Q3 2021 Levi Strauss & Co Earnings Call

[music].

Good day, ladies and gentlemen, and welcome to the Levi Strauss <unk> Company third quarter earnings Conference call for this period ending August 2019.2021.

All parties will be in a listen only mode until the question and answer session at which time instructions will follow.

This conference is being recorded and may not be reproduced in whole or in part without written permission from the company.

A telephone replay will be available two hours after the completion of this call through October 13th 2021.

Use conference I D 1570959.

This conference call also is being broadcast over the Internet and a replay of this webcast will be accessible for one quarter on the company's website at Levis Strauss dotcom.

I'd now like to turn the call over to Aida orphan senior director of shareholder relations and risk management at Levi Strauss <unk> company.

Thank you for joining us on the call today to discuss the results for our third fiscal quarter of 2020. One joining me on today's call are chip Bergh, President and CEO of Levi Strauss and Harmeet Zhang our CFO.

Hosted complete Q3 financial results in our earnings release on our IR section of our web site investors that lead lifestyle dotcom. The link to the webcast of today's conference call can also be found on our site, we'd like to remind everyone that we will be making forward looking statements on this call, which involve risks and uncertainties 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 the quarterly report on Form 10-Q that we filed today 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 reconciliations to the most directly comparable GAAP financial measures are provided in today's earnings release on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally this call in its entirety is being webcast on our IR website and a replay of this call will be available on our.

Website shortly.

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 the call over to chip.

Good afternoon, everyone and thanks for joining us today.

Delivered another strong quarter revenues were $6.0 billion up 41% versus Q3, 2020, and up 3% versus pre pandemic levels with Q3 2019 with profitability at a multi decade high well exceeding our expectations.

Our results the continued acceleration over the past few quarters and our improved structural economics.

Nearly underscore that the Levi's brand continues to be hot.

Strategies are working.

And we are emerging from the pandemic stronger than ever.

And all of this is despite the ongoing impacts of Covid supply chain constraints and other macro issues, including in Flushing inflationary pressures.

The casualization trends that have been accelerated by the pandemic globally are here to stay and the denim cycle. We started pre pandemic is continuing to drive growth.

In the U S. Both the apparel segment and the denim category are now larger than pre pandemic with denim growth outpacing total apparel for the second quarter in a row.

We expect these drivers will provide our business with a multiyear tailwind.

The impressive bounce back we saw in our U S business in the second quarter accelerated into Q3 up 8% to 2019 on a reported basis and consumer demand in Europe remained strong with the region inflect into growth up 7% versus 2019, our stores reopened.

This despite tourism being down markedly in both the U S and Europe.

We're excited to see consumers returning to our stores as markets reopen with company operated brick and mortar revenue returning to pre pandemic levels impressive results given traffic remains down versus 2019, and 10% of our doors were closed in the quarter.

Importantly, despite stores reopening revenues through digital channels were up 10% versus prior year and represented approximately 20% of total third quarter revenues. This follows 60% growth last year.

Our team is doing an outstanding job mitigating the unprecedented challenges on the supply and logistics side.

Our globally diversified sourcing strategy combined with our scale are a source of competitive advantage.

We long ago decided that we would not source more than 20% of our product from any one country.

Our sourcing currently spans 24 countries. We did this to avoid concentrations to be less exposed to bottlenecks and production capacity.

What's going on currently with Vietnam.

Our exposure is less than 4% of our global volume.

We also have implemented a strategy to cross source key products for example, more than 50% of our current bottoms volume is approved for production of suppliers and at least two different source countries, sometimes more for men's core.

Large portion of tops are also cross stores.

Our supply chain network, including the cross sourcing allows us to quickly ship production.

As an example, after the China tariffs were implemented we rapidly reduced our China exposure in the U S from 8% to less than 1%.

More recently as backups at West Coast ports began to intensify quicker.

Quickly redirected the vast majority of our goods to come in through East Coast ports.

We're also leveraging our scale expertise and strong relationships with our vendors to protect our capacity and control costs, we have locked in approximately 70% of ocean volume and costs through the summer of next year.

And since cotton is very much in the news I will remind you that we have negotiated most of our product costs through the first half of 2022 at very low single digit inflation and for the second half we are anticipating a mid single digit increase which we will offset with pricing actions we bought.

Already taken.

Let me now shift to some key highlights from our third quarter.

