the business, our DTC performance fell short of our expectations during the quarter. As we'll discuss on the call, we have a clear understanding of what worked and what did not, and we have already taken targeted actions to improve performance.

Before I turn to our Q3 results, I'd like to take a moment to speak to the CFO appointment we announced last week. I'm delighted to share that we have named [ John Vandemore ] as the company's next CFO. John brings more than 2 decades of financial leadership experience across global consumer businesses, most recently serving as CFO of SKETCHERS where he helped support its growth into one of the world's largest footwear brands.

He is a proven operator with deep financial expertise, a track record of driving profitable growth and margin expansion and strongly aligns with our strategy, brand and culture. I also want to take this opportunity to thank Harmit for his leadership and dedication over the past 14 years.

He has played an important role in transforming [ Ellison Co ] into a more direct-to-consumer diversified and profitable company. Harmit has been a trusted partner to me and to our leadership team, and I'm grateful for his many contributions to the company.

Now turning to Q3. As a reminder, all numbers Harmit and I will reference are on an organic basis. The quarter again demonstrated the benefits of our diversified portfolio and reinforce our confidence that we have the right strategies in place to drive sustainable, long-term profitable growth.

We delivered another quarter of mid-single-digit growth, up 5% on an organic basis, and year-to-date, our business was up 7% versus the prior year. Our international business grew 8% this quarter, led by Asia, which has been a consistent source of strength throughout the year and delivered another quarter of double-digit growth, while profitability continues to improve as the business scales.

Global Wholesale continued its strong momentum, up 6% with growth across all segments. And our strategy to expand beyond denim continues to deliver results. Categories outside our Levi's denim bottoms business accounted for approximately 50% of our top line growth in the quarter, driven in part by accelerating momentum in tops, which grew 7%.

That said, DTC performance in the quarter fell short of our expectations, driven primarily by softer traffic trends in both the U.S. and Europe. In Europe, unseasonably warm weather across several key markets weighed on traffic for much of the quarter.

As temperatures normalized, traffic and sales trends improved meaningfully and those improvements continued into Q4 quarter to date. In the U.S., while our marketing continued to generate strong consumer engagement and reinforce brand heat, we had fewer major brand building moments than a year ago.

In addition, our back-to-school campaign did not drive the level of traffic and demand we had anticipated. Importantly, we moved quickly to address these U.S. traffic challenges and have a clear plan to improve performance. We are increasing investment behind areas of strong consumer demand, particularly low-rise fits and strengthening inventory positions accordingly.

We are deepening our marketing investments, creating a stronger cadence of traffic-driving moments and placing greater emphasis on mid-funnel product marketing. We are strengthening commercial execution across our stores and digital channels with a sharpened focus on conversion and other key productivity metrics.

Since implementing these actions, we have seen positive trends in our U.S. direct-to-consumer business. Combined with the continued improvement in Europe, this gives us confidence that DTC will return to at least mid-single-digit growth in the fourth quarter and deliver high single-digit growth for the full year.

To support these efforts and fuel growth, we are redeploying a substantial majority of the tariff refunds we recorded in the third quarter back into the business across both Q3 and Q4. In addition to increased marketing investments, we are putting those funds to work behind shopper value for consumers during key holiday promotional moments and enhanced supply chain capabilities to strengthen our competitive position and support sustainable long-term growth.

I'll now walk you through the highlights from the quarter in the context of our strategies. Starting with our first strategy to be brand-led. In Q3, we continued to reinforce Levi's position at the center of culture through impactful campaigns, premium experiences and iconic brand moments around the world.

A recent example of this was our partnership with one of our top European wholesale accounts, Zolando, for its fall/winter campaign that featured Lilly Collins in head-to-toe Levi's and showcase the breadth of our denim lifestyle offering across Europe.

In our debut at Paris Couture week was another milestone in the elevation of the brand, bringing Levi's to one of Fashion's most influential and prestigious global stages. Looking ahead, we have a consistent drumbeat of brand activations and marketing moments planned through year-end with high-impact partnerships, including [indiscernible] and we are amplifying our strongest product franchises such as loose, low rise and super low through increased marketing support and compelling product storytelling.

For the holidays, we are as prepared as we've ever been with our most robust activation plan in years. from breakthrough brand moments and experiential pop-up to elevate store experiences, personalized styling and curated gifting assortment, we are creating new ways for consumers to engage with Levi's throughout the holiday season.

Combined with strong product newness and focused commercial execution, these efforts are designed to drive traffic, improved conversion and deepen consumer connection with the Levi's brand. Now turning to product. The Levi's brand grew 4% with both men's and women's growing mid-single digits. While DTC pressure was most pronounced in our women's bottoms business, we have moved quickly to increase support behind winning trends and strengthen execution.

[ Incurringly, ] the DTC Women's business accelerated in September, and we expect our total women's business to be up high single digits in Q4. In men's bottoms newer iterations of our icons, including the 501 loose and 501 relax continue to gain traction, demonstrating our ability to drive growth from both heritage and innovation.

In women's, we saw strong demand for wider leg silhouettes and the low-rise trend continued to fuel growth with our low loose and newer platforms like the Sinch baggy delivering standout performance.

