Levi Strauss & Co. is directing a substantial share of its tariff refunds toward strengthening its supply chain and supporting commercial growth. The denim manufacturer received approximately $80 million in tariff reimbursements last quarter and intends to reinvest 75% of that amount across selected business activities, according to Harmit Singh, the company’s executive vice president and chief financial and growth officer, during the October 7 earnings call.
Of the $60 million earmarked for reinvestment, approximately one-third will be allocated to distribution and logistics. The remaining funds will be divided equally between marketing and promotional activities. The company also used a small portion of the reimbursement to clear inventory ahead of the holiday season, while most of its supply chain-related expenditure is scheduled for the current quarter.
“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 path to 15% operating margins over time,” Singh said.
Tariff refunds allow companies more room for investment
Levi Strauss and some other consumer goods companies say they have received substantial tariff refunds after the U.S. Supreme Court ruled in February that President Donald Trump’s use of emergency powers to impose country-specific tariffs was invalid.
Other companies benefiting from the reimbursements include McCormick & Co. and Kimberly-Clark, which said they plan to use the money to help offset higher input costs. E.l.f. Beauty, meanwhile, says its priorities for using the returned money are to cut prices and boost sales volumes.
Levi Strauss is already working on reinvesting. In the third quarter ended Aug. 30, the company used about $25 million of its tariff recovery, with another $35 million planned to be used in the current quarter, Singh said.
A portion of the spending in the fourth quarter will also impact profitability in the near term. The company said the planned spending will cut gross margin by 10 basis points, or about $3 million, leaving it with a projected gross margin of 61.8% for the quarter.
Full-year guidance takes into account tariff reimbursements
For the fiscal year ended November 29, the net benefit of tariff refunds, net of associated reinvestment costs, is expected to be approximately 80 basis points to Levi Strauss’ gross margin.
The company is targeting a gross margin of about 63% for the full fiscal year, with the tariff recovery adding to that target.
The allocation strategy is a combination of investment in distribution and logistics and marketing initiatives to support sales and improve the company’s competitive position. Levi Strauss is targeting a mid-single-digit percent annual revenue growth rate and an operating margin of 15% over time.