The Levi's brand was up 4% versus 2019, and even stronger in our top five markets up 9%.

Both our women's and men's bottoms businesses saw strong sequential acceleration.

Men's bottoms returned to growth up 7% versus 2019 women's bottoms outperformed all categories in Q3 up 18% driven by strong performance in high rise and fashion pits.

The trends towards looser fits continue representing almost half of our women's and men's bottoms assortment. We're.

We're seeing increased demand for our iconic products like the 501, which was up 20% versus Q3 2019.

Our global wholesale channel grew 3% versus 2019, primarily driven by strong performance in the U S. Our efforts to elevate the brand within U S. Wholesale are working are.

<unk> are up high single digits, underscoring, our pricing power and our premium business is up 24% both versus 2019.

And our direct to consumer channel accelerated momentum in the Americas and the reopening of stores in Europe drove significant growth over prior year in both regions.

More importantly revenues from our DTC business returned to growth versus pre pandemic 2019 levels up 4% driven by strength in E Commerce.

Despite 10% of our doors being closed in the quarter global brick and mortar was up 1% to 2019 with strong growth in the Americas and Europe.

In the U S and Europe higher conversion and strong increases in AUR driven by the pricing power of the Levi's brand have offset lower store traffic and while tourist stores have not yet recovered our local doors are growing demonstrating our assortments are resonating with consumers.

Our Nextgen concept continues to show encouraging results these smaller footprint doors or some of the most profitable in our U S mainline fleet supporting our objective to increase distribution of our premium products in the U S marketplace.

We are continuing to elevate our mainline fleet globally and are on track to open 100, new doors. This year, most of which will be nexgen.

We also continue to enhance the omnichannel experience for our consumers during the quarter, we introduced tailor shop virtual workshops began piloting self checkout and launched a shop the store function on our App and the Americas.

Two final quick points.

First we completed the beyond yoga acquisition in late September.

The acquisition puts us in the fast growing and high margin premium activewear category with the successful and authentic brand that is rooted in body positivity inclusivity diversity and quality.

I believe the combination of their category expertise deep consumer understanding and outstanding product with our expertise and capability in brand building retail operations mens and international is a powerful combination that makes me confident we can meaningfully and profitably scale there.

<unk> for the long term.

I'm also very proud that the entire impressive beyond yoga team of roughly 80 innovators and entrepreneurs have stayed with the business and have joined Allison co.

Finally, we recently released our first Standalone sustainability report I invite you all to read the 200 plus page report in full but I want to fly two pieces of it here.

First we are centering our ESG efforts on three main pillars climate consumption and community.

A key objective of our report is to hold ourselves publicly accountable and to challenge ourselves to be even more ambitious and our efforts we plan an annual reporting cadence going forward.

Now over to Harvey to share the details of the quarter pardon me.

Thank you chip good afternoon, everyone.

We delivered solid results against a continued challenging macro backdrop.

For the third quarter, both revenue and adjusted EBIT margin exceeded our expectations, demonstrating the strength of our brand and outstanding execution against our strategic initiatives.

These results were strong relative to last year's Covid impacted quarter, but more importantly, what above Q3 of 2019.

The structure and economics of our business continue to get stronger driven by our largest share of digital business.

Dana will gross margin accretion across all channels and disciplined cost management.

Sequentially relative to 2019, both revenue growth and profitability have improved over the last three quarters.

And we believe that this momentum will continue into quarter four.

As reflected in our revised guidance that I will share shortly.

The strength of our performance this year and the confidence in the long term health of the business have enabled us to allocate capital across all areas of our strategy as we invest in growing our business <unk>.

Paying down debt closing inorganic acquisition and returning incremental cash to shareholders.

As I walk you through our third quarter results my commentary will reference constant currency comparisons.

Unless I indicate otherwise.

Compared to third quarter of 2019 constant currency revenues were up 2%.

Notably currency only had revenues by roughly one point half of what we expected.

And thanks to the strength of our supply chain as chip. Just described we were able to limit the revenue impact of the supply chain disruption to less than $10 million in the quarter.

Adjusted diluted EPS in the third quarter was up 17% or 55% ahead of 2019, driven by the improved structural economics of the business and continued momentum in the Levi's brand.

Let me share some color on the details.

Key performance metrics.

Direct to consumer channel are getting stronger.

<unk> are up mid teens compared to 2019, driven by higher conversion price increases and more full price selling.

Total digital ecosystem sales represented 20% of sales in the quarter.