These strong performing franchises give us confidence in our ability to further scale proven fit and drive future growth. Importantly, growth in the quarter was balanced across both our core denim business and our expanding lifestyle assortments. Categories beyond bottoms contributed roughly half of our growth in the quarter, expanding our addressable market and building Levi's into a true denim lifestyle company.

Tops delivered a solid quarter of growth, led by women's tops, which increased 10%. Growth was broad-based across the assortment with strong momentum in blouses, [indiscernible] sweaters, outerwear and tees. Blue Tab continues to exceed our expectations, delivering strong double-digit growth with broad-based strength across both men's and women's.

As we expand the assortment into more elevated products, including Cashmere and premium netwear, Blue Tab is extending the brand into higher price points, attracting new consumers and further premiumizing the Levi's brand in the marketplace.

Entering our fourth quarter, we are confident in our holiday assortment and the continued opportunity to build on the momentum we're seeing across our lifestyle categories. sweaters will be a key focus, complemented by fresh denim innovation across both men's and women's.

Taken together, we are entering the holiday season with a stronger assortment, exciting newness across both lifestyle categories and denim and a compelling offering for consumers around the world. Now shifting to our next strategy to be DTC first.

Our global direct-to-consumer business grew 2% in the quarter, with comp sales flat to last year, driven by the softer traffic in the U.S. and Europe, as I mentioned earlier. Importantly, both businesses have returned to positive trends in recent weeks.

Our DTC businesses in Latin America and Asia continued to deliver exceptional momentum. Latin America delivered broad-based growth across key markets. While in Asia, our DTC business achieved its seventh consecutive quarter of double-digit growth, driven by strong comp sales.

Both Asia and Latin America remain underpenetrated from a DTC perspective relative to the company average, providing a significant runway for continued growth. Our e-commerce channel delivered another quarter of double-digit growth. We continue to upgrade levi.com and recently improved the site with richer storytelling more dynamic videos and inspirational styling content.

In the U.S., we launched our AI shopping assistant, which provides styling advice, helping consumers discover new styles and build complete outfits. While still early, we're seeing fans to engage with the tool adding to bag at roughly 3x our average rate.

These efforts are part of our broader journey to build an entirely new digital flagship experience including a complete redesign and platform migration of levi.com. We are making great progress, and both efforts remain on track for a global launch next year. Once complete, levi.com will offer personalized experiences dynamic outfit recommendations, immersive fit navigation and other unique capabilities that will convert more consumers into head-to-toe lifestyle shoppers.

We're seeing positive momentum in the business and continue to accept our DTC channel to grow at a high single-digit rate for the full year, including mid-single-digit growth in the fourth quarter. Global wholesale remained a source of strength in the quarter, increasing 6%, reflecting broad-based growth across segments, including in the U.S. The continued momentum reflects the health of our brand with key partners in improving sell-through trends.

Importantly, we are seeing strength across a broader range of categories beyond denim, reflecting increasing confidence from wholesale partners in the breadth of the Levi's offering. The consistent performance we have seen in wholesale throughout the year reinforces our conviction in our DTC first but not DTC-only strategy and demonstrates the complementary nature of our channels, allowing us to meet consumers wherever they choose to shop.

Now turning to our third strategy, powering the portfolio. This quarter, our international business grew 8%, led by Asia. The momentum in the region was further supported by our breakthrough partnership with Rose and a series of pop-up experiences in Bangkok, Tokyo, Shanghai and Seoul. The consumer response was extraordinary. And together, these activations generated more than 3 billion impressions and approximately $45 million in earned media value.

We are also encouraged by the progress we're seeing in China, up 13%, where we continue to strengthen the brand and enhance execution. While still early, we believe China represents one of the most significant long-term growth opportunities within our portfolio, and we are increasingly confident in our ability to unlock that potential over time. Signature plays an important role in our portfolio by extending the reach of the Levi's brand. Signature grew 13% in the quarter, driven by strength in both core denim and our expanding lifestyle assortment.

Denim tops in outerwear, looser silhouettes and new categories like maternity all contributed to the brand's strong performance. Beyond Yoga was up 9%, driven by growth across both channels. Glow Zone, our new performance collection, which launched in July, is generating positive early results and supports our strategy of expanding Beyond Yoga into more occasions like higher intensity workout activities.

As we approach closing out the year, we are more confident than ever in the long term. Over the last 3 years, we have built a larger, more diversified and more profitable Levi stress and Co. adding nearly $1 billion in revenue, significant margin expansion and stronger earnings while significantly strengthening our cash generation.

With this strong foundation, we see meaningful opportunities to drive sustainable top and bottom line growth across our channels and markets as we further build our position as the leading global denim lifestyle company.

And with that, I'll turn it over to Harmit. Harmit?

Harmit Singh

Thank you, Michelle. Before we get into the quarter, I'd like to start by welcoming and congratulating John as the company's next CFO. John's deep financial expertise and strong track record, combined with the financial and growth foundation we have built as a world-class finance team give me confidence that the company is well positioned to deliver sustainable, profitable growth.

While the third quarter had the challenges, our teams responded quickly. As Michelle mentioned, we saw improving trends emerge in September particularly in DTC and women, which gives us confidence in the actions underway and our updated outlook. We entered the final quarter of the year with improving momentum strong financial discipline and a clear focus on execution.

Before I turn to the results, I want to address the impact of tariff refunds, which creates some unique dynamics in quarter 3 and Q4 results. During the third quarter, we recorded approximately $80 million of tariff refunds reflecting substantially all the refunds we expect to receive.

