Q1 2020 Earnings Call
Ladies and.
Gentlemen's any constraints are scheduled to begin shortly he's going to standby and thank you for your patience I didn't ladies and gentlemen, today's conference is scheduled to begin shortly each he's going deeper standby and thank you for your patience.
[music].
Good morning, and welcome to the least <unk> first quarter Twentytwenty earnings Conference call. My name is me and I will be facilitating the audio portion of todays interactive broadcast all lines have you think on mute to prevent any background noise for those of you on the upstream. Please take note of the options available in the event.
Console at this time I would like to Transicold overcome these <unk> senior director Investor Relations Ma'am. Please go ahead.
Thank you for joining us on the call today to discuss the results for fiscal first fiscal quarter 2020, joining me on today's call or chip Burns President and CEO would leave lifestyle and Harmeet thing, our executive Vice President and CFO, We posted complete Q1 financial results in our earnings release on our IR section of our website investors.
We stopped me by shelf dotcom linked to the webcast of today's conference call can also be found on our site.
We'd like to remind everyone that we'll be making forward looking statements on this call, which involve risks and uncertainties in particular at this time. The Tobin 19 pandemic is having a significant impact on the company's business financial condition cash flow and results of operations.
There are significant uncertainty about the duration extension of the impact of the endemic.
Dynamic nature of these circumstances means that what is that on this call could change materially it anytime and <unk> actual results could differ materially and those contemplated by our forward looking statements.
Quarterly results should not be considered as an indication of future performance.
Please review our filings with the FCC in particular, the risk factor section of the quarterly report on form 10-Q that we filed today for discussion of the factors that can cause results to differ.
Also note that the forward looking statements on this call are based on information available to us as of today's date.
Disclaims any obligation to update any forward looking statements as required exceptionally low.
During this call we will discuss certain non-GAAP financial measure.
Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release on our IR website.
These non-GAAP measures are not intended to be a substitute for GAAP results.
Finally, this call in its entirety being webcast on our IR website and a replay of this call will be available on the website shortly.
With that I'll go ahead, and turn it over to chip Berg [laughter].
[laughter].
Thanks, Good afternoon, everyone and thank you for joining our Q1 earnings call, which will be unlike most tropical quarterly earnings calls as well we will cover Q1 results.
It was more on updating you on where we are with the crisis it had and how we're navigating the uncertainty that we're all facing.
What was happening in the world around but she is not just the human tragedy, but will likely result in a significant global economic tragedy.
The biggest challenge, we're all dealing with right now there's uncertainty how long will does continue how deep of an economic crisis does but pandemic create.
Well the consumer respond when the crushing speech and ultimately what is the shape size and scope of the apparel sector when a job.
Actually trying to forecast when she was nearly impossible.
No one can control the virus or even the economic fall out.
We can control, how we react to the crisis.
I'm very optimistic about our prospects for the future.
Navigating through the crisis in the short to medium term and in the long term recovery and I believe we are well positioned if not better positioned than most companies in our industry.
I had a great first quarter.
As much was homing coming into the crisis again, reaffirming robust strategies that we are executing and the momentum we had prior to the crisis you brought the globally.
The strength of our business and the underlying momentum here is why I'm confident that we will emerge stronger on the other side.
We have one of the world's most iconic most loved brands and Levi's and consumers will come back to brands that they love and trust.
I haven't gone dark either we're investing in strengthening our Bod with our fans during these moments of isolation.
We have a strong balance sheet and $1.8 billion liquidity.
We haven't experienced management team that has a track record of making cup choices to cut costs just as we did back in 2013 2014.
You could drastically cut cost before and were on it now.
Inventories are down at a significant majority of our inventories core replenishment, which can be carried over to future seasons.
We're focused on innovation FX will be an advantage. During this time as we'll be able to bring newness when shores reopen regardless of when that is and the innovation over the last month leveraging digital tools throughout this organization has been awesome.
Our strategy to diversify the business, which we've been executing now three years makes us less vulnerable to the shocks that may be felt in some countries and channels.
Our DTC business is now more than 40% of our total business up from 130% five years ago.
Our ecommerce business has more than doubled in the last five years and as our fastest growing business.
Finally, we have something nobody else in this industry can claim.
The company history of 167 years.
We've been through other crises, some perhaps even more existential than what we're currently facing we've seen it all the great Depression, two world Wars earthquakes fires and yes, even the 1918 flu pandemic.
Not only did we pull through all of these we used crisis galvanized the path forward and we would do it again.
I also believe the crisis presents opportunities and we will be ready to act on those can make good strategic sense, whether that's taking back underperforming franchise businesses, we're upgrading real estate locations because our the retailer bankruptcies are finding great talent in a decimated job market.
The crisis gives us an opportunity to not just renewed the business, but to reset it for the future.
That we're not managing through the crisis by playing defense you will play to our strengths leveraging the strength of the brand or connection with our fans and the digital capabilities and omni channel capabilities that we've invested in over the last few years.
At the same time, we don't have our heads in the sand. We will also be aggressive on cost takeout and why did the impact that the crisis will have on revenue and our structural economics.
Well, we will be deliberate and thoughtful about how we do this so we don't cut core capabilities and the things that have created our success over the last few years.
Let me give you a little more color on a few of these areas.
First real very focused on a gauging with our fans during their isolation cultivating a deep blue logical Levi's Brad.