And well since Q3 2019 company operated e-commerce is up more than 40% and remains profitable.

Our third quarter adjusted EBIT margin of 14, 8% was a third quarter record high.

Driven by continued gross margin expansion and cost discipline.

Relative to 2019 reported adjusted EBIT margins were up 260 basis points.

Adjusted gross margin of 57, 5% expanded 450 basis points compared to 2019, despite a headwind of 70 basis points from higher airfreight.

Guaranteed benefits were negligible.

The causes of the margin expense in it.

Is sustainable resulting from a higher proportion of sales from our direct to consumer channel. The price increases we have taken across all channels and a number of geographies, our highest share of womens healthier U S wholesale mix and better margin management using AI.

And machine learning.

One fourth of the expansion reflected lower levels of promotions, given tighter inventories and lower promotional levels across the industry, which potentially may not be sustainable over the long term.

Moving to SG&A, we are <unk>.

Managing expenses, while also continuing to strategically invest in our long term growth opportunities.

As expected SG&A expenses were $50 million higher than Q3 2019.

About $30 million of the increase was due to DTC investments higher advertising and the impact of currency. Additionally, we accrued higher incentives of approximately $20 million, reflecting outperformance against our internal expectation.

I'll now share a few highlights from our three region for which I will reference comparisons against the third quarter of 2019.

In the Americas net revenues grew 9% led by growth in company operated E Commerce and strength in U S wholesale.

The Levi's brand was up double digits and company operated stores inflected to growth in part due to a larger store network in the Andean region.

The signature brand was up 36%, reflecting the strength of our value offering.

We are pleased with the momentum that continues in Europe as Lockdowns have lifted.

Demand for the Levi's brand remains strong with the region posting net revenue growth of 3%.

Our direct to consumer business increased 9% as stores reopen and company E Commerce grew 34%.

This reflects strength across the region, including in our top markets, France, Germany, and the UK, which collectively were up double digits.

Turning to Asia revenues were down 23% as the region was adversely impacted by virus resurgence is across markets.

In addition to nearly 20% of those being closed in the region during the quarter traffic remained far below 2019 levels.

While China sales were down due to a significant surge of the delta ovarian we remain confident in the long term opportunity in the country.

Turning to balance sheet and cash flows.

<unk> at the end of the quarter were 4% below third quarter 2019.

We are prioritizing our key holiday style and using air freight as needed.

Overall, the composition of our inventory remains healthy with the right balance of fresh product and styles that carry over into future seasons.

We expect to end the year with inventory up mid single digits as we gear up for holiday and incorporate beyond yoga.

Cash and liquidity remains strong and at the end of the quarter net debt was negative $221 million and overall liquidity was $4.0 billion.

Adjusted free cash flow through the first nine months was $220 million strong improvement versus the $28 million in the comparable period of 2019.

In addition to a higher profitability, we have embraced cash discipline and substantially improved working capital as reflected by our cash conversion cycle, which is 25% shorter than it was in 2019.

We are deploying capital across all our strategic capital allocation priorities.

These include high ROI growth investments in our business returning capital to our shareholders and executing both organic.

And inorganic M&A.

We continue to concentrate our capital investments in U S does distribution capacity and technology.

This outlook for capital expenditure in 2021 is approximately $175 million.

We have taken our dividend back up to pre pandemic levels.

And the board of director has approved 200 million for share repurchases.

Additionally, given the strong free cash flow and consistent momentum in our business last month, we paid down our remaining 5% notes due 2025 and our gross debt is again in line with pre pandemic levels.

This will save us $10 million in annual interest expense.

After the quarter, we completed our acquisition of beyond Yoga, which we purchased for approximately $400 million.

The acquisition is expected to generate over $100 million in revenues next year with an EBIT margin that is accretive.

The brand has a strong runway for profitable double digit growth, while our expanded categories geographies and distribution.

Now turning to our fourth quarter outlook. Despite the pandemic surging in different parts of the world given the strength of consumer demand for our brands. We are confident that we will be able to sustain the momentum in our business as we head into the fourth quarter.

We expect fourth quarter reported revenue growth to continue to accelerate relative to 2019 up 6% to 7%.

This is reflective of trends we are seeing in September and represents an increase to our prior guidance.

Not that currency is benefiting us only one point half the FX benefit we guided last quarter.

But this will be offset by the addition of beyond yoga.