We are redeploying roughly 3/4 of the benefit back into the business to support future growth. These investments are expected to be split approximately 60-40 between SG&A and COGS and a focus on the falling 3 areas. Incremental marketing to drive demand, enhanced supply chain capabilities to improve competitiveness over time and sharper value for consumers during key holiday promotional moments.

Approximately $25 million of these investments were redeployed during the third quarter with approximately $35 million expected to be invested in the fourth quarter. We believe this is the right approach. It allows us to strengthen the business support our near-term momentum and still deliver on our annual growth algorithm.

With that context, let me turn to our third quarter results. Overall, we delivered mid-single-digit revenue growth with net revenues up 4% on a reported basis and 5% on an organic basis. Gross margin expanded 450 basis points to 66.2%. The benefit from tariff refunds, net are deployments contributed 370 basis points to gross margin.

Excluding that benefit, the remaining nontariff-related gross margin expansion of 80 basis points was driven by lower product costs, partially offset by foreign exchange. Adjusted SG&A as a percentage of net revenues was 50.8%, which included approximately $6 million or 40 basis points of tariff benefit redeployment.

Excluding that redeployment, adjusted SG&A increased 50 basis points versus the prior year, driven by higher distribution costs and deleverage from softer DTC revenue growth. Distribution costs were higher than we expected this quarter and the part to realizing the full benefits of our network transformation has taken longer than we anticipated, reflecting both the complexity of the transition and a fire-related incident that impacted operations.

That said, we are making progress. We closed our Hebron distribution center at the end of the third quarter and expect to begin realizing benefits from the closure in '27. In Europe, where our distribution center transformation is complete, we are already seeing distribution cost leverage year-to-date.

As we continue to scale and optimize the network, we expect service efficiency and productivity benefits to build over time. Adjusted EBIT margin was 15.5% the tariff refund benefit net of redeployment contributed 330 basis points to adjusted EBIT margin. The remaining nontariff-related EBIT margin expansion of 40 basis points was largely driven by accelerating margins in Asia and growth in wholesale.

This is a good example of the part of the end in our model. Even in a dynamic environment, the strength of our diversified business help us deliver both growth and margin expansion. Adjusted diluted EPS was $0.48, which included $0.11 benefit from tariff refunds net of redeployment. Excluding this benefit, the remaining 9% growth versus Q3 '25 was driven by EBIT margin expansion and share buybacks.

Moving to the balance sheet. We ended the quarter with inventory down 3% reflecting continued progress in improving the health and productivity of our inventory while maintaining the flexibility to support growth opportunities.

We continue to strengthen the life cycle management of our inventory and expect to exit the year with inventory levels in line with our expected sales growth. Turning to shareholder returns. We returned $62 million to shareholders in the form of dividends during the quarter, representing 11% increase versus last year.

In addition, given our strong cash position and confidence in the business outlook, we intend to repurchase an additional $100 million of shares through an accelerated share repurchase program. Now let's review the key highlights by segment.

In the Americas, net revenues grew 2%. LATAM delivered another strong quarter with revenues up 10%, fueled by strength across channels and growth in every market in the region. Operating margin expanded 640 basis points to 29.9%, primarily due to the benefit of the tariff refund net to redeployment.

And in quarter 4, we expect the U.S. to return to growth driven by improving DTC trends. Europe net revenues grew 5%. Similar to the performance we saw in the first half of the year driven by double-digit growth in wholesale. We saw strength in key markets, including the U.K., Germany and Italy as well as growth across categories.

Operating margin increased 150 basis points to 22.8%, driven by gross margin strength as warmer weather moderated DTC performance improved. And looking ahead, wholesale pre-bookings for spring/summer '27 are up high single digits, giving us confidence in the continued momentum of the business.

Asia net revenues delivered its third consecutive quarter of double-digit growth, up 10%, fueled by strength across channels, categories in key markets, including Japan, India, Australia and China. Strong gross margin expansion drove operating margin leverage of 220 basis points to 14.2%. Year-to-date, Asia EBIT margin is up 240 basis points to 16.7% underscoring the improving margin profile of the segment and its growing contribution to overall company profitability.

That sustained momentum gives us confidence to continue investing behind the segment with many of our nearly 60 net new system stores planned for Asia in the fourth quarter. Now turning to guidance. Our updated outlook reflects both the benefit of the tariff refund and our decision to redeploy a significant portion of that benefit back into the business.

We believe this balanced approach strengthens our competitive position supports near-term growth and keeps us on track to deliver our annual algorithm of mid-single-digit revenue growth with a clear part to 15% operating margins over time. Importantly, recent trends reinforce our confidence in the fourth quarter.

We are seeing improved momentum in DTC and women's including positive growth in U.S. DTC, and we are increasing marketing support and investment behind winning products as we prepare for the holiday season. Overall, we are confident in our ability to lap this year's strong results, inclusive of the net tariff benefit as we set the business up for 2027.

For the full year, we now expect reported net revenues growth to be approximately 7% versus our previous outlook of 7% to 7.5%, driven by the stronger U.S. dollar and we expect organic net revenues to be a little stronger at approximately 6%, which is at the high end of our previous expectations.