Just one the music festival season was supposed to start off basketball's had been canceled postponed.
Helped fill the void, we launched a month long virtual music festival with our Instagram why fiber one concert series.
Each week night at fiber one P.M. art is such a Snoop dog and bright young are performing lives and their levis connecting with our fans, while they're doing airport to stay home incurred the spread of the virus.
Sentiment in the series has been so extremely positive we're finding more users abusing viewing these lives sessions every day.
This is something that is authentic truly something on the revised could do.
We're also replicating digital strategies that worked in China during and after they're locked down like featuring do it yourself content on our website that inspires our fans to customize their levi's products at home.
Second we're pivoting our marketing approach in response to the current environment.
For example, our recently launched Super Mario collaboration with Nintendo is flying off the shelves in China and it's also resonating in our ecommerce sites in Europe, because we built excitement in demand through social media campaigns.
Super Mario collection will be dropping in the U.S. later this week.
People are looking to connect these days and Super Mario puts a smile on every one space.
So as you know, we recently launched the Levi's brand mobile Wap and we're building loyalty with fans around the world, giving them another way to engage with the brand and another option for them to shop whatever format. They prefer.
You've seen early success with strong consumer acquisition enrollment rates and monthly engagement with exclusive product offerings like the recent launch of our authorized vintage collection, which has been selling three very well.
We'll continue to scale and ramp our loyalty program and be up throughout this year.
The culture of innovation deeply embedded in Dallas and Carl is helping US evolved how we're working internally as a team and with our customers. During this crisis.
For example, we've accelerated the rollout of new technology, we developed in our Urika innovation lab.
Photo realistic greedy renderings of denim garments and samples.
This allows us to digitize the sampling process, enabling us to sell to merchants from images rather than requiring physical samples.
We luggage this technology recently in our most recent line assortment beating.
Normally this meeting brings around 100 merchants and marketers to San Francisco to our San Francisco headquarters from around the World and as followed by cascading meetings over multiple weeks as they engage with their regional and local counterparts by leveraging the study digital technology to hold the meeting virtually.
We were able to gauge everyone simultaneously and complete this process and one meeting taking weeks out about go to market cycle.
The feedback was that this may have been the best assortment, beating ever and we May never go back to live meetings, this technology and others like it will drive efficiency speed to market and reduce waste, while improving our operations three and beyond the crisis.
Finally, as we navigate this time of prices, we will continue to be guided by our values and longstanding commitment to profits through principles supporting our communities through tough challenges is nothing new to Alison cow, we have a legacy of leadership of doing the right thing and we're taking steps to fulfill that responsibility again.
Our response to the carbon 19 impact will evolve as the crisis continues to play out but to start, but we've announced a 3 million dollar philanthropic program in partnership with the lead by Strauss Foundation, and we're working with the foundation to launch a three to one matching campaign for our employees donations to community groups stepping.
Up to meet local needs an organization's supporting covered by Jean efforts.
A maturing out of school students still have access to deals to delivering needed supplies to homebound senior citizens.
Additionally, the Red Top foundation, which supports our employees and retirees with short term grants to help and get through trying times is expanding its assets.
For me will review the aggressive cost actions, we're taking in light of the situation, but I want to cover the compensation and furlough related announcements were making today.
Our board members will forego their cash compensation, and we're announcing broad salary cuts for executives and leaders across the organization, including 50% to me.
And effective April 13th were Furloughing, all U.S. hourly retail employees and our wholesale merchandise coordinators.
In closing I will say again, while this will be a challenging time with significant uncertainty we will be laser focused on what's within our control to mitigate the impact to the degree possible as the world grapples with the virus and the economic fallout.
We have many strengths on our side that I'm confident we'll bring us through the current environment.
An iconic and be Lub revise brand that has never been stronger.
Solid balance sheet skilled dedicated and courageous leadership team that will take aggressive action on costs.
Culture of innovation and strategies that have transformed the business over the last eight years that will help US chart, a course through the coming much.
We're taking swift and decisive action to ensure we remain a winner in our industry and that we emerged from the storm a strong were stronger than going into it.
The true character the company is shown in a time of crisis and as we have in the past you will navigate this one by leveraging our strikes and seizing opportunities that will help us continue to thrive over the long term.
I'll now turn it over to her meet to walk through the quarter in further detail on me.
Thank you chip.
Good afternoon to on a few.
All of you you'll families and loved ones are safe and healthy.
The criminal wise is having far reaching consequences around the world.
Before I walk you through our results for the quarter.
Let me share what we're doing now to respond to the challenge of Colgate 19.
Our focus is to balance cash preservation and profit protection.
To that end gearing, showing I had a great cash flow and liquidity to navigate the jumpy lodges in.
Including suspending our share buyback program and drawing down on our revolver.
We are actively managing our supply chain and inventory flow, while leveraging our FX platform, while cutting our second how about you did and evaluating the most efficient way to lead flow. The small amount of seasonal items, we have on hand, and soon we will leverage exists.
I think capability such as ship from store to help manage inventory.
On cost management, we substantially reducing advertising spend and we're pulling at year end and leave it available to us to cut costs in our business operation.
The compensation godson follows Jim mentioned.
Freezing travel in headcount.
Significantly reducing variable expenses and negotiating with landlords to abate drain for the period stores close.
And reducing our capital spend on discretionary projects why reevaluating our store rollout plan.