Relative to 2020 this translates to reported revenue growth of 22, 21%.

We now expect fourth quarter gross margin around 57, 5%.

This expectation incorporates a similar impact of air freight as we saw in Q3 2021.

This also means full year gross margin will be above 57% and more than 350 basis points above full year 2019.

We expect.

Q4, adjusted SG&A will be $50 million higher than Q4.19 with the primary drivers being DTC advertising, we expect advertising to approach, 9% of Q4 revenues nearly 250 basis points higher than it was in <unk>.

Q3, but only slightly above Q4 2019.

In terms of profit, we expect fourth quarter adjusted EBIT margin of around 12%.

This will translate to second half adjusted EBIT margin of approximately 13% 100 basis points higher than what we shared last quarter.

With respect to taxes, we expect our fourth quarter tax rate in the mid teens.

This would yield a full year tax rate in the high single digits.

And we expect to deliver adjusted diluted EPS of <unk> 38 to 40 cents in the fourth quarter, which brings us to $44.0

Two $46.0 portfolio.

An increase of at least 12 cents or what we said last quarter.

Compared to 2019, this equates to a full year growth of more than 27% and more than a dollar above last year's 21.

Before we go to Q&A I'd like to leave you with three key thoughts.

First we once again exceeded our expectations and are raising our full year outlook.

We anticipate full year revenues, nearly reaching 2019, while delivering a significantly higher profitability, ensuring that we emerge from the pandemic a stronger company.

Our momentum is broad based which we attribute to tailwind from the denim cycle, which we are leading and continued brand strength best demonstrated by our pricing power and AUR increases.

Second the benefits of our structural economics are largely sustainable and will enable us to offset inflationary pressures.

Continued to get stronger through the pandemic as we operate with cleaner inventory more favorable margin dynamic and the ability to drive robust free cash flows.

And they're making discretionary investments to propel the Levi's brand and accelerate DTC.

And third we continue to increase capital deployment across all our priorities, while generating higher returns on invested capital versus 2019.

We are extremely optimistic about the future as we continue to advance our strategic initiatives and leverage our strong balance sheet to drive future profitable growth with that I will now open it up for questions.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Matthew Boss from Jpmorgan. Your question. Please.

Great Thanks, and congrats on a nice quarter.

Thanks, Joe.

Chip in a world with Covid your brand and category are doing well, particularly on a relative basis I guess, how much of this do you think is company specific versus expanding category Tam maybe tied to casual Ization and then just on the other side of the crisis, how do you feel about market share opportunity I know you've site.

Good competitor consolidation you guys have changed your wholesale distribution I think you've outlined a pretty robust retail door expansion and from a pricing power perspective do you believe you have the opportunity to continue to take price from here.

Okay.

Yeah. Good question, Matt first of all I would say.

Clearly, we are benefiting and our peers are benefiting from some of the tailwind, which we talked about in the prepared remarks.

Casualization trends with new denim cycle, which I think I was the first to declare it a couple of quarters ago and I think we can say now quite constantly that these new Lucerne, that's new silhouettes are definitely driving a new denim cycle in fact, I just got some data.

The total jeans category in the past nine months past nine month basis.

It is up to $13.0 billion here in the U S. That's higher than it was pre pandemic. During the same nine month period was $16.0 billion and way higher than it was during the pandemic at $13.0 billion. So clearly a category is bouncing as people need to refill their wardrobe. So that's helping everybody, but I think the vast majority.

<unk>.

Our results are driven by the strategic choices that we've made and the quality of execution that we've driven over the past couple of quarters and I think that's gonna be true going forward.

The majority of our gains are being driven by the fact that the brand is really really strong that's probably best demonstrated by our ability to take and secure price increases with the AUR growth that we referred to.

But we're also highly focused on premium rising the brand, particularly here in the U S still our largest market by far.

We have really focused on our wholesale distribution footprint, which you alluded to which is much healthier today and more premium.

With a negligible amount of off price.

Certainly helped by a lower promotional environment today as well.

These next Gen stores, which we're launching are working.

And we're committed as we said in the script, we're going to we're going to do.

Okay.

Uh Huh have a total of 100, new Nextgen doors. This year not all in the U S to be clear, but we're committed to premium rising here in the U S.

I would argue based on the supply chain results. This past quarter that we're navigating that and have been very very thoughtful and had good foresight I guess in terms of how to navigate this.