We now expect gross margin of approximately 63% for the full year including approximately 80 basis points of net tariff refund benefit. Excluding this, gross margin is higher than our previous outlook, driven by the benefit of the lower tariff rate and lower product costs.

We now expect adjusted SG&A as a percentage of revenue to be approximately 51% compared with the prior outlook of 49.7% to 49.9%. This includes approximately 50 basis points of redeployment of the tariff refund benefit. Accordingly, we now expect adjusted EBIT margin to be slightly above the previous guidance at approximately 12.1%.

This includes approximately 30 basis points of net tariff refund benefit. Excluding the net tariff refund benefit, adjusted EBIT margin would be up 40 basis points versus the prior year. We now expect adjusted diluted earnings per share to be in the range of $1.54 to $1.56 for the full year, including a $0.04 net tariff refund benefit.

For the fourth quarter, we expect reported net revenues to be approximately 3% and organic net revenues to be approximately 4%, with the difference reflecting the impact of foreign exchange. We expect gross margin of approximately 61.8%, up 100 basis points versus prior year, including $3 million or another 10 basis points of net tariff refund real deployment costs.

Adjusted SG&A for the fourth quarter includes approximately $30 million of tariff refund redeployment costs. And as a result, we expect adjusted EBIT margin of approximately 11.4% to 11.6% for the quarter, which includes 180 basis points of net debt of refund redeployment costs. This translates to adjusted diluted EPS of approximately $0.36 to $0.38, including $0.07 of net tariff refund redeployment.

While the third quarter highlighted a few areas of opportunity, the team responded with agility and urgency and the actions we have taken are already beginning to show results. Even more importantly, the quarter also reinforced the power of our strategy and the benefits of our increasingly diversified business model.

As I conclude, I want to say thank you to our employees, our fans, Michelle and the executive team, our Board, our shareholders, including the Levi's family and the buy side and the sell side analysts who follow us.

Thank you for your support, your trust and your partnership throughout my tenure. Over the past 14 years, I've had the privilege of being part of one of the most significant chapters in the company's history. Together, we strengthened the business returned the company to the public market, build a more diversified portfolio across channels, geographies and categories and significantly strengthen our balance sheet and financial foundation.

But what I'm most proud of is that as the business has grown, so have our people, especially my world-class finance growth and transformation team, I'm deeply grateful to have been part of the journey and to have grown as a leader alongside so many of my talented colleagues.

As I look ahead, I wish Michelle, John and the entire company, my very best. I'm honored to say that this is my 56th and final earnings call at the company and my 67 as the CFO. And with that, operator, let's open the line for questions.

Operator

[Operator Instructions] Our first question comes from the line of Laurent Vasilescu of BNP Pariba.

分析师问答

Laurent Vasilescu

Michelle, Harmit, I wanted to ask about your DTC trends in the U.S. I know, Michelle, you provided some color there about traffic trends. But could you maybe just unpack a little bit more what drove the underperformance in the third quarter?

Like how did the quarter progress by month? And then separately, Rami, I think you mentioned that global DTC should grow mid-single digits in the fourth quarter, which is very encouraging.

But should the U.S. and Europe both grow mid-single digits? And then I think you also mentioned that you've seen positive trends in the recent weeks. But is that a comment in line with the fourth quarter commentary of mid-single digits?

Michelle Gass

Thanks, Laurent for the question. And I'll just take the whole 1 because it's all connected. So kind of back to what happened U.S. DTC, and I mentioned it in my remarks, I'll add a little more color. So basically, well, first, I will say, the Levi's brand remains very strong, very healthy around the world, including in the U.S.

And I know we spoke to what really drove the growth, whether that was global wholesale, up 6%. And really strong growth international, up 8%, e-commerce double-digit, et cetera. And it's worth mentioning in the U.S. that U.S. wholesale was also positive.

So we really can isolate the DTC issue to Europe and the U.S. In Europe, it was very clear. This was a weather-related issue. I mean I think it's no secret that it was very warm and it impacted footfall for the industry, really. And so that impacted our business despite -- we had -- we had lots of great summer offerings, but the weather was at another level.

When the temperature started cooling and weather moderated, weather moderated, we saw the trends come back. And so as we are in Europe right now, D2C, quarter-to-date, the trends are very robust. They're 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. In the U.S., I'll say it again, brand is healthy. This really had to do with kind of a tactical move around back-to-school and how we showed up for that period. And we would say that our back-to-school campaign underdelivered our expectations.

And then more specifically, our campaign was all around loose. Loose is still an important business. It's a big volume driver for us, but the market in the U.S. had really shifted to talk about low rise was a lot of energy and a lot of competitiveness, frankly, around that.

When we saw that softening sort of July and August, the good news is the team got after it very quickly, and we sharpened our focus. We have the benefit of the tariff refunds as we remarked earlier, we're reinvesting that back into demand generation into marketing and into the consumer.

And we pivoted into -- we pivoted into low and so we're able to do that quite quickly. And so we are already seeing the benefit. So that started sort of very tail end of Q3, but more importantly, into Q4 into September and we're seeing the results.

So to your question on what's happening in the U.S., the U.S. DTC is now back to positive. Overall, DTC is tracking right now quarter-to-date mid-single digits, we expected, let's say, to be mid-single digits for the quarter. And then to end the year in what we've been performing at sort of that high single digit.

