Levi Strauss 2Q Results Solid and Above Expectations, but Full-Year Increase Limited; Citi Maintains Neutral

Overview

This report is Citi's company research update on Levi Strauss. Its core conclusion is that the company's 2Q revenue, gross margin and EPS all exceeded expectations, with demand showing no signs of slowing into 3Q and management raising both F26 revenue and EPS guidance. However, the full-year EPS increase mainly reflects the 2Q beat, 3Q EPS guidance is below consensus, and Europe's performance did not materially exceed expectations. Citi therefore views the current risk-reward profile as balanced and maintains its Neutral rating and US$25 target price.

Core views

Citi recognizes LEVI's long-term brand equity, global position in denim and DTC performance, and considers the Americas and Asia 2Q results strong. 2Q adjusted EPS was US$0.28, above consensus; reported sales grew 8.0%; gross margin expanded 10bp year over year; and inventory declined 7%. However, management's increase to F26 EPS guidance was limited, while 3Q expense timing, transition costs at the US distribution center, tariffs and foreign-exchange pressure will continue to constrain near-term margin expansion. Europe's 2Q results were only broadly in line with consensus and provided no additional upside momentum.

Analysis framework

The report combines earnings decomposition, regional sales and margin comparisons, comparisons of company guidance with market consensus, management conference-call takeaways, scenario assumptions and DCF valuation. Citi focuses on comparing 2Q actual results, 3Q/F26 guidance, Visible Alpha consensus and its own model, and accordingly makes modest upward revisions to F26E and F27E EPS.

Methodology notes

• Valuation methodsDCF

  Target price supported by DCF

  Citi's US$25 target price is based on DCF analysis, using a 12% discount rate and an approximately 9x terminal EBITDA multiple in year five.

• Rating frameworkCiti Research Fundamental Research Investment Ratings

  Neutral rating

  Citi's equity ratings are based on expected total return and risk over the next 12 months. LEVI's expected total return in the report is 4.2%, insufficient to support a Buy rating, so Citi maintains Neutral.

• Scenario analysisBull/Base/Bear assumptions

  F26E sales, EBIT margin and EPS scenarios

  The report presents bull, base and bear assumptions: the base case assumes F26E EBIT margin of 12.1% and EPS of US$1.57; the bull case assumes EPS of US$1.94; and the bear case assumes EPS of US$1.25.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LEVI.N

  Covered security

  Strengths

  Long-established brand, strong global position in denim, solid DTC performance, 2Q sales in the Americas and Asia above expectations, and lower inventory.

  Weaknesses

  3Q EPS guidance below consensus, limited full-year EPS increase, Europe only broadly in line with consensus, and temporary cost pressure from the US distribution-center transition.

  Comparison

  Relative to market consensus, 2Q sales, gross margin and EPS were all stronger; however, F26 EPS guidance was only slightly above the prior range and below Citi's model, while 3Q EPS was below consensus.

  Risks

  Weaker macroeconomic consumption, weakening denim trends, tariff and foreign-exchange pressure, insufficient pass-through of price increases, and management changes.

Key data

• 2Q adjusted EPSUS$0.28Above Citi's estimate of US$0.25, Visible Alpha consensus of US$0.24 and guidance of US$0.22-0.24.
• 2Q sales growth+5.7% cc; +8.0% reportedAbove company guidance and market consensus; reported consensus was +5.0%.
• 2Q gross margin+10bpBetter than company guidance for a slight decline and consensus of -30bp.
• F26 revenue guidance+5.5-6.0% cc; +7.0-7.5% reportedRaised from prior guidance; the reported figure is above consensus of +6.5%.
• F26 EPS guidanceUS$1.46-1.52Previously US$1.42-1.48; market consensus was US$1.50.
• Citi F26E EPSUS$1.57Raised from US$1.54, primarily reflecting the 2Q beat.
• Citi F27E EPSUS$1.69Raised from US$1.66 based on higher sales forecasts.
• Current price and target priceUS$24.37; US$25.00As of July 8, 2026, expected share-price return was 2.6% and expected total return was 4.2%.

Impact & implications

In the short term, the 2Q results and higher F26 guidance confirm brand and category momentum, but the market may focus more on the insufficient full-year increase, pressure on 3Q earnings and the lack of an upside surprise in Europe. Over the medium to long term, LEVI continues to benefit from its strong brand, improvement in the global denim category and DTC growth, but macroeconomic consumption, pricing power, tariffs and foreign-exchange pressure will determine whether margin expansion can continue.

Risks

• A weaker global macro environment could pressure sales and margins and increase promotional pressure.
• Consumer weakness could reduce the company's ability to pass through price increases.
• A weakening denim trend would affect LEVI's sales and gross margin.
• A longer-than-expected US distribution-center transition could create temporary duplicative costs.
• Tariffs and foreign exchange could continue to pressure gross margin.
• Key management changes could affect organizational execution, sales and profit performance.

What to watch

• Whether 3Q demand continues and management continues to confirm that it has not slowed.
• Whether European orders and bookings can improve from the low end or slightly below plan.
• Whether duplicative costs at the US distribution center can subside in 4Q.
• The impact of tariff assumptions and changes in the effective tax rate on gross margin.
• Sales momentum in DTC, women's, bottoms, tops and Signature.
• Whether F26 EPS can exceed the company's US$1.46-1.52 guidance range.