We had to flooring on new distribution center in Europe, and are not targeting a reduction in I know capex spend of up to 30%.
Yeah goes the majority off I'd dorms and those are five franchise.
To help slowed the spread on the virus correctly about 70% of these doors that close 20% of fully open and the balance our operating on reduced ours.
With respect to all first fiscal quarter of 22 any.
We are pleased to have delivered strong revenue growth record high gross margin and adjusted diluted EPS ahead of my expectation.
And if it one for the virus impact we would have exceeded our adjusted EBITDA expectations as Beth.
The underlying momentum all pod business continued to be very strong as well as our balance sheet and returns on invested capital.
This is especially true in our global store fleet read the tree or average return on invested capital for the fleet is or 20%.
I will walk you through additional detail on our first quarter does my comments will reference constant currency comparisons on a year over year bases in U.S dollars unless I indicate otherwise.
We publish the details off I reported and constant currency results in today's press release, So I will not repeat all of those gill.
Well, it's going to net revenue of 1.5 billion grew 6%.
Yes, you made a 20 million it was impacting the Asia off the growing novartis combined with the unrest in Hong Kong adversely impacted revenue growth by about two percentage point.
Also note that you're not being a strong first quarter 2019, which we grew 11% overall.
You guys mens bottoms was flat for the quarter.
Our goal is Dan.
I talked and global wholesale accounts collectively grew 5%.
And I don't fly mature markets grew 3% and within that the U.S. was up 2% for the corridor.
I totally women's business grew 12% in the post Florida.
On the back of high teens growth last year.
No.
Business grew 5%.
Direct to consumer grew 13% to the corridor.
Revenue from our brick and mortars stores were up 14% globally and global ecommerce was up 12%.
Outdoor to digital ecosystem grew double digits in Q1, and now comprises more than 15% off our total company revenues.
Doubling the size awarded was just two years ago.
Gross margin in the first quarter was 55.7%.
A record high for the company.
This represented an increase of 110 basis point on a reported basis, reflecting the benefit from the price increases we have taken as bad as high a direct to consumer and international growth.
Currency effects one negligible.
Adjusted EBIT margin of 12.6% decline 180 basis points on a reported basis entirely due to applying to smooth advertising higher charges from equity said award and the timing of be all ER and the timing of related payroll taxes and approximate.
Roughly 10 million of loss adjusted EBIT from the growing of arc.
The benefit of Black Friday revenues in the current deal which favorably impacted.
Adjusted EBIT margin by about 70 basis point was substantially offset by an estimated 50 basis points adverse impact from the growing a lot.
Adjusted diluted EPS for the first quarter of 40 cents increase two cents on a reported basis compared to the same corridor in the prior year slightly trailing 8% reported adjusted net income growth due to the increase in the company share.
I don't resulting from our IPO.
We estimate it adversely impacted the criminal virus was two cents.
Guernsey unfavorably impacted adjusted net income by two percentage points and adjusted EPS diluted EPS by one cents.
Now I'll share more deal in the first quarter results of about three regions in constant currency unless I state otherwise.
Our results benefited from the calendar to any 19, Black Friday week, which fell into our fiscal Q1, two any to any.
I touched my reason regional comments today will focus on our business with does adjusted for Black Friday.
First quarter revenue in the Americas was flat when adjusted for Black Friday.
We're really pleased with direct to consumer growth of 10% when adjusted for Black Friday, which was a combination of E commerce growth, new brick and mortar stores in the region and same store sales growth.
The reason direct to consumer.
Growth was offset primarily by decline you as wholesale which was down 4% when adjusted for Lloyds shipments do all right.
This was a bit better than expectations, especially as we were lapping high single digit U.S. wholesale growth in the prior you. So on a two year stack U.S. wholesale was positive.
I've Emmons business continues to be the stand on the U.S. wholesale they grew double digits. This corner.
Europe's revenues were up 11% when adjusted for Black Friday, the goes again broad based across channels product segments and market.
This was another quarter of lapping double digit growth in the prior.
Direct to consumer revenues were up 9% adjusted for Black Friday, and hosted revenues were up 12% on broad growth across markets and our customer base.
The women's business posted another quarter of stellar grow up 19% worse is last year.
And Levi's men's boardrooms grew an impressive 10% fueled by innovative new fit that resonated with consumers.
In Asia, we estimated net revenues growth of 9% when adjusted for decline related to the corner virus in the region and the political unrest in Hong Kong.
Most of the regions markets grew.
In China prior to initiating still closures in response to the outbreak are doing wrong strategies were really gaining traction.
Double digit revenue growth was eclipsing our internal expectation there.
At the peak nearly all odd goes what close and although traffic remains well below prior year levels. We have no reopened all our company operated stores in China, including a beacon store in go Han and all but six franchise doors.
No sales in China remained down to prior year performance is sequentially improving each week.
With our mainline stope performance, leading the charge given the premium collection Darrin.
And the company is in the process of taking back stores in Gong, Joel and Chengdu from off Brio franchise partner.
Sales off I did you do footprint in China, meaning our E commerce sites and those operated by a partner grew in much worse is probably.
In particular, driven by the strong growth in women's fashion fit.
We leveraged our partnership with T mall in the launch all possible Mario collaboration generating a done about and strong sell through.