So we feel very good. I mean it's been a 360 approach across marketing, bid funnel marketing, new funnel demand generation, in-store execution, et cetera. And so yes, so like I said, I feel that gives us the confidence to share these numbers that we're talking about for the quarter ahead.

I'd also say, as it relates to the U.S. consumer, the category is still strong, and we continue to gain market share with men and women hold that #1 position between men, women and youth. So I feel like we've addressed it.

Operator

Our next question comes from the line of Matthew Boss of JPMorgan.

Matthew Boss

Congrats on your next chapter, Harmit. So Michelle, maybe if we took a step back, can you speak to the health of the denim category? Has anything changed other than this intra-category trend change that you cited -- and can you elaborate on September, maybe relative to that 4Q outlook for 4% organic revenue growth.

And Harmit, just any operating margin considerations for next year for us to think about relative to the annual margin expansion algorithm that you would see at mid-single-digit revenues?

Harmit Singh

Sure, So, you want to go first? .

Michelle Gass

Yes. Yes, I'll start. So thanks for the question, Matt. So I would say that the denim category remains healthy, robust and it's attractive, right? You see lots of companies either if they're in denim, being more assertive and competitive or even in some cases, new entrants into the category.

So there's a lot of energy in denim. I'd say is the category leader by a mile, like this is good for us, but also as we get to continue to lead, lead with innovation, lead with its et cetera, et cetera. And so from that standpoint, while I alluded to that, in hindsight, we would have done, we would have approached back-to-school differently knowing what we know today.

But we've learned and importantly, when you learn, you pivot, you're agile and the team moved and we're already seeing I'll get to that in a minute. But as it relates to our relative position, in man, and I'm speaking to the U.S. now. Number one continues in men's, and we actually gained share and further widened our lead, I guess, the #2 player. Women's. We've been solidly #1, again, strengthened our position there, use.

Even despite the level of competition, we've maintained our #1 position. And I think importantly, we have a segmented strategy. So we have Red Tab. We've got signature and then we've got Blue Tab, and we are gaining market share in that $100 plus segment. And as I mentioned on the call, our Blue Tab business, while small, is growing double digits, we think that's going to be a meaningful growth driver in the future.

And the end of this is while leading in denim categories still growing, we are, as you know, Matt, expanding beyond denim. And so our head-to-toe denim lifestyle strategy is working. Half of our growth, so of our 5% organic growth, half was driven by categories like top outside of denim bottoms, tops accelerated this quarter with a robust 7% growth.

So I think all in, we're feeling good about the category, but we're very present to the fact that the competitive nature has intensified, hence, really taking some of that tariff refund money and deploying it back into driving demand and marketing so that we can make sure that we can break through.

Harmit Singh

And Matt, to your question about the annual growth algorithm. We had a big discussion and debate around this especially given that the tariff refunds are incorporated in the results. And that's why we talked about the reported results and the underlying results.

Overall, our view is that the annual growth algorithm is intact, which is really a mid-single-digit growth company with growth in gross margins and growth in EBIT margins. So let me give you a little bit more color. The organic revenue guidance for the year, we have taken up to the high end of our range. And that's largely driven by wholesale being stronger.

So wholesale I think last quarter, we said globally would be low to mid. We are now saying mid-single digit. And that is really -- I think all of you have asked us, why don't you grow wholesale, but this is the second year we're growing wholesale globally, and it's profitable.

Asia, which was underlevered because it wasn't growing and the margins were lower. Also we have up to low double digits, and that helps operating margin. We end the year at about 12.1% EBIT margins all in and which is 70 basis points versus a year ago.

And all of you do a great job dissecting what is tariff and what is not. Our view is, all in, 12.1, we will lap that going forward. So that's our new base. And so that's how we are thinking about it. So the way to think about it is we end the year on a reported number, we lap that for next year and then build the annual algorithm on it.

Now how are we going to lap it? There are expenses that we are undertaking to drive the future growth of the business that won't repeat in 2027. So if you do advertising as an example as a percentage of sale, it will be higher this year than the 7%, but we don't have to spend at this pace next year.

As an example, distribution we have talked about, we are making the strategic transformation but -- and it was a little expensive because we're running 2 panels and distribution centers.

It won't be at that pace next year. That's why our view is that we can continue to grow margins and obviously top line. Hope that helps you, Matt.

Operator

Our next question comes from the line of Jay Sole of UBS.

Jay Sole

Great. I want to follow up on the last question. You talked about -- you gave us great color on the DTC channel trends for the U.S. and Europe. But does the wholesale business sell-through trends in the U.S. and Europe look like the DTC trend, Harmit, I think you mentioned that the European prebooks for next spring are up high single digits.

Can you just give us a little bit of context for how the sell-through is running in wholesale in the U.S. and EU and how that's impacting the order books in next year, that would be helpful.

Harmit Singh

So Jay, I was wondering if you or somebody else will ask a question on wholesale. As I mentioned, channel has done globally performed really well. and it's what I call the power of the end, it's DTC and wholesale, which is important.

Now you know wholesale does ebb and flow every quarter largely because you sell in, you set floors, timing is different by customer. But overall, wholesale has been performing well globally, including in the U.S., it's profitable, which is really good and it's across all categories.

I mean, women's is performing well. Men's is performing well. AURs are up, and so is unit. So overall, we are pleased with the performance. I mean, looking ahead, and your question -- specific question, Jay, on sell-through. The sell-through is fairly good. We've seen good sell-through trends. It's healthy the prebooks are strong.

