Levi Strauss & Co. Q2 2025 Earnings Report

Levi Strauss & Co. EPS Results

• Actual EPS: $0.22
• Consensus EPS: $0.13
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: $0.16

Levi Strauss & Co. Revenue Results

• Actual Revenue: $1.45 billion
• Expected Revenue: $1.37 billion
• Beat/Miss: Beat by +$76.30 million
• YoY Revenue Growth: +6.40%

Levi Strauss & Co. Announcement Details

• Quarter: Q2 2025
• Date: 7/10/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 10, 2025
• Conference Call Time: 5:00PM ET

Levi Strauss & Co. (NYSE:LEVI) engages in the design, marketing, and sale of apparel products. The company offers jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear, and related accessories. It operates through the following geographical segments: Americas, Europe, and Asia. The company was founded by Levi Strauss in 1853 and is headquartered in San Francisco, CA.

Levi Strauss & Co. Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: We delivered 9% organic net revenue growth in Q2, with broad-based strength across DTC (+10%), wholesale (+7%), the US (+7%) and international (+10%), driving results above expectations.
• Positive Sentiment: Our DTC‐first strategy is paying off as DTC EBIT margins rose ~300 bps in the quarter, supported by higher full-price sales, improved store traffic and elevated e-commerce performance.
• Positive Sentiment: We’re evolving from a denim‐bottoms company into a head-to-toe apparel lifestyle brand, with outsized growth in women’s (+14%) and tops (+16%), while streamlining SKUs and exiting non-core businesses.
• Negative Sentiment: Assuming additional tariffs (30% on China, 10% elsewhere), we expect a ~50 bps gross margin headwind pre-mitigation (20 bps net), or ~$0.02–$0.03 EPS impact after pricing and supply-chain actions.
• Positive Sentiment: We raised FY25 guidance to 4.5%–5.5% organic net revenue growth, gross margin +80 bps, 11.4%–11.6% EBIT margin, and $1.25–$1.30 adjusted EPS, reflecting confidence in sustaining momentum.

Presentation

[Operator]

Day, ladies and gentlemen, and welcome to the Levi Strauss and Company Second Quarter Fiscal twenty twenty five Earnings Conference Call for the period ending 06/01/2025. All parties will be in a listen only mode until the question and answer session, at which time instructions will follow. 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 Ida Orphan, Vice President of Investor Relations at Levi Strauss and Company.

[Aida Orphan, VP of IR at Levi Strauss]

Thank you for joining us on the call today to discuss the results for our second quarter fiscal twenty twenty five. Joining me on today's call are Michelle Goss, our President and CEO and Harmit Singh, our Chief Financial and Growth Officer. We've posted complete Q2 financial results in our earnings release on the IR section of our website, investors.levistroutes.com. The link to the webcast of today's conference call can also be found on our site. We'd like to remind you that we will be making forward looking statements on this call, which involve risks and uncertainties.

[Aida Orphan, VP of IR at Levi Strauss]

Actual results could differ materially from those contemplated by our forward looking statements. Please review our filings with the SEC, in particular the Risk Factors section of our Form 10 ks for the fiscal year ended 12/01/2024, and the MD and A section of our recently filed Form 10 Q for the factors that could cause our results to differ. Also note that the forward looking statements on this call are based on information available to us as of today, and we assume no obligation to update any of these statements. During this call, we will discuss certain non GAAP financial measures. These non GAAP measures are not intended to be a substitute for our GAAP results.

[Aida Orphan, VP of IR at Levi Strauss]

Reconciliations of our non GAAP measures to their most comparable GAAP measure are included in today's press release. Reconciliation of non GAAP forward looking information to the corresponding GAAP measures, however, cannot be provided without unreasonable effort due to the challenge in quantifying various items, including, but not limited to, the effects of foreign currency fluctuations, taxes, any additional U. S. Tariffs or response of non U. S.

[Aida Orphan, VP of IR at Levi Strauss]

Tariffs, and any future restructuring, restructuring related, severance and other charges. This call is being webcast on our IR website, and a replay of this call will be available on the website shortly. Please note that Michelle and Harmit will be referencing organic net revenues or constant currency numbers, unless otherwise noted, and the information provided is based on continuing operations. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now I'd like to turn over the call to Michelle.

[Michelle Gass, President & CEO at Levi Strauss]

Thank you, and welcome, everyone, to today's call. I'm pleased to share that we delivered another standout quarter exceeding expectations across sales, margins, and EPS. We saw broad based revenue growth across channels and categories, as well as strong margin expansion driven by the consistent execution of our strategic priorities. We arrive at the midpoint of 2025 in a strong position with the confidence to raise our top and bottom line outlook. Harmit will share more on our guidance later in the call.

[Michelle Gass, President & CEO at Levi Strauss]

In q two, we delivered another quarter of high single digit organic net revenue growth, up 9%. Direct to consumer was up 10%, reflecting the thirteenth consecutive quarter of positive comparable sales growth with strong and increasing profitability across channels. Our wholesale business delivered another quarter of growth, up 7%. Our US business maintained solid momentum, up 7%, while international was up 10%, driven by outstanding results in Europe. And we continue to see strong performance in our core as well as outsized growth in our key focus areas like women's and tops.

[Michelle Gass, President & CEO at Levi Strauss]

As we reach the midpoint of the year, I'd like to take a step back and reflect on the progress we've made transforming the business over the last eighteen months. First, we've made significant strides in accelerating our shift toward becoming a DTC first business across both brick and mortar and e commerce. Today, our owned and operated channels represent over half of our business, and they continue to deliver consistent, healthy comp alongside improving profitability. This progress reflects our disciplined shift toward becoming a truly consumer led DTC first retailer. Second, we are making measurable progress in our evolution from a denim bottoms business to a full head to toe apparel lifestyle brand.

[Michelle Gass, President & CEO at Levi Strauss]

While maintaining our dominance in jeans, we continue to drive outsized growth in lifestyle categories, including tops, dresses, outerwear, and nondenim bottoms. Importantly, we've expanded our assortment with greater discipline, rationalizing SKUs and introducing newness that is delivering stronger productivity and higher full price sell through. These choices are key drivers of our sustained market leadership and rising AUR. Third, we're narrowing our focus. As shared in May, we announced the sale of Dockers, which followed our decision to exit our Denizen and footwear businesses.