China is gross margins in march or higher than prior year, reflecting the favorable revenue shift towards the direct to consumer channel.
We are encouraged by the progress we have seen in China, and India, using artificial intelligence and consumer insights to inform the playbook really use for other markets as they begin to recover.
Turning to balance sheet and cash flows.
In dollar terms total inventories at the end of the first Gordo were down 7% compared to a Europe brio.
Continuing the positive inventory leveraged trend.
The composition of inventory was heavily with more than 70% being evergreen products that Getty, oh well into future.
We have fallen visibility into our inventory across all stages awful lot supply chain and you're working proactively leveraging the strong relationships, we have with us applied and customers around inventory levels.
And have aggressively, but cheeses and canceled orders for the second half off Twentytwenty.
We are working with us applies to manage the flow of finished goods in line with reduced demand in the shutdown.
We are putting all agility lever, including up to like which is unique to Ellison company to respond to changes in demand.
We are working to extend the lifecycle of the inventory we have on hand by carrying evergreen products forward into subsequent season, while infusing infusing some new products in the mix to deliver freshness off assortment.
We feel confident that we can minimize raw material liabilities by carrying over for <unk>, but getting all of fabric into broad plus subsequent season as much as possible.
Even in a promotional environment, given the strength of Brian and inventory actions. We believe we can strike a good balance between gross margin and driving revenue.
We have been so very healthy balance sheet.
And ended the quarter with with access to nearly a billion dollars in cash and I'm not I'm. Another 820 million available under our credit facility, which is backed by strong high quality financial institutions.
And next debt maturity guns in 2025.
Gosh its game in situations like this so in the current environment, we felt it brought into Florida augment our cash on hand, and Accordingly drew 300 million on our credit facility last week.
This brings available cash to $1.2 billion, while retaining availability of more than half a billion on our revolver.
Nearly 1.8 billion in total liquidity that better position then maybe to meet this challenge in the near term and a much stronger when things normalize.
We continue to deploy capital on a disciplined basis, so as to future select long term growth initiative, all will add a prudently lower level with fewer store opening them you announced on a last fall.
We also sticking with quarterly dividend payment for now and have announced our second quarter dividend, which will again be eight cents.
Well its share.
This will bring first how dividends to approximately 64 million an increase of 16% as compared to the first off of 29 team, we will reassess dividends for the balance of the as this situation evolves.
Under our share buyback program, we've all read repurchase established itself as the number of shares to offset our 2020 employees dog run dilution next to me.
Based on present circumstances, we do not anticipate the need to do for the share buyback for the remainder of the a and accordingly have suspended the program.
And finally, a wooden guidance.
Given the unprecedented phenomenon all the criminal Ivas pandemic and a significant economic uncertainty. It introduces we have made the decision to withdraw guidance for the time being.
Once you believe that we have sufficient visibility to reinstate guidance, we will do so.
In summary.
Prior to when the Cuno I started to in fact, our results our business trends and financial results were very strong.
And even in the current situation, we remain a strong purpose driven company with powerful iconic brand and I'm confident outlook on our long term growth opportunities. Once we emerged from the current crisis.
We had geographically diversified which will provide us the ability to get your best practices.
As many sales as they come back in various markets.
Globally diversified supply chain is a giant enough to enable us to wisely manage inventory and to maximize our opportunity for working capital efficiency.
We are being nimble in response to the developing situation. In addition to the actions. We're taking now we'll continue to drive lower costs as necessary to mitigate the profitability.
To mitigate a beep.
Oh.
Okay. Good we're taking that being nimble in response to the developing situation in response to the actions. We're taking now we'll continue to drive long caused as necessary to mitigate the profitability pressure from lower revenue.
And when Rightsized capital development to cover a highest priority in order to Brazil and drives the most efficient use of cash.
Our strong balance sheet provides sufficient liquidity to carry us through this difficult time.
We have a deep talent based around the world and most importantly, we have one of the most iconic brand loved by fans worldwide and increasingly by younger consumers, who cared about companies that do well and do good.
Focus on what we can control and expects to launch from this challenging time, a stronger company would that we'll now open it up and take your question.
[noise] to ask a question via telephone. Please press star one if he would like to each of your question. Please press the pound.
Please limit yourself to ask one question and one follow up.
Your first question is on the line of Matthew Boss from JP Morgan. Your line is now open.
With that.
Excuse me Matthew Boss Your line is now open.
Operator, why do we go ahead of the next caller and well, but not back into queue.
Next.
Participants is from the line of Heather Balsky from Bank of America. Your line is now open.
Hi, good evening.
Got you everything is going well and ever on some good how I'm thinking for taking my question.
Can you just talk about how your various wholesale partners in Europe in in the U.S. or are responding to this in terms of working capital in terms of inventory orders and then.
Can you talk about the levers and tools you have to manage working capital during this downturn.
Yup.
Rather high I'm glad you see yourself.
In healthy thanks for asking the question. We're you know we're blessed that we have customers and wholesale partners that'd be great relationships with a we're working with each one of them.
On a case by case basis.
You know we're collecting the cash that's owed to us in managing inventory. The good news is that I mentioned, you know given that our inventory levels were generally healthy as we entered the quarter and ended the ended the or the two 2019, we're in a good.
Spark a large piece so far in mentally including in trading mentally is cool.
So we believe that you know once the retailers are opened its doors and we opened our stores will be able to walk through that and you know what if we're in discussion with our partners you know via rail.