We get data on prebooks in Europe to be reflected that. I think quarter-over-quarter, especially in the U.S. is they ebb and flow. So wholesale in quarter 4 will be a little weaker than the wholesale you saw in quarter 3 in terms of growth year-over-year but it is not because of weakening demand.

I mean -- and let me just assure you, it just -- when float sets are set when a product goes to the customer, but generally speaking, we are seeing a healthy demand from our retailers across the world.

Jay Sole

Got it. Okay. Super helpful. Harmit, congratulations again and best of luck.

Harmit Singh

Thank you, Jay.

Operator

Our next question comes from the line of Dana Telsey Advisory Group.

Dana Telsey

Harmit, best of walking your next chapter. Michelle, I think you mentioned some events in back-to-school not impactful enough -- how do you -- what's your assessment? And what's changing for holiday? Is it the marketing? Anything with product? You mentioned low rise and also, you mentioned that the competitive environment intensified in price, did it intensify in price and style? Or what are you seeing in the competitive environment?

And just lastly, as you look out to 2027, I think last year was the year of music, this year was the year of sports. How do you think of next year in terms of apical?

Michelle Gass

Yes. All very good questions,. Thank you for that. Yes. So let me add this a little bit more. And I will tell you the teams here, as we saw the issues unfolding, they were all over it. I'd say just both here in the U.S. and globally, the consumer moves fast.

And so we've got to just continue to be on top of it. And by and large, we are I'd say, but there are going to be moments like this. If you aren't quite there with the consumer, then you have an opportunity to react. And that is, frankly, the benefit of also getting all this data real time in your own channels.

So that you can impact not only DTC more broadly. But as I've been talking about, as we took a step back, we felt like our campaign in this period of time was not as impactful as it could have been. And you see that in the numbers.

Our traffic was soft. And so rather than continue to go in that same direction, we pivoted. And our diagnostics would say that at a time when, hey, the loose business, and to be clear, it's still a very big business and it's growing, but there was just a lot of energy and excitement, whether that was online, off-line around the ride getting lower.

And we have plenty of it. It just wasn't our leading message. So when the team understood that, they then quickly moved to pivot into low rise. And what that meant in practice was reshooting the campaign, getting that in stores, remerchandising the store.

We have a whole group of content creators in social media. We have let them loose. So all of that is happening as we speak. So we really put this in place right as we started September. So that was for women. And then for men, and then has been a pretty steady performer but also took the opportunity.

It's a big business for us to also reenergize the men's business. And we did that around our icons. 501, one of the top sellers right now is 501 loose, so that baggy for men idea. And one of our influencers that also has worked well for us in the U.S. has been Shaboozey with his Star Power has only grown over the last year. So we're leaning into a Shaboozey partnership with men.

We're really going after this low rise through digital, social, in-store demand generation, like I mentioned. And then chase more products. So leveraging our supply chain to make sure we have the inventory. And as I said, the indications are good.

The U.S. trends in DTC quarter-to-date are positive DTC globally overall is running mid-single digit, and we expect that to at least carry into the full quarter to be mid-single digit around the world.

Similarly, in Europe. Europe is back to mid-single digit given its pivot out of this very warm weather. And then to your point on holiday, really excited about what's ahead. Being a DTC player now, it will feel very holiday. So we'll lean into the classic denim innovation, but we're also going to take a big position in tops, in sweaters, we have a lot of innovation coming, fantastic store merchandising, some really innovative creative that you'll see soon.

So our intent is to win the holiday, and I'm confident we will. And then you asked about what does this mean going forward? I mean we are upping our marketing game. Again, the tariff refunds allow us to redeploy right into investing in the consumer and telling our story.

We expect that to be a tailwind as we start the next year. And then specifically, what's the big idea for next year? I'm not at liberty to share that with you yet. But I'd say we're taking all of our learnings over the last 2 years to make sure that we are showing up in an innovative and compelling way for our fans around the world.

Operator

Our next question comes from the line of Rick Patel of Raymond James.

Rakesh Patel

Congrats on a remarkable career as well. Then a follow-up on the earlier margin question. So you're redeploying tariff refunds into marketing, supply chain and sharper value for the consumers -- is it safe to assume these factors are not limited to the back half of this year and they'll continue through the first half of next year as well.

I appreciate your long-term algos for mid-single-digit revenue growth. But if these investments to continue, what's the minimum growth that you would need to see in order to achieve operating leverage going forward?

Harmit Singh

Yes. I mean, Rick, obviously, this is not about guiding next year. I'm going to leave that to Michelle and John and the team but our view is tariff refunds were timely. The business, as Michelle mentioned, soften, especially on DTC and women's and we acted with agility and speed and utilize that largely against driving more focused marketing with a real product awareness accelerate our product offer, especially things that are working and promotional, we didn't take prices down.

Some retailers have. We took it up. But that's not something we decided to do because we do provide good price value. But we said let's promote because markets got a little promotional, especially during holiday events, let's promote so we're competitive.

And so our view is it's not something that -- the expenses, incremental expenses don't sustain into 2027. And so our view is a mid-single-digit growth does allow us to leverage to the P&L, and you'll see that flow through to EBIT. We're not running away and Michelle is completely supportive of this.