[Michelle Gass, President & CEO at Levi Strauss]

These bold strategic choices are enabling us to deliberately distort focus to the Levi's brand, putting brand equity, consumer connection, and category leadership at the center of every decision. Fourth, underpinning this transformation is a sharpened ability to operate with rigor and execute with excellence. From go to market acceleration and streamlining store operations to end to end supply chain efficiencies, we are rewiring how we work, embedding structure, discipline, and cross functional alignment at scale. These foundational shifts are unlocking growth, enhancing profitability, and enabling us to better serve our fans as we make progress toward becoming a $10,000,000,000 company. While the global operating environment has become more challenging with uncertainty around tariffs and broader consumer behavior, we are navigating this period from a position of strength.

[Michelle Gass, President & CEO at Levi Strauss]

I'll now walk you through highlights from the quarter in the context of our strategy. Note that all numbers that Harmit and I will reference are on an organic continuing operations basis. Let's start with our first strategy, being brand led. The Levi's brand continues to resonate with fans around the world, growing 9% overall, with 6% growth in men's and 14% in women's. Our unaided brand awareness and consideration remains best in class, with our scores significantly increasing year over year in core markets across the globe.

[Michelle Gass, President & CEO at Levi Strauss]

Our position as the most recognizable denim brand in the world is a powerful competitive advantage and a key indicator that our brand is stronger than ever. We continue to invest in the brand through global marketing initiatives and impactful activations, ensuring the Levi's brand remains at the center of culture. This quarter, we launched the third chapter of our reimagine campaign with Beyonce, featuring a recreation of yet another classic marketing spot from our rich archive. We brought this partnership to fans globally through a limited edition product drop. And through our unique House of Strauss network, we worked directly with her team to create custom one of a kind looks for her Cowboy Carter tour.

[Michelle Gass, President & CEO at Levi Strauss]

Being front and center in music culture remains key to our marketing strategy. From the start of the music festival season, we've shown up in a major way, from dressing Shabuzy at stagecoach to hosting an incredible roster of influencers at Coachella. More recently, we were a leading sponsor for Primavera Sound in Barcelona, one of Europe's biggest festivals. With three Levi's dedicated stages, we outfitted influential pop icon Troy Sivan and offered an exclusive product collection. And to further drive brand heat, we continue to lean into the power of collaborations this quarter.

[Michelle Gass, President & CEO at Levi Strauss]

After teasing at Paris Fashion Week last summer, we launched an elevated collection with Fashion House Sakai, which sold at a premium price point and performed exceptionally well. Turning to product. Our evolution into a denim lifestyle brand is gaining momentum. We continue to lead the industry and deliver the best fit, fabric, and innovation, striking the right balance between our authentic denim roots while infusing newness into the assortment. We're staying true to our denim heritage as we build out a compelling head to toe lifestyle assortment.

[Michelle Gass, President & CEO at Levi Strauss]

And our amplified focus on women's and denim lifestyle is delivering outsized growth. We remain the unequivocal global leader in jeans. We are driving the trends today while setting the trends for tomorrow. Our Levi's bottoms business was up 8%, driven by double digit growth in women's, and men's was up mid single digits. While traditional fits like slim and straight leg styles remain a closet staple, loose and baggy continue to gain popularity for both women and men.

[Michelle Gass, President & CEO at Levi Strauss]

Ahead of the summer, we saw this trend accelerate in our shorts offering, which grew double digits in both men's and women's. With the nineties and y two k fashion in full swing, longer and looser style shorts are in high demand. We're confident we have the right newness and innovation, like the baggy dad jort in place to deliver for our fans and drive this trend. Earlier this year and ahead of the warmer months, we introduced an expanded line of lightweight looks, including our linen plus denim collection to appeal to our fans' interest in lighter, softer, and more comfortable styles. We've infused these new fabric innovations across our assortment from dresses, rompers, jeans, and truckers to sweaters, wovens, and polos.

[Michelle Gass, President & CEO at Levi Strauss]

We've seen strong success across both men and women, and we'll continue to fuel this trend throughout the year as more consumers look for lighter weight offerings year round. Another notable style trend gaining momentum is what we're calling quiet western, an evolution of the full western theme we saw take off last year, but with a more subtle twist. With our robust denim lifestyle offering, we're seeing consumers find that perfect pairing more and more often. Women are pairing a classic boot cut or flare jean with our simple essential rib tank or one of our textured knits inspired from our heritage. And men are wearing a classic western shirt with a khaki XX chino.

[Michelle Gass, President & CEO at Levi Strauss]

Quiet western is perfect for the Levi's denim lifestyle aesthetic and a natural place for us to lead. Last year, we reset our tops business, and that work is truly taking hold and propelling our evolution into denim lifestyle. This included bringing in new talent, new vendors, and new capabilities, including a new toss agility function on a shorter go to market cycle, which enables a more responsive and on trend assortment in toss and graphic tees focused on our DTC channels. Energized by this new capability, along with an elevated assortment overall, our tops business grew 16% this quarter with acceleration across genders and channels. Looking ahead, we have everything in place to continue the momentum we've experienced this year.

[Michelle Gass, President & CEO at Levi Strauss]

A fresh lineup of product innovations, unique and exclusive product collaborations, and globally relevant partnerships. We have a number of great marketing activities planned for h two, including continuing to fuel our women's business with the launch of an additional chapter of reimagine and the introduction of a new campaign focused on underscoring our relevancy and authenticity with men. And you can expect to see the Levi's brand come to life with more exciting and innovative collaborations like our highly anticipated Levi's and Nike collab, which just dropped. For product, we're bringing even more fit and fabric innovation to excite our fans in the second half of the year. We're expanding our diversified fit portfolio to drive the loose and baggy trend, while also introducing freshness in skinny and straight silhouette.

[Michelle Gass, President & CEO at Levi Strauss]

As the quiet western aesthetic takes hold, we're leaning into bootcut and western inspired fits to fuel this evolving style. And for our iconic five zero one, we're launching a breakthrough performance fabric with thermoregulating technology, bringing year round comfort denim to a closet staple. Now shifting to our strategy to be DTC first. Our global direct to consumer performance this quarter was up 10 with another quarter of very solid positive comps. Our strong performance came from increased store traffic, better conversion rates, and higher AURs, leading to growth both in stores and online across all geographic segments.

[Michelle Gass, President & CEO at Levi Strauss]

As we have shared the past several quarters, we have been focused not only on driving DTC growth, but doing it in a healthy and profitable way. And those efforts are paying off as DTC margins continue to improve meaningfully. We continue to enhance our front of house consumer experience and back of house efficiency. And we are driving full price sales as consumers gravitate to our new assortment. Our work is not yet done, and we see opportunity for continued margin expansion in this channel.