We are asking them to pass what they owe us which is the standing up a good relationship and I'll be working through with them to be ready when the crisis is over and behind us.
One other quick thing I would add heathers, we do have customers that are still in business and still opening their doors im still shipping product. So.
Walmart target Amazon here in the U.S. are all trading and we're still shipping product to them.
And same is true with some of the pure play.
Commerce players in Europe. So we do have some revenue right now and and and some consumer transactions happening in wholesale but as you know the majority of the large department store and a change here in the U.S. or are closed and that's largely true and in Europe across Europe as well.
Yeah. My next question from the line of Matthew Boss from JP Morgan Your line is I'm okay.
Great. Thanks, Thanks, again, and congrats on a nice quarter.
Thanks, Matt. Thank him out did you hear from their glad that you would that you got it.
[laughter] be nice if they opened my line so Kevin as you as we think about the brands top and Bottomline acceleration into the crisis I thought your prepared remarks were actually really interesting I guess, how do you away market share versus profitability to emerge from an s. as a stronger brand as you said without taking some.
Level of a step back.
Yeah, So I I I sort of talked about it in the prepared remarks <unk>. We are very focused right now on how do we come out of the stronger as a company, but also how does the Levi's brand come out of this crisis, even stronger so let me hit a couple of things on you know why I think that's possible first of all.
Coming into the crisis, there's a very good proof point about the strength of the brand and that is called pricing power. You know we have been talking about pricing power. We took pricing at the end of last year and you saw that flow through and gross margin and gross profit line. This year.
Or this past quarter Q1, so you know nothing better demonstrates the strike the brands on the ability to price and we did that successfully in Q1 check and.
We're continuing to invest during this period you know we have not gone completely dark we are cutting back to be very clear we are cutting back on A.M.P., but we're being you know deliberate and strategic about actions that we can take to strengthen the relationship.
Between the brand and the consumer and you know the fiber one concert series is I think a great proof point about an everyday it just keeps getting more momentum you know we're trying to find ways to connect more strongly with consumers during the period of time that the cooped up.
Bird is on the product from you know we're going to continue to bring you missed the Super Mario.
From Nintendo collaboration bats, drop in China, and Asia, and Europe and drops later this week here you know bring some fun and some newness to the brand. So we're not stopping were not pausing. We're continuing to go forward on product and product innovation and finally, we're going to continue to leverage.
You know digital everything digital so we launched the up a few months ago and that's off to a really good start.
We've got our loyalty program, we're gonna continued its double down on that and our ecommerce business.
And then I just last thing I would say is you know I do believe crisis creates opportunities there are gonna be some players in this industry that don't make it and that's going to open up real estate opportunities for us potentially.
It could we could wind up being the share.
Beneficiary of others, not making it.
And you know.
As I kind of crews the internet and Instagram and look at our Facebook page and stuff a lot of people are writing about well I'm working at home I'm kicking back in my Levi's and it's it's become a levi's moment and I think that gives us something to build on industry as we come out of this crisis. So.
We're really focused on it and I'm very very confident that.
You know whatever the shock is to the consumer in the economy.
When when the consumer does emerge from hibernation, they're going to they're going to want to go back to the brands, but they love and to the to the brands that they're comfortable with them they've got a relationship with them and that's why I believe we're we're poised to win in this environment.
Great and maybe the switch gears to out to Europe. So it's close to a third of your sales had a meaningful driver of growth. So maybe pre pre crisis can you speak to profitability metrics and drivers of the pricing power that you were seeing in Europe, and then as we think post crisis, just the remaining opportunity as as we.
Think about the our profitability in and pricing opportunity that you continue to see in Europe.
Sure.
Matt.
You know pre crisis as you know we've been growing Europe now in the mid teens ER and for a couple of years, 20%. Despite the growth.
Our margins have grown so on an operating margin basis, we've seen clear leverage which means that we had been growing the top line as well as driving leverage to the bottom line we did.
I'll take pricing in the second half of last year that pricing stock.
And you know has continued to.
Let's take just a they just before the crisis the brine very very strong our entire portfolio of products are resonating really bad in Europe.
The thing mens bottoms, which were up 10% in the called Oh Women's business was you know grew 19% on top of real Oh, you know strong growth the previous year ER and so are you know we've also continues to grow growth in top up execution continues to be very strong across.
Bought franchise and company operation. So our view is that as you know stores begin to reopen the strength of the brand. Besides all the pricing that we took Andy wonderful execution that the team on the ground in a brings to the market I think with.
Standards, well I'm, especially you know as some of our other or there's a competitor they were in a tough will position you know things to think differently. So you know weve gained market share, we think will emerge out of the prices a lot stronger.
Thats best of luck.
Thanks, Matt.
Next question is from the line of Pollo is less.
From Citigroup. Your line is now open.
Hey, guys. Thanks for taking my question I'm curious I'm, sorry, if I Miss it but did you say that you've seen an acceleration in your E. Com sale since stores have been closed and I'm curious, what you're saying in terms of changes to the basket size and mix of business.
Just curious if online sales, maybe skew towards a bottoms versus tops more so these days than than normal. Thanks.
Yeah, Paul so the at the acceleration or the growth in the digital business. So we have seen in China, the China in the <unk> at the end of the first month as towards the open the business is positive year over year across our other you call.