Which has helped us pretty significantly during this challenging quarter.

And then finally, you know is harmeet alluded to towards the close of our prepared comments the structural economics that we need.

Kind of worked on very very hardly during the pandemic has left us with a very different looking company from a P&L standpoint.

It's driving significant improvement in cash flow, but it's also giving us a lot of powder in ammunition to invest in driving profitable growth and that's that's.

What we're doing so.

Clearly the <unk> are helping us, but we think there is share growth opportunity and last I should mention you know don't forget we acquired beyond yoga, which puts us into this performing performance athletic category and I've got the data on that as well and in the U S. On the past nine months basis, that's a 50.

Dollar category five times bigger than the total jeans category.

And also up versus pre pandemic and even on a past nine month basis.

As the pandemic period, so I think our future is really really bright there's share growth opportunities and then we've got these tailwind, but I think youre going to help us and as long as we can continue to navigate the challenges thrown at US every single quarter I think we're going to come out in the one in place.

That's great color best of luck.

Thanks, Matt Thanks.

Thank you. Our next question comes from the line of their own vessel lets go from Exane BNP. Your question. Please.

Good afternoon chip good afternoon Hanmi. Thank you very much for taking my question.

Chip I think you mentioned in your prepared remarks.

And the hot topic de jure is obviously cotton.

You'd called out cotton for $23.0

And just to be up low single digits and anticipated up mid single digits for the back half of 'twenty. Two can you talk about your business and your pricing power relative to the last cotton bubble seen in 2011, I think you are in a much stronger position today.

What percentage of your Cogs actually come from cotton and I know you didn't provide explicit FY any guidance really on FY 'twenty, two but how should we think theres still further runway on the gross margin and chip here.

Now let me chip.

Wanted to go first to Okay, Yeah, let me start on.

Great question, Rob and thank you for asking because I think we are in a very very different place than we were in 2011 in fact I've joined the company in September of 2011.

The midst of the cotton run up.

At that point in time, but let me just kind of paint a picture of how different we are and which gives me a great deal of confidence in our ability to work our way through the cotton.

Increased cotton market and by the way.

Low single digit that we referred to in the prepared remarks was total cogs not cotton. So it's total cost of goods, but.

2011, when I joined the company, 48% of our business was U S wholesale.

Right.

Our U S business, our total U S business was almost 60% of the total company.

That's a very very different picture, we were 20% DTC back them. We're now I think this last quarter, we were $35, 36% DTC. So we've got a very different looking distribution footprint much more of our businesses overseas now international which skews higher gross.

Margin more retail on stronger brand, particularly in Europe.

So that is.

Big Big difference and then I think the second thing that is just night and day difference since the strength of the brand I mean back in 2011, when we were still a wholesale dominant business. It was a turnaround situation. When I joined the brand was weak we hadn't really grown revenues and profits at the same.

Time in over a decade.

And.

We worked in their early days very very hard on getting this brand back into the center of culture and resonating with the consumer in 2011, we didn't have pricing power I have Jim Collins come and talk to our leadership team and he said you know you've got a strong brand when you don't have to hold the prior meeting to take pricing.

In 2011, we needed a permitting.

Very different situation today is I think our AUR is clearly support we've been able to take pricing over the last 12 months and it's sticking and I think if the inflation issues <unk> cotton <unk> cost of goods.

It's worse than what we've got built into our model right now.

If we have to take more pricing, we'll figure out where and how to do that we're also much more disciplined and have much better capabilities in terms of data data analytics machine learning and where we can apply some of those tools to make very very strategic decisions on getting incremental pricing, if that's going to be necessary, but.

We have taken pricing over the last 12 months in anticipation of.

Of costs going up and so that's and that's part of the reason we're seeing these incredible gross margins over the last couple of months is repriced ahead of some of these inflationary pressures heading us so.

Let me talk a little bit about the cotton piece.

Yes sure.

Chip just two things.

I'll answer the question on gross margin in a second but just some garden.

As chip said, it's not a one to one ratio we used two pounds of garten and every bank. So think about Gordon driving 20% of the cost of our wonderful denim bottoms.

And as we do.

Bye.

In two halves to two seasons, we have locked in prices for the first half of 'twenty two at about 1% inflation to 'twenty one numbers the second half.

We are in the process of negotiating as we speak we think we can land at about mid single digit inflation.

And we think you know.

Between the pricing actions, we have taken that chip referenced and the ones that would be if you have to take.