[Michelle Gass, President & CEO at Levi Strauss]

We also continue to expand our global store network, opening 16 net new doors this quarter. Store opening highlights include mainline locations in Nagoya, Japan, Seoul, Korea, and in The US in New Jersey. These stores have been designed and built to better reflect our enhanced denim lifestyle offer. We drove another quarter of double digit e commerce growth, up 13% in q two, with both traffic and AURs increasing as our efforts to elevate and improve the consumer experience on levi.com are gaining traction. Our loyalty program is another key connection point to our consumers, enabling us to engage more deliberately with our fans.

[Michelle Gass, President & CEO at Levi Strauss]

We're increasingly using data and analytics to personalize loyalty member product offerings and experiences. And we're seeing members purchase more frequently and transact at a higher AUR than the balance of our consumer base. With close to 40,000,000 members worldwide, this quarter we expanded the program across several countries in Europe. And later this month, we're launching enhanced features for loyalty members in The US. Now turning to our third strategy, powering the portfolio.

[Michelle Gass, President & CEO at Levi Strauss]

Our international business grew 10% in q two, led by 15% growth in Europe. Last month, I had the opportunity to visit several of our key cities across Europe, including Paris, Barcelona, and Milan, some of the most fashion forward cities in the world. I was blown away by how strong and relevant the Levi's brand is in the marketplace, both in stores and with consumers, especially young shoppers. Our team has been hard at work elevating how and where the brand shows up, and I'm constantly impressed by their commitment and dedication, which is another key driver in Europe's overall performance. We spent time with some of our key franchise partners who share our confidence with our growth prospects and are investing more behind our brand.

[Michelle Gass, President & CEO at Levi Strauss]

We also met with key wholesale partners like Zalando and Galleries Lafayette, who are leaning into our broad assortment and lifestyle, particularly with women. And even though Europe is our second largest geographic segment, we still see a significant growth opportunity ahead. Beyond Yoga was up 12% in q two. DTC was up 31%, and we're encouraged by the very strong comp performance we are seeing in our stores. In June, we opened our first Beyond Yoga location on the East Coast in Greenwich, Connecticut, which showcases our new elevated format and design concept and features our most comprehensive assortment spanning women's, maternity, and men's.

[Michelle Gass, President & CEO at Levi Strauss]

Our largest beyond yoga door to date, this store is already delivering nicely relative to our expectations, and we're on track to open six more doors this year, bringing our total store count to 14. Turning briefly to Dockers. In May, we announced a definitive agreement to sell the brand to Authentic Brands Group. Dockers has been a leader in the global CACI category, and we're confident that Authentic is well positioned to guide the brand's next chapter. I want to take a moment to recognize and thank the Dockers team for their unwavering commitment, creativity, and many contributions to Ellis and Co over the past several decades.

[Michelle Gass, President & CEO at Levi Strauss]

Their work built an enduring brand with a loyal following, and we're proud of all they've accomplished. In addition, I want to express my deep appreciation to the cross functional teams across Ellis and Co, who are working tirelessly on this transaction. In closing, this was another strong quarter across the board, clear evidence that our strategic agenda is gaining traction. We're entering the second half of twenty twenty five from a position of strength with the right initiatives in place to sustain our momentum. Levi's is a brand with one hundred and seventy two years of rich heritage and has remained a global icon. As we look ahead, Levi's has an even bolder future with a bigger legacy. And quarter by quarter, we're building it. And with that, I will turn it over to Harmit to provide a financial overview of the quarter and our expectations for the year. Harmit?

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thanks, Michelle. We had a strong finish to the first half of twenty five. In quarter two, we delivered upside on sales, gross margins, SG and A, EBIT margin and EPS. We saw broad based strength across DDC and wholesale, international and domestic, women's and men's, tops and bottoms, units and AURs. We were especially pleased to see DDC again lead our growth, with comp sales up high single digits.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Higher revenue productivity, coupled with better management of costs, contributed to DDC EBIT margins increasing approximately 300 basis points in quarter two, and approximately 400 basis points year to date. In addition, our wholesale channel accelerated to 7% plus growth, posting its third consecutive quarter of growth, while also experiencing improving margins. The continued inflection of our financial performance is a direct result of our laser focus on the core Levi's brand and our DDC First strategy. We are fundamentally becoming a company with a higher growth rate, higher margin profile, stronger cash flows, higher returns on invested capital, and a higher percentage of DDC. We arrive at the midpoint of 2025 in a very strong position, with the confidence to raise our full year top and bottom line outlook.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

I will share more on our guidance for the balance of 'twenty five later in the call. Now turning to a preview of our results. Overall, we saw continued strength across the P and L. Net revenue grew 9%. This was our third consecutive quarter of high single digit growth.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Strength was broad based, as evidenced by the fact that DTC grew 10% and wholesale 7%. E commerce grew 13% and brick and mortar 10%. International grew 10% and The US 7%. Women's grew 13% and men's 6%. Tops grew 15% and bottoms 7%.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

And importantly, we generated a healthy mix of revenue growth, with two thirds driven by higher volume and a third by higher AURs. In quarter two, our global wholesale business again exceeded our expectations. The wholesale channel in Europe returned to growth this quarter, as we completed the transition of our new distribution center. Looking forward, our order books remain positive for the balance of the year. In The US, Levi's wholesale grew 7%, reflecting continued strength in digital and premium accounts.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Our wholesale partners are embracing our head to toe offerings, broader product assortment, and fashion fits. Having a strong direct to consumer presence and focus gives us insights to product trends, enabling both us and our customers to have the confidence to buy and fill flows for our new product offers. Our $5.78 Baggy for Men is an example of a product that performed exceptionally well in DDC, and is now in expansion mode in wholesale for the second half of 'twenty five. And we have other new product offerings and expanded assortments launching with customers in The US this summer and as we head into fall. We're encouraged by our wholesale performance this year, as the actions we have taken to stabilize this business are working.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

And while we continue to take a judicious approach to planning this business, we are raising our full year 'twenty five projection for the wholesale channel to be between flat to now slightly positive. Gross margin for quarter two was a record 62.6% of net revenues, expanding 140 basis points versus last year. This was driven by lower product costs and favorable channel mix. We also continued to benefit from higher full price sales and lower promotional levels as we improved the lifecycle management of our products, a key transformation initiative in our pivot to a DDC first company. Adjusted SG and A expenses in the quarter were 54.4% of total net revenues.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