And so is the executive team, we do want to get to 15% operating margins. And if you take the last 3 or 4 years, in '23, I think our operating margins in the 9 will end this year over 12. And so we are on that path in the journey. I hope that answers your question.

I can't be more specific, Rick, unfortunately, because we haven't yet completed our financial plan and John and Michelle would be the best to lay it out for you next year -- early next year.

Operator

Our next question comes from the line of Bob Drbul of BTIG.

Robert Drbul

Harmit, 56 quarters. It's a lot of quarters.

Harmit Singh

I'm not going to ask you, Bob, how many quarters you've covered, but as a CFO, thank you for that.

Robert Drbul

I guess the first question really for Michelle is when you think about Blue Tab, I think double-digit growth, like what have been your learnings thus far with that initiative -- and I guess sort of similarly, when you think about the brand heat, I would be interested in hearing sort of any of the successes you've had with collabs and sort of what we should be looking for in the next few months in this holiday season around collabs that you're really excited about?

Michelle Gass

Yes, you bet. Thanks, Bob. No, thanks for asking about Blue Tab. It's something we all have a lot of passion and belief for that this could be a real opportunity for us. As the denim leader, we have like less than a 1% market share of the super premium gene category and that should at least be commensurate with our market share overall.

So you can do the math and see the opportunity and we -- because we have this leadership, we do have all of this innovation and knowledge about denim and the best denim. So for Blue Tab data learnings, number one is it is always anchored, of course, in denim authority and denim leadership.

So when we use denim in our Blue tab, it will be that amazing Japanese salvage denim. I think the insight we have today versus when we've sold in the past, like denim bottoms of Japanese denim is that this white blue tab is this can be an entire category, head to toe, not only like what we're doing for Red Tab so we can use the beautiful Japanese denim in bottoms, in jackets, in dresses and skirts.

And if you actually see online, you'll see representation of all of those products but we can also extend into tops categories, but they need to feel different than our core Red Tab. So I think I said in my remarks that we're getting into really elevated fabrics like cashmere like silk very premium blazers, denim trousers.

So you can imagine this whole lifestyle presentation. And so it's going to be a big opportunity for us. One of our biggest insights is that is -- and we're still working process as how to merchandise it in the store. And you can see a mixed approach in our stores today of some outstanding merchandising.

Harduko in Japan, as an example, to where we're still experimenting. But we will figure this out because it's such an incredible opportunity with price points ranging from $200 to $500. As it relates to collaborations, also a great way to elevate the brand. Right now, we just launched the Sakai collaboration. You can actually see that on our site, although it's selling quickly.

But that's a great example of us connecting with the highest levels of couture type of thing. We have a few more in the pipeline that we have not talked about yet, but I think what you can expect from us in a recipe that has worked is a real balance between what I'd call more commercially-oriented class to ones that have this very high-end Sakai.

We did Valentino a couple of years ago, me a few years ago, sort of that. And the good news is, given the brand heat today, people are knocking on our doors. So we've already got the pipeline and the calendar for next year, I would say there's some really good ones in there.

You'll be hearing about that. I actually just got the Sakai jacket myself yesterday, but it is selling out. So for those who are interested, you better get after it. And then I think the other piece on brand heat, one of our real exciting moment that's happening today is happening in Asia.

So we did a global campaign with Rose, launched at the Super Bowl, she was part of our behind every original, that has now manifested as a partnership in Asia, a collaboration. We're doing pop-ups -- when you see these pop-ups happening, there are literally thousands of people in line to see Rose.

And it has been a tailwind to how we're getting the overall results of, like I said, Asia, overall 10%; China, up 13%. And our women's business in Asia is even higher than that, all driven by this Rose momentum. So stay tuned, lots to come.

Robert Drbul

And Harmit, again, best of luck. Thanks for everything.

Operator

Our next question comes from the line of Kendall Toscano of Bank of America.

Kendall Toscano

And Harmit, congrats on the retirement. Just wanted to ask about the -- well, you talked about greater-than-expected complexity in the U.S. distribution network transition in the U.S. And -- just curious how should we think about this in light of what was supposed to be an immediate $5 million in cost savings per quarter as soon as you shut these parallel DTCs down in it sounds like we now shouldn't expect to see any benefits until 2027, but any visibility on when in 2027 and what besides the fire that you called out, has been more challenging than you anticipated?

Michelle Gass

Sure, Kendall. I can take this one. I first say that we are disappointed more than anyone that this transition has taken as long as it has and it's been more complex. And I think as we've kind of ramped this up with our partner, we do have a complex business given the number of SKUs we have, the number of channels, the number of customers.

We will get there. It's just taking more time. And we did mention the fire that happened towards the end of the quarter, which just was a big disruption in some of our most important weeks. And so it was what it was, the team recovered fine.

So I guess we're just being patient and realistic in terms of when we will see the benefits. I do think a very important milestone that we achieved was closing our parallel heat brand facility. So we closed at the end of Q3. With this behind us, we truly can begin to see the benefits in 2027 because we will not have that running.

As it relates to Q4, I'd say as Harmit was speaking to earlier, I mean the good news is we do have a lot of demand from both channels. So we need to make sure that growth port is set up to fulfill the demand. And that's why we're making some investments along with our partner to ensure that we get the productivity, we get the service levels, we get the inventory right, and then over time, get that cost efficiency.

