Levi's (LEVI)

Denim clothing company Levi's (NYSE:LEVI) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 7% year on year to $1.54 billion. Its non-GAAP profit of $0.34 per share was 11% above analysts’ consensus estimates.

Company Overview

Credited for inventing the first pair of blue jeans in 1873, Levi's (NYSE:LEVI) is an apparel company renowned for its iconic denim products and classic American style.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Levi's primary competitors include Wrangler and Lee (owned by Kontoor Brands, NYSE:KTB), Gap (NYSE:GPS), American Eagle Outfitters (NYSE:AEO), and Calvin Klein and Tommy Hilfiger (owned by PVH Corp, NYSE:PVH).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Levi's grew its sales at a sluggish 6.2% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Levi’s recent performance shows its demand has slowed as its annualized revenue growth of 1.1% over the last two years was below its five-year trend.

Levi's also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 4.6% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Levi's.

This quarter, Levi's reported year-on-year revenue growth of 7%, and its $1.54 billion of revenue exceeded Wall Street’s estimates by 2.9%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, similar to its two-year rate. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Levi’s operating margin has been trending up over the last 12 months and averaged 7.3% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports paltry profitability for a consumer discretionary business.

In Q3, Levi's generated an operating margin profit margin of 10.8%, up 8.6 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Levi’s EPS grew at an astounding 40.8% compounded annual growth rate over the last five years, higher than its 6.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q3, Levi's reported adjusted EPS of $0.34, up from $0.33 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Levi’s full-year EPS of $1.44 to shrink by 3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Levi's has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.9%, subpar for a consumer discretionary business.

Levi's burned through $39.4 million of cash in Q3, equivalent to a negative 2.6% margin. The company’s cash burn increased meaningfully year on year and is a deviation from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Levi's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14.6%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Levi’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Levi's reported $707.5 million of cash and $2.29 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $954.1 million of EBITDA over the last 12 months, we view Levi’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $21.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed that Levi's beat analysts’ constant currency revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance slightly missed. Overall, this print was mixed, with guidance weighing on shares. The stock traded down 4.8% to $23.35 immediately after reporting.

Updated: December 4, 2025 at 9:55 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping consumers, but in the case of Levi's, we’re out. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its solid EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its constant currency sales performance has disappointed. On top of that, its projected EPS for the next year is lacking.

Levi’s P/E ratio based on the next 12 months is 16.1x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $27.31 on the company (compared to the current share price of $22.21).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.