There was a 50 basis point rate improvement to prior year, mainly driven by leverage on higher sales. Distribution expenses increased versus prior year, given the ramp up of our new DC in Europe, and running parallel DCs in The US. The incremental distribution expenses associated with the consolidation of our DCs are temporary, and we expect the transition to be complete as we exit the year. We also just completed the sale of our Canton distribution center, for which we received $22,000,000 in cash in the quarter. Strategically, the transformation we are making to our DC network enables us to establish a more hybrid footprint, which will improve service levels and optimize distribution costs, supporting our evolution to a DDC first denim lifestyle leader.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Now back to the numbers. Driven by both gross margin expansion and SG and A leverage, we generated adjusted EBIT margin of 8.3%, up 190 basis points to prior year. Year to date, our EBIT margins are up 300 basis points to 10.9%. And the strong EBIT growth was a principal factor in delivering adjusted diluted EPS of $0.22 which was up 37 to prior year. Now, let's review the key highlights by segment.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

The Americas net revenues were up 9%, and the operating margin increased two seventy basis points versus the prior year to 20.5%. We continued to see strong performance across both channels, with DTC up 10% and wholesale up 8%. The US business continued its strong performance and grew 7%, with both DTC and wholesale up at similar levels. Our full price stores continue to perform exceptionally well, with comp sales up high single digits. And as we look forward, we believe we can double our mainline store count over time.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

LATAM was up 18%, reflecting broad based trend across the region, including double digit growth in Mexico. Europe's net revenues were up 15% in quarter two, and operating margin for this segment was 17.2%, up two ten basis points to prior year. We saw broad based strength across markets, including double digit growth in France, The UK, Italy, and Spain. Momentum continued in the DTC channel, up 9%, driven by comp sales, reflecting strength across mainline, outlet and e commerce. And our wholesale business was up 23%, benefiting from the resumption of normalized shipping at our DC in Germany, as well as strong performance from top customers.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Year to date, our wholesale business in Europe is up 7%, and we continue to expect this channel to be positive for the balance of the year. Asia net revenues were flat to prior year, as we took proactive actions to improve the structural economics of this business, including reducing sales to less profitable partners in India, taking back a portion of our franchisee business in Malaysia, and continuing to rationalize our franchisee base in China. As a result of these one time actions, operating margins in the quarter contracted 150 basis points. We continue to see solid performance in DDC, which was up double digits, and several markets, including Japan, Turkey and South Africa, experienced strong growth. Year to date, Asia grew 5% and EBIT margins were up 40 basis points to last year.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

We expect year to date trends to continue, and Asia remains on track to deliver mid single digit growth for the year. Turning to the balance sheet and cash flow. In the quarter, we generated free cash flow of $146,000,000 and delivered a return on invested capital of 18%, up four points to prior year. We've also declared an 8% increase in the dividend to $0.14 per share, and we plan to return at least $100,000,000 from net proceeds of the Dockers sale to shareholders in the form of share repurchases. We ended the quarter with reported inventory dollars up 15%.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Approximately half the increase is to support sales through holiday, while the balance is mostly attributable to products brought in early to navigate the uncertain tariff impact, the disruption in the Red Sea, and our market buybacks in Colombia and Malaysia. We expect to end the year with inventories roughly in line with revenue growth. Before turning to guidance, let me briefly address the topic of tariffs. After the announcement on April 2, our internal task force has focused on understanding the financial impact of tariffs, but also designing and implementing comprehensive actions to mitigate the impact. While the situation is still fluid, our guidance assumes an additional 30% tariff on goods arriving in The US from China, and an additional 10% tariff on US imports from the rest of the world.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Based on these assumptions, we estimate a gross impact before mitigation of approximately 50 basis points to our gross margin for 2025. After mitigation, we expect the net impact of tariffs to be about 20 basis points headwind to our full year gross margin, or approximately a 40 basis points impact in the second half. This will result in a $02 to $03 impact to $0.25 adjusted diluted EPS, split evenly between quarter three and quarter four. Our key mitigation initiatives include promotion optimization, targeted pricing actions, vendor negotiations, and further supply chain diversification. Looking beyond '25, should tariffs remain in place at these levels, given our transformation initiatives, which provides us multiple levers, we believe we are better positioned than most to manage through this uncertainty.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Now I will turn to our outlook for the full year and quarter three. As we look to the remainder of the year, we're closely monitoring the evolving tariff dynamics, in addition to consumer confidence and behavior. Given the upside in the first half of the year, continued strong execution and momentum in our business, we are raising our top and bottom line guidance. For the full year, we've increased our expectations for organic net revenue growth by one percentage point to 4.5% to 5.5%. We are increasing our reported net revenue growth by three percentage points.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

This equates to a reported net revenue growth of 1% to 2% for the year. This incorporates a 50 basis point drag from foreign exchange, versus a two fifty basis point incorporated in our prior outlook. Our guidance continues to assume a three point headwind from the exit of Denison, our footwear business, and the fifty third week. We continue to expect gross margin expansion this year despite tariffs. As noted above, we expect an approximate 20 basis points net impact.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Our full year expectation for gross margin is now up 80 basis points to prior year, a new record. We still expect our SG and A rate to be around 50%. We also expect our gross profit dollars for the year to be significantly higher than the SG and A dollar increase, leading to EBIT margin expansion of 70 to 90 basis points to prior year. As a result, our full year EBIT margin expectations are maintained at 11.4% to 11.6%. And we are raising our adjusted diluted EPS by $05 to between $1.25 to $1.3 For clarity, this guidance now includes a net tariff headwind of $02 to $03 and a $0.14 headwind from tax and FX versus prior compared to the $0.20 assumed in our previous guidance.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Now let me provide details on quarter three. For the third quarter, organic net revenue from continuing operations is expected to be up 4% to 5%. This is on top of a 4% organic growth in quarter three twenty twenty four. We expect quarter three reported net revenue growth of 3% to 4%. This includes a 100 basis points tailwind from FX and a 200 basis points headwind from our business exit.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Gross margin is expected to be flat to up 30 basis points after incorporating the impact of tariffs. We expect adjusted EBIT margin to be in the range of 10.8% to 11.2%, while below last year. This is due to a shift in the timing of marketing expenses from quarter four to quarter three, ahead of the launch of our new campaign, and as mentioned above, an increase in distribution expenses as we progress through our DC transition, which will be completed by the end of the year. And we expect our quarter three adjusted diluted EPS to be in the range of $0.28 to $0.30 This includes an approximate $01 net impact from tariffs, and about $02 from a higher tax rate versus prior year. In closing, we have started the year with momentum, growing faster than the category, with both channels contributing.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

While there's still uncertainty on the macros, largely driven by tariffs, we are in a good position to mitigate the adverse impact, given our brand, product, and profitability momentum. Our transformation to a more profitable, DDC first denim lifestyle retailer is working, and positions us well to drive mid single digit organic growth annually, and build a roadmap to deliver 15% operating margins over time. I will now open up the line for Q and A.