So we believe we're confident we will begin to see that in 2027. We're not guiding in 2027. We'll talk about that more. But we believe that 2026 let's call it, the peak of what has been our transition-related costs relative to this. And the last thing I would leave you on is that the proof point for us is we did complete a complex transition in Europe and that took some time that's now behind us, and you are seeing the EBIT performance and benefits of that.

So that does give us confidence that we will get behind this. I think 2027 is very reasonable and realistic to start seeing the benefits. And like I said, closing that heat brand facility was an important milestone to say we have the confidence that growth part will fulfill our needs. Now we're working through the operational complexities there.

Operator

Our next question comes from the line of Ike Boruchow of Wells Fargo.

Irwin Boruchow

Harmit, best of luck. We'll miss you. It's been a pleasure working with you. I'll ask just 2 questions. On the 4Q guide relative to 3 months ago, is there any change on the revenue guide. It looks like it's a little lower than the implied before, but I just want to say check that to you guys?

And then on the reinvestment of the refund on gross margin, Harmit, can you just be a little bit more specific what exactly are you guys doing? And why is that not a drag that we need to think about that potentially kind of lingers in the 4Q or the first half of next year, just more of the mechanics there.

Harmit Singh

So I think, Ike, on the revenue, it is a little lower than the implied guide for Q4 because we guide the following quarter and the full year is largely driven by foreign exchange. So reported, I think consensus is about 4.1%. And this implies, I think we're saying 3%.

Foreign exchange is a 100 basis point drag from that perspective. So that's your question on revenue. The question on what are we doing in gross margins is largely -- we do a couple of things. We could have taken pricing down. We could have -- that was just one of the levers when the tariffs happen, it is not the only lever in the U.S.

We have a couple of other pieces. But as I said earlier, we looked at the price value. And I think our current prices sustain that long term. And given the environment is a little bit more promotional at this stage, we are really targeting promotions on key holiday moments.

That's how we're thinking about it. I think Labor Day with Thanksgiving coming up with holiday. That's what you're thinking about it. To your point about why shouldn't this last and also, I think Michelle said, we didn't have the right offer in the quarter. So we had to do this.

And so given the fact that we strongly believe working with our product teams and the marketing team that we do have a great offer for holiday. Michelle talked about sweaters and the like. And you will see that in our stores I think that, coupled with our execution, we believe the promotional aspect of our offers will probably not sustain itself. And I think Matt asked a question about gross margin, we feel good at this time, continue to grow gross margins in 2027.

Operator

Our next question comes from the line of Brooke Roach of Goldman Sachs.

Brooke Roach

Harmit, you mentioned 3 areas of reinvestment of the tariff refund supply chain, marketing and sharper value on promotions. Can you quantify the proportion of investment that you're putting towards each bucket?

And if any of these investments will lead to payoffs in the business in 2027 and beyond versus the investments that are just driving immediate impacts to your business? And then maybe a follow-up for Michelle. Given the enhanced marketing as a percent of sales this year, how are you thinking philosophically about the opportunity to potentially reinvest at a higher marketing spend rate over the next several years, similar to what we've seen other companies do in the branded space.

Harmit Singh

So to answer your question, Brooke, the simplistic way, let's say we spend -- we redeployed $60 million out of the $80-odd million from tariffs that we received. I would say 1/3 is marketing, 1/3 is distribution and logistics and a 1/3 is promotional activities.

A little bit, we did clear some inventory just to make sure we are clean, and we have inventory for the holiday. That's the simplest way of looking at it. In Q3, the majority was promotions, a little bit of advertising, a little bit of inventory clearance.

In Q4 is largely advertising, marketing, distribution and slight promotions. To Ike's question, the activities that the promotional activities we ramped up in Q3 are going to be ramped down in Q4, largely because we've got a better product and we've got better marketing. Does that answer your question, Brooke?

Brooke Roach

Yes, helpful.

Michelle Gass

Brooke, I can take part 2. So I think your question is, to me, how should we think about our bridge between, say, Harmit mentioned earlier, were 9% in 2023. We're we've just guided around 12%, and we're still committed to the 15%. Our line of sight there is that we see opportunity in driving store or well profitability.

We see leverage opportunity based on the volume, how we think about corporate expense and the like. We do see an opportunity for D&L improving over time. We didn't see it this year. We think it's a peak. So all of those things and a few more, we see as gross margin another one.

We expect to continue to elevate the brand and get gross margin gains. So those will all be tailwinds between now and put a date out there to get 15% along the way from a marketing standpoint, our intent is over time to invest more in the brand.

Now we're at roughly 7%, a little bit more than that. I'm not going to put a precise number. But if we continue to get good returns on marketing, we'll find a way to fund that. So that's how we're thinking about it in the context of our commitment to all of you to get to that 15% EBIT. So we obviously, on our next call talking about how we're thinking about '27 in that context, so I would say stay tuned.

And I think that was the last question. So thank you, everyone, for listening. I guess I want to make just one reiteration that as we think about our business heading into the fourth quarter, we've said it already.

The trends are positive. DTC is running at least a mid-single-digit rate. We feel confident for the balance of the year. and I want to wish everyone a great holiday, and we'll see you in January. Thank you.

Operator

Thank you. This concludes today's conference call. Thank you for your participation. Please disconnect your lines at this time.