As business the business is broadly flag I would say Asia is up eight years positive Europe and and the U.S. is slightly down. So overall the business is yeah has been flat Oh in terms. If your question a bottoms and tops the ratio both.
In China as well as in the U.S. is broadly the same it was before the crisis. So we haven't seen any dramatic.
Changing the mix of the business.
Those are in the Frac.
Okay. Thanks, I mean, they're not just just I'd be clear I mean, I I think the other it but didn't know that over the years. We've continued to add stretch and I bought him and I think at last count no over 80% of our bottom had reasonable amount of stress so too.
Oops point or you know people you know looking at home probably are feeling a lot more comfortable.
Yeah. Thank you. Thank you also talk about your and your DTC business first quarter, a ex Black Friday and strong performance Im just curious if you could break down E Commerce full price first factory stores.
Oh I think.
You know if he looked at out first.
Got a one or a brick and mortar was up 14 E Commerce was up 12.
I don't have the E commerce numbers, a doubling the had X a black Friday.
But you know.
I don't have it off the top ahead, but I would say both would reasonably strong a you know from that perspective.
Thank you got them up.
Thank you next question.
Sorry, Sir your next question is from the line of Kimberly Greenberger from Morgan Stanley. Your line is now open.
Okay fantastic. Thank you so much I wanted to start with just understanding it what percentage of your total inventory would have some sort of a seasonal element as opposed to evergreen sort of product. If you could help us understand that.
Because perhaps there's less markdown risk on the on the ever in product and then secondarily [noise].
What are you hearing from your vendors in terms of third quarter orders or fourth quarter orders, but you know what's the early look at your at your order book and then lastly, what sort of Mark down support or margin support our your wholesale partners.
Currently looking for thanks, so much.
Yup, Kimberly you know that said.
The good news is we have.
Walked away at him entry in improving in men treat stones over the over the last couple of years or so the inventory leverage which is.
The growth or the decline in im intrigued relative to the growth in revenue has been positive.
So we entered into the corridor with inventory down 7%, 70% of that is cool I would say seasonally seasonally men tree is about 15% to 20% and you know we're working.
Through a with both our wholesale partners as well as franchisees and and ER in ways and means we can as the stores open you know you know sell that product I think going back to what chip said the strength of the brand as well as the newness that abroad.
Products bring to bear we are getting me confident did weaken badlands growing revenue and gross margins. The other thing on gross margin or just to your point, we're starting at a very good spot a gross margins are a at a record high and I think that will vote as well.
Through the crisis is relatively emerge out of it to your question about you know discussions on order book et cetera again. Its case by case you know we've adjusted our inventory based on a the demand signal we have got Oh, we have a freely flexible supply chain.
And you know so if things come back foster well, we can flex it up we also had the eplex platform, where we can change fashion trends because we have blank.
Which is again something that is going to be a competitive differentiation for us relative to the rest of the folks in that bad industry.
I guess the only other thing to add is side just real briefly is and I think we started in the prepared remarks, but we cut all on film purchase orders in the second half of the year. So we are trying to aggressively manage the second half inventory in terms of inbound.
Just recognizing that everybody all of our customers are gonna have to work off this inventory from their stores being close but the good news is more than 70% of our inventories core replenishment I can carry over to the next season.
Right, Okay and last for me I understand that a when China reopened the stores were still Comping down you know if you think about the last week or two you know what sort of a the magnitude if there the recent performance in comparable store sales purchase.
Right now.
No I hate to I hate talking about averages on a store base of 500 stores. You know we have a mixed performance or re up some stores that are already comping ahead of prior year, we add some that are still significantly down versus prior year, but I think whats important is.
Since the stores started reopening traffic has kind of improved sequentially kinda week over week and our business performance in the aggregate husbands has improved week over week, and we're seeing or E beam E. Commerce business now Comping positive you know performing ahead of your go so.
I kind of use that as light at the end of the tunnel.
The consumer is coming back, albeit maybe a little bit tentatively but there's there are you know a green shoots of optimism.
It's also worth noting that our our mainline stores, particularly the ones that have or more premium assortments and them seem to be doing best right now versus prior year.
And I'm not maybe part of the playbook as we go forward.
And and gross margins you really you heard me say a gross margins were up.
Great.
Thanks.
Next question please.
Yes, that's ever next question from Bob Tupelo from Guggenheim. Your line is open.
Hi, I'm good afternoon tobacco, but just wondering if if if you guys. A chip I was wondering if you could talk a little bit more just like U.S. wholesale, but specifically the mass channel in terms of you know what you've seen there what you're seeing there you know a lot of discussion around cops in mass versus bottoms in mass I just wondered if.
If you could just talk to those trends even post quarter end.
Okay, well, a you know I did kind of alluded to it that yeah, both Walmart and target are still open and we continue to be very optimistic about but the test, which we've now continues to expand were kind of north of 100 doors with TARP.
Good feeling really really good about that as Harvey mentioned earlier, we haven't really seen a dramatic shift from bottoms to tops I know a lot of people were talking about that and they're calling it. The zoom affects people were wearing the for job as you know down below and a nice top up above, but we haven't really seen a draw.
Majdic shift to a our mix from tops to bottoms on our businesses. So.
We're encouraged with but the business performance a revised red tab at target.
We also have our value brands signature and denizen and Walmart and.