[Operator]

Thank you. The floor is now open for questions. If you have a question, please press star then the numbers one one on your telephone keypad. Due to time constraints, the company requests that you ask only one question. You have any additional questions, please queue up again.

[Operator]

If at any point your question has been answered, you may remove yourself from the queue by pressing again. Our first question comes from the line of Matthew Boss of JPMorgan. Please go ahead, Matthew.

[Matt Boss, Equity Research Analyst at JP Morgan]

Thanks and congrats on a great quarter.

[Michelle Gass, President & CEO at Levi Strauss]

Thank So

[Matt Boss, Equity Research Analyst at JP Morgan]

Michelle, could you speak to drivers of the demand strength that you're seeing today? Have you seen any moderation of momentum for the Levi's brand globally to date? And maybe could you help size up market share gains relative to the industry? And then for Harmit, could you just walk through the clear inflection that you've seen in gross margin? What has structurally changed?

[Matt Boss, Equity Research Analyst at JP Morgan]

What levers are durable and really support the higher margin profile that you cited in the release and on the call?

[Michelle Gass, President & CEO at Levi Strauss]

So, Matt, thanks for the question. I mean, we are just so pleased to report this quarter our third consecutive quarter of high single digit growth, plus 9%. And, of course, with this confidence, as you know, we raised our full year guide. We are seeing broad based growth across the business, both direct to consumer and wholesale, international and our US domestic business, women's and men's, tops and bottoms. We're seeing it in units.

[Michelle Gass, President & CEO at Levi Strauss]

We're seeing it in rising AURs. So it is evidence that our key strategies, this pivot we're making to become a DTC first company, and not just DTC only to their wholesale business also. We're supporting that business. They grew as well. But really rewiring this company to be a best in class retailer and the evolution from a denim bottoms business to a full head to toe lifestyle business.

[Michelle Gass, President & CEO at Levi Strauss]

The team is executing. Our product is resonating. The pipeline has never been more robust. A lot of newness, freshness, whether that's in fits. Loose baggy still doing really well.

[Michelle Gass, President & CEO at Levi Strauss]

Fabric our linen denim was a big hit earlier this year. Shorts are doing really well, warm summer. So products doing great. And like I said, men's and women's. And women's, have a distorted focus, as you know, because we're underpenetrated.

[Michelle Gass, President & CEO at Levi Strauss]

And we're once again double digit there. The brand has just never been stronger. And that's being fueled really by a variety of things. And we're built on a strong foundation heritage, but you do have to earn it every day. And so showing up where the consumer is, whether that's social media, center of culture, music, Beyonce, dressing Shaboozy.

[Michelle Gass, President & CEO at Levi Strauss]

As they say, you are the company you keep and you get pretty good company. And today Nike joins that family as well. And based on the lines out the doors this morning, we think this Nike collaboration is going to be a really big hit. And in terms of as we look forward, as we've moved into June, we've seen the trends continue. And I don't think we have any reason to believe they're going to fall off because this is core to the strategies of the business.

[Michelle Gass, President & CEO at Levi Strauss]

And then the only thing I would add is market share. We continue to maintain our global top market share position and then our number one position here in The US for men's and women. Over to you, Hermit.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

So on gross margins, let me start by just reinforcing. We're building a stronger, more focused, higher performing company. And one defined by accelerated growth, expanding margins, and superior returns on invested capital. So to answer your question about gross margins, the gross margins, we're hitting a record every quarter, and we'll hit another record end of this year. 23%, as you know, was around 57%.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

So what are the drivers, Matt? One is structurally the fact that higher DTC, higher women's, higher international, higher gross margin. Now that's something you guys have heard over the last couple of years. It's consistent. We're really leaning into it.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

You've seen it in terms of delivery results. The second is narrowing the focus did help. Exit of Denizen, exit of Dockers made a difference. And then in the part of the and, what is the and here? The first is, as part of the transformation, we're taking a harder look at productivity in our assortments.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Lower turning SKUs, let's eliminate them. Our go to market calendar, let's get tighter, etcetera. That leads to higher COGS over time. And then the product pipeline is really resonating. So we're really driving full price sales and reducing promotion.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

So that's really how we're thinking about it. There's some headwinds on tariff, I've talked about it. FX maybe a little, but we hedge it. So some puts and takes, but we feel good. And I'd say if some of you are thinking, Are we at the peak of gross margins? I'd say, you know, we're not done yet.

[Matt Boss, Equity Research Analyst at JP Morgan]

That's great color. Best of luck.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thank Thank

[Operator]

you. Our next question comes from the line of Laurent Vasilescu of BNP Paribas. Please go ahead, Laurent.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

Good afternoon. Thank you very much for taking my question. Michelle and Hermie, I wanted to ask about organic wholesale revenues. In tonight's eight ks, it shows that they were up 6% for one h. But I think you called out that wholesale should be up slightly for the year, which would imply two h should be down low single digits.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

But at the same time, I think, Armit, you called out the order books remain positive for the balance of the year. So can you maybe square away how how we rectify that in terms of math? Or ask another way, how how should we think about 3 q wholesale revenues?

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Yeah, you know, Laurent, first to answer your question that you asked a couple of weeks ago, we did deliver 13 consecutive quarters of same store sales. So I'll just put that to bed. To your question about you asked for it, I wanted to make sure I couldn't answer you four weeks ago, can answer you now. To your question about wholesale, we're just being prudent, Laurent, and judicious in our approach. Our view is, as our wholesale customers with the pre book and the demand signals we're getting lean into all the product assortments, this channel will continue to grow.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

It's just important to be prudent. It's a channel we don't control, but over time, we believe the channel should be flat to positive. It's a big piece of our business and we have wonderful partners. If you think of the wholesale business, we're getting growth from the digital channel, we're getting growth from our premium customers, and department stores in The US are, you know, are a smaller piece of our business, but we're working with them to grow this business over time.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

So should it grow in 3Q wholesale organically, something like low to mid single digits? Is that the right way to think about it, Harmit?

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Yeah, we don't disclose by channel, but I'd say we'd probably lean in quarter three more than Q4, only because we're filling the flow for the holiday season. The other thing, Laurent, just for you and for everybody's benefit, think of our business on a two year stack. So the first half we were up 9%. Last year we were probably flat. The second half we were probably up last year 4% or 5%.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

And so a four organic, 4% to 5% organic growth over 4% last year in quarter three is actually growing at the same pace. And so that's what I like you to think about.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

Okay, thank you very much. Best of luck.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Dana Telsey of Telsey Advisory Group. Please go ahead, Dana.

[Dana Telsey, CEO & Chief Research Officer at Telsey Advisory Group]

Hi, good afternoon and congratulations everyone on the very nice results. Michelle, as you think about the brand and the marketing initiatives, I saw some of the Nike things today and I agree with you, was definitely very busy. What are the other marketing activations that we should look forward? Harmeet, how do you think of marketing spend? And price increases, where are you in price?

[Dana Telsey, CEO & Chief Research Officer at Telsey Advisory Group]

And how much more does AUR have to go? And which categories do you think there's opportunity? Thank you.

[Michelle Gass, President & CEO at Levi Strauss]

So I can make mine pretty brief here, Dana. As we said in our remarks, the brand has never been stronger. And that is being fueled by relevant product. Very exciting to see our vision of head to toe denim lifestyle really come to life, and the consumer is responding. We're investing in the brand.

[Michelle Gass, President & CEO at Levi Strauss]

So we always talk about being at the center of culture, and we are driving it and the kinds of partners and collaborations that are emerging and people who want to partner with us is super exciting. So whether that was Sakai, very elevated designer out of Japan, we had a very successful launch there. Today, dropping Nike. Fiance has been a great success. And we've just been thrilled with her being a bit of an ambassador to the brand.

[Michelle Gass, President & CEO at Levi Strauss]

Shaboozy wearing our product at the festivals. And then as we look forward, we still have more of Beyonce to go. And then we are going to have a really exciting campaign oriented to men this fall. So when we think about fall and holiday, I feel like we're really well positioned to make sure that the brand stays extremely strong.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

On your question on marketing expense, Dana, around 7%. There's a timing change between Q3 and Q4 that we indicated, so that's how we're thinking of marketing. To your question about AURs, let me first start with another quarter where volumes were two thirds of our growth and AURs are a third is again, the magic of the ant, like I like to say. It's good to have both. AUR is essentially broad based across geographies, across channels, and across categories.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

And the other thing is it's not coming at the expense of volume. And we have products that are being rolled out that will continue to improve. Think the BlueTap, which is our premium tier one offer that's done very well in Asia. So again, room to grow from where we are today.

[Dana Telsey, CEO & Chief Research Officer at Telsey Advisory Group]

Thank you.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thanks, Dana.

[Operator]

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

[Jay Sole, Managing Director at UBS Group]

have two questions. Michele, at the top of the call, you talked about the four key drivers that have been going as part of the strategy for the last eighteen months. Can you just dive into operate with rigor a little bit? And just tell us why is it it seemed like now that there's an acceleration happening in the business that the capabilities just sort of seem to getting better because the company has been working for a long time on operating with rigor and narrowing the focus and becoming a lifestyle brand. Just maybe if you can touch on what's really happening now and give us an anecdote from, say, supply chain or something that's happening that's allowing the company to have the strong results that you're talking about today? And then secondly, just on the tops business, I think you said tops were up 16%. Can just talk about the quality of the tops business?

[Jay Sole, Managing Director at UBS Group]

I think in the past, was a lot of graphic to your logo tees, batwing tees, things like that. Talk about the kind of tops you're selling today and talk about how you feel about that and give us maybe a little context around how that tops business is evolving and the confidence you have that they can keep growing at a strong rate.

[Michelle Gass, President & CEO at Levi Strauss]

Great. So to your first point, as I did say early in the call, we are operating with greater rigor and discipline, and really infusing the entire company with a DTC first mindset. And what does that mean? First, if we start with product. We are in process.

[Michelle Gass, President & CEO at Levi Strauss]

We've been talking about reducing the time of our go to market. That is happening. We're introducing agility tracks so we can chase product better. Or in things that turn quickly like tops, they're just on a shorter cycle. So that is happening.

[Michelle Gass, President & CEO at Levi Strauss]

Number two, we have had a massive effort afoot to have a more globally directed assortment. And if I look back a couple years ago, that number was in the single digits of what was common across the globe. That number is more than thirty percent first half of the year, and it's growing. You can imagine the kind of efficiencies that you get from that. And along with that, we are being really disciplined on reducing nonproductive SKUs.

[Michelle Gass, President & CEO at Levi Strauss]

So the reduction is in the team to make way for fresher, newer products that can ultimately turn better. We are putting a lot more rigor. You commented on the supply chain in terms of service levels. So that service levels in our stores and service levels in wholesale. And then to your point on top, I mean, was a complete end to end reset.

[Michelle Gass, President & CEO at Levi Strauss]

And the team has done phenomenal work. They set a new vision. We've brought in new design capability, merchandising capability, vendor, supply chain, you name it. And the success is broad based and that's what's so exciting. So we saw growth in men's up 14 in the CTC was similar women's up 19% overall.

[Michelle Gass, President & CEO at Levi Strauss]

So these numbers are both across channels. Denim tops are really driving it. I mean, we are the leader in denim. So we're pushing that Sweaters, workwear, and then on the women's side, things like dresses, jumpsuits, that's in the top category. And as we've said, we really want to own this denim lifestyle.

[Michelle Gass, President & CEO at Levi Strauss]

And even categories like outerwear. So this is no longer a t shirt business, just t shirt business for Levi's. We are in the top business full stop.

[Jay Sole, Managing Director at UBS Group]

Got it. Okay. Super helpful. Thank you so much.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Chris Nadeau of BofA. Please go ahead, Chris.