And target and they actually were flattish down about a point or two points versus the prior year in Q1 and that may have been we're still trying to figure out how much it out was consumer and consumption driven versus those customers shifting their open to buy bench budgets to you know.
Our.
Household necessities toilet paper paper towels hand, sanitizer and food I suspect, it's probably more in the latter than it is the former so we'll see as as this crisis unfolds, but you know I do think it's important to say that we do have a portfolio of brands and these value brands play a role.
In our portfolio and as for consumers that shocked and potentially as we see no big spikes of unemployment. We've we've got we've got to brand there for the consumer and it's great product that at that value price point.
Got it and it is in terms of the supply chain generally have you been able to procure everything sort of timely and has that been operating for you pretty smoothly.
Sure Yeah right now.
Oh I was just I mean very shortly in short, yes were good and we're good with what we have on hand, right now and particularly with just about everybody being closed were more than good and we're pretty confident about where we have coming in for the second half.
So a good part of the second half is already produced and waiting to go on to boats to ship over here for later in the summer when it should be hitting consumer customers floors.
And it I don't know cut you off yeah, no no nobody's ship or the wonderful let Joel.
Dialogue, but I'd say three other things Bob first you know.
As a value based company has been around 167 years.
No it taking full responsibility for finished ready to ship orders.
And we're working on timetables adjusted timetables with our vendors we have a program in place for old and just to get early payments at favorable market rates and several vendors take advantage of this already we're looking at ways to expand this program to the benefit over hundreds and last but not the least.
You know chip talked about a 3 million ground all that good granting a million two organizations that support of barrels supply chain workers with a focus on public health responses politically for women.
And we working with industry stakeholders to explore options for a broader collective respond so they'll be could support workers. During this crisis. So we are doing in a lot more than just job you know, making sure the goods we need all delivered.
Got it and I'm talking just sneak in one more question I know that the Nintendo Super Mario Brothers launch has gone well internationally is it true there Chris Ocull got an early pair for the ones here in the U.S. and that's what he's wearing during this conference call. He is absolutely wearing it.
Hi, good [laughter] that's crazy.
A little birdie told it's true.
[laughter], it's really good luck product that's it hits later this week. So hopefully everybody will go out and got some thanks, Bob good to hear from a thank Bob you too thanks write backs.
Your next question is on the line of all my aside from Evercore ISI. Your line is now open.
Omar.
Operator can you please mark your the lines okay.
Yes, ma'am. His line is open maybe Mr. Aside your line is on mute on your end.
All right, let's me about the Omar and.
That's.
Let's come back.
Next question is something line of GE. So from you've yes. Your line is now open.
Great. Thanks, So much chip you mentioned there could be some real estate opportunities that arise from the situation I'm just relate that can you talk about any progress you've made over the last quarter developing the full price store model for the U.S.
Yeah. It's no we remain really optimistic about this new store model, which is smaller footprint better location.
We've got a couple of them we have a few more coming we're not stopping those those are still plan to open later this summer the one I always talk about as an example is the Stanford mall.
No we need to I guess got a little bit more clarity on how long and how deep and how much of a problem do we really have here from a financial standpoint, before we can commit to whether we would accelerate top model or not I mean army each side its balance sheet and cash is king right now we don't want to get out over our skis from a capital standpoint, but were.
We're bullish about this and I'm very optimistic about it about the model itself and and I do think that you know there's gonna be does this economic shock is going to have an impact and it will create opportunities and it could create opportunities for us to fine you know more.
Those kinda locations more quickly and if we've got the financial strength and flexibility.
You may pounce on it and not Miss the opportunity to capitalize on the on the environment and the situation that's going to happen. So no. We remain optimistic about it these stores the ones that we've opened that are kind of along the lines of this model are profitable I think from each other than that in the script, but our.
Our lives see on or shore base right now on a global basis and slide 20%. So.
And you know, we clearly have an opportunity for more mainline doors here in the U.S., we only have one but more than 30 right now so.
We'll take advantage of the opportunity if the right opportunities come along.
Got it and then maybe if I could just ask one more on inventory you know you talked about the uncertainty in a situation and it's got to be difficult to plan for holiday not knowing you know how consumers are going to behave and if they're going to be going back to stores or they're going to increase shopping online can you just touched on little bit more kind of flexibility that you have to be able to shift inventory.
Between stores and online.
Just to react whatever happens as we go through the rest of year.
Yeah, well I'd say first and most importantly, we developed the ability to ship from store. We we can fulfill E commerce orders from store and in fact.
We're going to start firing bought back up here in the next week or so just so we can mitigate upon the potential risk of our ecommerce distribution center are the largest distribution center potentially getting shot down I mean in a number of stage.
Distribution centers that are shipping food or medicine, or getting shutdown is not the necessary to ER or business in central and so we want to mitigate that possible risk and weve built that got muscle that capability. So that's that's the first thing I would say the second thing is we've got.
You know I talked about our ecommerce site. It's it's basically our best store and it has a large variety of Ah Ah pcsknines in Assortments that we have both our mainline and outlet doors and we have plenty of flexibility to shift or you know.
Inventory from stores to ecommerce and in both directions.
So we've got maximum flexibility to do it.
Got it thanks, so much.
You're welcome Hey, thank almost <unk>.
Yeah. He just texted me I think he is back to operate any trends, leaving it Omar bag there wasn't a new one more question.