[Chris Nardone, Director - Equity Research at Bank of America]

Thanks, guys. Can you help us think about how the margin profile of your DTC business has evolved over the last couple of quarters and where it sits today? Then I'm just trying to think, looking out into next year, is there anything structural preventing you to returning your business to a sub-fifty percent SG and A rate as you strive towards this 15% margin goal over time? I'm just trying to think through the puts and takes if a DTC weighted algorithm could prevent you from reaching your medium term plan.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Yeah, you know, Chris, I'm glad you asked this question. DTC, the aggressive growth or the double digit growth in DDC or the thirteen consecutive quarters of same store sales, and DDC becoming a 50% plus business total mix is not a drag on EBIT margins anymore. It is actually progressing well. Year to date is up 400 basis points to last year. Last year we ended at about 400 basis points.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

It's probably in the high teens. There is a gap between wholesale and DTC. It used to be probably in the low teens a couple of years ago. So what is really making the difference? The first is revenue per square foot.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Mean, the fact that comp sales are up, the fact that revenue per square foot is the prime driver actually the prime driver of DDC EBIT margins is a big thing. So we are measuring it, we are looking at ways to improve it, the throughput of new product offers is making a difference, the fact that we have more women's product on the floor tops that Michelle talked about, I think that's probably making the difference. Taking a hard look at cost management, the cost of new builds, the cost of things like labor management, etc, is also helping. So those are the factors that I think are driving it. I believe we are in the early innings of this.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

As we make this pivot to DDC first, this is something that's going to be important. The only other factor I would say sometimes gets lost in translation is our e commerce business is now a profitable business. It used to be a drag. We always said, You grow the top line, you leverage costs. And that's what's happening.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

The business that's growing in the mid teens, that's making a difference. And as we bring our distribution network, make it more omni channel, that should again help. Because you're leveraging fixed costs as against variable costs.

[Chris Nardone, Director - Equity Research at Bank of America]

Thanks, Ramit. Good luck.

[Operator]

Thanks. Thank you. Our next question comes from the line of Paul Lejuez of Citi. Please go ahead, Paul.

[Paul Lejuez, Managing Director at Citi]

Hey, thanks guys. As it relates to the tariff assumptions, think I heard you say 1030%. Curious where you're planning Vietnam and maybe some of the other countries that heard about. And then on price increases, I'm curious what you have planned for the back half and what the implied driver of top line is in terms of units versus AUR. Thanks.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Yeah, Paul, the tariff situation is fluid. It's difficult to plan with every day there being an expected change. So what we decided to do for this guidance is assume an additional 30% for China and an additional 10% for every other country around the world. That's what we have factored in at this stage. I quantify the impact, dollars 25,000,000 to $30,000,000 for the year, and 50 basis points of gross margins.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

I also talked about things we are doing to offset it and the net $02 to $03 impact on the business. Overall, the way we think about it is competitively, we're well positioned despite all the uncertainty. 60% of our business is international. A lot of our core products are multi shows, both geographically as well as through vendors. And we're thinking 26% at this stage.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

To your question about pricing, it's targeted, it's minimal. We're using the new products as a vehicle to try and drive that. But more importantly, we're really focused on reducing promotions, driving full price sales.

[Paul Lejuez, Managing Director at Citi]

Thank you. Good luck.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thanks.

[Operator]

Thank you. Our next question comes from the line of Alex Stratton of Morgan Stanley. Your question please,

[Alex Straton, Equity Research Managing Director at Morgan Stanley]

Thanks so much. Just a couple for Harmeet. Maybe first, just on the sales trend so far this year, mid single digit organic, even higher than that. So as we think about a more normalized growth trend as we get some of these kind of temporary factors out of the business, where do you think Levi should be growing at medium term? And then just a more nearer term question, it looks like the full year guidance assumes that back half SG and A falls compared to growing in the front half.

[Alex Straton, Equity Research Managing Director at Morgan Stanley]

Can you just remind us what's enabling that change in trend? Thanks so much.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Yes. So your first question about top line, I'd say mid single digit growth is what Michelle and I and the rest of the executive team are focused on and doing it consistently so that you can get to that $10,000,000,000 over time. To your question about SG and A, the fact is, Alex, we have leveraged SG and A year to date. On a full year basis, because we're looking at organic revenue as a good thumb rule. Our view is SG and A at 50% does leverage.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Where we're spending is largely in areas that make us a better BDC focused company as against anything else. So I talked about distribution expenses. That remap is happening. A big shout out to our distribution teams who collaborate with our commercial teams to ensure that we meet the demand, which is there, as we make the change. The second is we talked about earlier the fact that we're going to be opening stores, right?

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

On a net basis, 50 to 60 stores, 20% or 30% of that franchise is largely being operated. We're taking a few markets back. So that's the other piece. And then the ERP upgrade is the other piece that we're working on. But overall, our view is that SG and A does begin to leverage, especially as we get to the mid single digits.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

The way we are thinking about it, Alex, is does the gross profit dollars increase more than offset the SG and A increase? And we're seeing that in flow through and in EBIT margin.

[Alex Straton, Equity Research Managing Director at Morgan Stanley]

Great. Thanks so much. Good luck.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Peter Goldrick of Stifel. Your question please, Peter.

[Peter McGoldrick, Vice President at Stifel Financial]

Hi there. Thanks for taking my question. I was curious on the enhanced loyalty program. You pointed out some encouraging directional drivers. As you roll out in The U.

[Peter McGoldrick, Vice President at Stifel Financial]

S, can you point to any expectations for contribution embedded in the back half as you roll that out in The US?

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

First, Peter, welcome. Second, we don't break it out by channel or by geography. What you've heard from others, what you've heard from us are more loyal consumers, are more loyal fans, drive higher frequency, and are definitely embracing the denim lifestyle offers. And this will continue to be an opportunity for a brand our size. Michelle and I and the team joke about it.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

We should be having probably 100,000,000 loyal fans of consumers. And this used to be zero until just after COVID. And so that's how we're thinking about it, Peter.

[Peter McGoldrick, Vice President at Stifel Financial]

Appreciate that color. Thank you.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thanks.

[Operator]

Thank you. Our next question comes from the line of Paul Kearney of Barclays. Please go ahead, Paul.

[Paul Kearney, VP - Equity Research at Barclays]

Hi. Thanks for taking my question. I know it's broad based by geo and channel, but can you give some additional color and detail on the AUR lift for the quarter between promos, price or mix? Then second, can you talk about the expectations on the wholesale business and how retailers are managing inventory? And how is the growing lifestyle assortment with women's and tops enabling new opportunities with retail customers? Thank you.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Okay. So on AURs, yeah, it is broad. I'd say DDC probably a little stronger than wholesale. I would say women's probably a little stronger than men's. And regions, I would say The US and Europe probably a little stronger than Asia.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Just thinking about the color on how the customers are thinking. Again, I can ask you

[Michelle Gass, President & CEO at Levi Strauss]

to your question on wholesale. I think we say largely inventories are in good shape across the channel. And I think your question on how are they responding to our lifestyle assortment, I think it's been very positive. And certainly some customers are further ahead than others. But if you take, say, Europe, we have a more premium offer even in wholesale. And that business is doing really well with partners like Gallery Buffet, with Zalando who are leaning into lifestyle and to women's in particular.