Yes.
Mr. S. I think I'm, sorry, one again.
Oh, sorry, Omar I recover you when you have led us certainly for that.
Yeah I can.
On the line of Omar Saad from Evercore ISI your line is that well.
Are you guys. There can you hear me, yes, yes, yes, we got that are well okay great.
I'm here [laughter], we hear I've been here sorry about that so.
I apologies no worries north apologies. If this has been asked but I wanted to kind of dive into the consumer consumer behavior side of this equation I know you know easy and enticing to talk about the pre could run a virus world in the post Corona virus world, but it's not clear I think how long were going to be honest Corona virus law than what it means somebody's her behavior. So anything is learning at how consumers are acting.
China or different parts of China, you know any thoughts on how consumer behavior or might be the same are different.
And your category in Europe, or North America, and then you know I guess is the key here when you can reopen stores or is the key here when consumers feel comfortable unsafe to go back to things like concert.
And music festivals and other kind of public bars, and happy hours, you know jeans and casual tire occasion, or maybe you can kind of walk me through some of them. Yeah, well you know so I'm I'm, a big consumer Guy here and we're trying to learn as much as we can in China.
And I would say that China may not be a perfect model for everything that we might expect to see in the west.
And that that's for a whole host of reasons, but you know it's quite possible here in the west were going to see you know.
A much bigger economic impact more job losses were already seeing right 10 million people filing for unemployment in the last two two weeks and I think all of those dynamics could potentially have an effect on the consumer but what I can tell you about China is.
But as we brought our stores back up.
Freshness, and newness matter, our top selling item for women is the new balloon fit which we literally just launched and so they're looking for fashion or looking for new units are looking for something exciting best Super Mario Brothers.
Aberration that we launched on a Super brand day on T Mall has literally taken off I'm. So newness find this is gonna be important I think and we're very very conscious about as we plan our second half.
Make sure that we're leaving ourselves enough flexibility to make sure. We've got newness on the floor or when the consumer does come back, but I think you know what's going to happen here in the U.S., what's going to happen with the consumer it's one of the big unknowns and I kind of alluded to it right at the top it's very difficult to forecast the future.
All right now not knowing how deep or how long the discos I would say the deeper the economic impact is and the longer everybody is cooped up.
More the more of a shock there will be to the system and it may take longer for the consumer to come back. That's why I think it's really important that we continue to build our relationship with the consumer during this period of time of isolation or you know.
We're not going to let them forget about levis, while they're cooped up in their home and.
And so building that relationship remaining authentic intruder, who we are.
I'm very excited as you know as you can tell from this a concert series that we're doing but we're challenging yourself what are the other only levi's could do that kind of thing type of moments, but I still think you know.
There's a lot more we don't know.
And what we do know right now and we just have to see how the situation unfolds and but continue to play to our strikes.
And you know learn from China Southern markets in Western Europe begin to come back one from Western Europe, and just keep building our playbook as we go.
So that's kind of how I think about it.
But as I said, I mean, I do think there will be winners and losers here and given the strength of our brand consumers are going to want to come back to their favorites.
And to the brands that they trust and that they love and so.
I think that positions us really well.
Thank you chip thanks for squeezing me and good luck.
Thanks, a lot more but I do I'll wrap operator, well take one last call. Thank you.
Yes, Matt we haven't next question from the line of being I can't see from Telsey. Your line is now open.
Good afternoon, everyone.
[laughter] Chippenham meet high as you guys had been talking about obviously, hi, I think you're talking about the expense management underway. One of the buckets. Obviously is occupancy how are you thinking and what are you seeing in terms of lease term side at least renegotiations idea fleet around the world globally, what it out a full line.
I totally agree there's a lot of opportunity for you to get better locations, even smaller ones in the U.S. When all this is set in got thank you.
Yeah, there now maybe take a stab at that ring discussion like most other retailers with landlords and and we've seen success I think.
You know, we've got to engage landlords and they're being.
Mindful of the situation they like so he was talking about the brands. They also won bread brands. They also want great credit.
And they want brands, they're gonna be here for the longer term. So I'd be looking at case by case and that's why I talked about it as an opportunity from an expense management perspective, we also have governments outside the U.S. So do you get for example, India Cusco stimulus or they have.
Have they have given and abatement in property taxes a holiday.
And so we are leveraging that you know in different markets.
And I'll be working with the White house and the different association to try and bring similar practices in the U.S. as part of a in a stimulus fall. So I think you know I think we feel good about maybe are obviously, a it's difficult to generalize.
But you know chip earlier mentioned you would think about in long term there probably will be vacancy. It gives us an opportunity to book expand close space for stores that are really doing well as well as you know as we grow mainline in the U.S. a angrily <unk> mainland.
Across the world It gives us opportunities to get into type applications.
Thank you stay safe and healthy.
Thank you Dan.
Okay, I I think we'll call it there.
We apologize for going over a little bit long, but there were clearly some.
Type technology challenges with a couple of questions and we thank you all for dialing and I you know we are in Oh.
A once in a century type of situation right now and I just hope that you all will stay safe and keep your family's safe and healthy and we will look forward to talking with you at the end of the next quarter and hopefully we'll be able to talk with more specifics in terms of.
For the balance of the year.
Thank you all very much for dialing in and take care of yourselves.
Thank you for centuries, ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect have a great day.
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