[Michelle Gass, President & CEO at Levi Strauss]

But we're also seeing that take hold here in The US. And so I think as we sit here and even though a big part of our growth is going be DTC, it is why we increased our guidance even for this year to flat to slightly positive for wholesale. But it will continue to be an important channel. It reaches millions of consumers. And we're excited and our customers are excited about all the newness we're bringing to them.

[Paul Kearney, VP - Equity Research at Barclays]

Excellent. Thank you. Best of luck.

[Michelle Gass, President & CEO at Levi Strauss]

Thank you. Thank you.

[Operator]

Thank you. Our next question comes from the line of Oliver Chen of TD Cohen. Please go ahead,

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

Hey, thanks. Thanks, Michelle and Harmit. You had really nice broad based strength, but men's lagged, women's and also Asia was weaker than we expected. I know you're undergoing changes there. Would love your thoughts there.

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

And how did your guidance interrelate with your order books? It sounded like you're pretty encouraging order books, but was it the right methodology to raise guidance given the uncertain environment? And then as you mentioned, lifecycle management products, what should we know about what inning you're in? And are merchandise margins, they're not peakish given the feedback you offered on the call, Harmit? Thanks.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Yeah, so on the question of guidance, it's important, Oliver, if you were in our shoes, you'd feel the same. It's important to be prudent and judicious. And given the demand signals we are seeing, build part of it. And so given that we've had three quarters of high single digit growth, we see the momentum continuing. Because the consumer, I think as Michelle said, generally resilient and a continued fan of the brand.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

So that's question one. To your lifecycle management, is Oliver, going back to DTC first, right? This is about making sure that our store associates and our operations team and commercial teams around the world, especially with the new product offers, are able to drive higher full price sales over a period of time before marking it down, seeing sell through by store versus by country. Things as simple as that. So we're in the process of really focusing on driving an opportunity. Had a question about wholesale or Asia?

[Michelle Gass, President & CEO at Levi Strauss]

Asia, and then I can take the management.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Yeah. So on Asia, Oliver, Asia we're long on. It's a business that we feel we're underpenetrated. There are markets like India and a couple of other markets Japan, for example, that are growing very nicely. China is a small piece of a business.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

It's about 2%. Think 25% is a year where we reset China, and our teams are on the ground right now thinking through that. We'll probably get back to growth sometime in '26. But over the year, we think Asia grows in the mid single digit and EBIT margin expands. And then Michelle? Yeah.

[Michelle Gass, President & CEO at Levi Strauss]

I think to your question on men's and women's, I mean, actually view it, Oliver, as an end. I mean, we already have so much market share in the men's business and we've got to continue to obviously protect it and grow it. But 6% we felt was quite strong and the men's business is responding to the innovation we're bringing in bottom things like the linen denim, baggy and loose fits like five fifty five, the relaxed fit, the five seventy eight baggy. We had to chase that one even a bit. And then our tops business in men up very nicely at 14% for the quarter.

[Michelle Gass, President & CEO at Levi Strauss]

Clearly we are seeing a outperformance in women as we should because we're still under penetrated there. We're only 38% and I think we all know that that business should be at least half of our business and we're making really good progress. Mean, I think for context, the Levi's women's business is up almost twice since twenty nineteen 2x where it was five years ago. Yet we still have so much runway ahead. So I don't think it's an either or I think it's an and.

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

Thank you. Did you Harmeet, did you think merchandise margins are peakish in terms of where you are relative to pricing? And it sells per square foot.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Think our view is that the answer is We're nowhere near in the middle of the journey for DDC First. We're probably in the early innings. So I think as we get better at retail and retailing, it probably improves over time.

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

Best regards. Thanks. Thanks, Oliver.

[Operator]

Thank you. Our next question comes from the line of Brooke Roche of Goldman Sachs. Please go ahead, Brooke.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

Good afternoon and thank you for taking our question. Michelle, Harmit, I was hoping you could dive a little bit deeper into the momentum that you've seen in the Europe business. Outside of the distribution center adjustment, are there any other one time drivers of outperformance that you think might normalize for the rest of the year? And given the stronger performance and stronger partnerships, what do you think the medium term run rate of growth could be in the European market ahead? Thank you.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

To your question about one time, the best way to look at Europe is to take a year to date view. Wholesale is up 7%, I think Europe year to date is up in the high single digits. The demand books for fall are positive. So our view is thinking of Europe in the mid to high single digit is a good way to look at it. Secondly, when the company was over $7,000,000,000 Europe was a $2,000,000,000 business.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Right now it's a billion and a half. So we have clear opportunity. We have a great team on the ground. They're working through it. A couple of years ago, Brooke, we got a little hurt because we didn't have the products on the floor to respond to warmer weather. And today, have the linen that Michelle talked about, we have lighter weight denim tops. We have a lot of shorts. And so we have products that respond to global warming. Michelle, you were just there, so I'm sure you have some insight.

[Michelle Gass, President & CEO at Levi Strauss]

Yeah, no, I know we're out of time, but I would just say being on the ground with the market, we have a phenomenal leadership team there. They're executing like crazy. Our DTC business is super strong. The product is relevant. All the things we've been talking about.

[Michelle Gass, President & CEO at Levi Strauss]

Brand relevance, center of culture, the pipeline. So we are long on Europe. We still think there's a lot of opportunity.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

Great, thanks so much.

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thanks Brooke.

[Michelle Gass, President & CEO at Levi Strauss]

And with that, we'll close out the call. Thanks everyone for joining. And we look forward to speaking with you next quarter.

[Operator]

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

[Harmit Singh, EVP, Chief Financial & Growth Officer at Levi Strauss]

Thanks, Ladif.

[Operator]

My pleasure.

Participants

Executives

• Harmit Singh, EVP, Chief Financial & Growth Officer

Analysts

• Aida Orphan, VP of IR at Levi Strauss
• Michelle Gass, President & CEO at Levi Strauss
• Matt Boss, Equity Research Analyst at JP Morgan
• Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas
• Dana Telsey, CEO & Chief Research Officer at Telsey Advisory Group
• Jay Sole, Managing Director at UBS Group
• Chris Nardone, Director - Equity Research at Bank of America
• Paul Lejuez, Managing Director at Citi
• Alex Straton, Equity Research Managing Director at Morgan Stanley
• Peter McGoldrick, Vice President at Stifel Financial
• Paul Kearney, VP - Equity Research at Barclays
• Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen
• Brooke Roach, VP - Equity Research at Goldman Sachs