Given the strength of the brand will be able to mitigate.

The impact on Cogs to your question about gross margins.

Isn't it beautiful to have gross margins of 57%.

And sustaining as record gross margins and if you go back the last couple of quarters sequentially, it's only improve.

As I said in my script.

No.

It's difficult because the environment is less promotional everybody's running with leaner inventories my view of the world.

Is that strong brands like ours as Matt <unk> will come out of this lot stronger I mean, that's what.

Between chip and I and the team we have.

Experienced a fire recession, that's probably what's happened.

Go back a couple of.

Economic hardships strong banks really come on relative to do the right thing.

So as you think about.

Our margin accretion gross margin accretion.

Say.

About three fourth of fitted structural and here to stay and that's all driven by the diversification.

The use of AI more international <unk>, a product price increases et cetera.

For the 100 basis points potentially.

The environment becomes more promotional et cetera.

I'll have to figure out.

I think to your question about what is the appropriate guidance for 2022 on gross margin I think history is a good predictor of the future.

<unk> successfully.

Growing gross margin.

Over the years.

And I'd say, our intent is to continue growth continue to grow gross margin.

And we have puts and takes in gross margin I mean, we are right now the headwind is air freight it's about 70 basis points as reflected in Q3 is reflected in our guidance for Q4.

And our view is that.

Our intent is to meet consumer demand and economically if you have to airfreight, we will if it made that but I think gross margin has a few things working against us in a lot of things working for us So I'd say we.

Probably give a better perspective on 2022, when we come out with earnings for the year in Q4 sometime mid January early February.

Thank you very much for all the color.

Yeah.

Thank you. Our next question comes from the line of Omar Saad from Evercore. Your question. Please.

Hi, good afternoon. Thanks for taking my question great job on the quarter.

I wanted to ask you about.

To ask you about the <unk>.

Absolutely I wanted to ask about beyond yoga is kind of the first chance we have to ask you about it.

Public on a conference call.

It's obviously, a small transaction, it's relative to the core Levi's brand.

Maybe you could talk a little bit about how.

Your experience on the platform you built kind of turnaround and rejuvenate levis, which was already large and widely recognized as a brand, but you know, albeit under monetize but how you bring that to bear in this more early stage hyper growth situations have beyond yoga what are the key elements from device you can go to apply is it marketing is it international.

And then I have one small follow up that's a caveat here okay.

We touched on this a little bit in the prepared remarks, but maybe I'll just elaborate on it I mean.

I guess, the first thing I would say and I think most of you know this.

The end of the day I'm a brand Guy and then spent 28 years of PNG building brands launching new brands, creating brands turnaround brands.

And when I joined Levis I mean part of the reason I joined was there was a turnaround opportunity and my thesis coming want coming in was.

<unk> was 85% of the company and if I could turn the brand around we can turn the company around and that's fundamentally at the end of the day is kind of what we've done over the last.

It's not about me. This is about the whole team that did it but that's pretty much what we've done and so so when we were kind of looking at acquisitions I mean, one of the things that.

Really impressed us about beyond yoga is it has legs I mean this is a brand that is built on a deep consumer insight around.

Body positivity and the fact that any woman.

Indian athlete and and and.

You know workout and should feel good about working out and her body, regardless of her body shape and that is part of the insight so and it celebrates that inclusion in that diversity and when you look at the website, you'll see it and it resonates with consumers, but it is real.

Fundamental consumer insight on and.

Think about what they bring to the party is.

Deep consumer understanding and insight they built a community of users they know their consumer really well.

Combined with a deep understanding of the category.

And amazing product and great product knowledge, what we bring to the party I think is an ability to scale.

Brand and really bring great brand building capabilities to bear on this.

This is a brand that by the way, it's growing double digit for the last 10 years and they've been profitable their entire existence and and but they've managed the business kind of the old fashioned way to say it made money they put it back into growing the business and so our capital will also be a help to them.

But what we bring to bear is.

The steep brand building capability.

Number two.

Deep understanding of men's which is a clear opportunity for this brand. Its total white space. At this time number three is retail capabilities because retail is clearly an opportunity and given the structural economics of this business.

It's almost a no brainer, but we're not going to go out really fast we're going to learn our way there and then finally this is a brand that can travel internationally right now almost all of its businesses here in the U S. Most of it online a little bit of a wholesale business and so.

We think all of those things together their capabilities combined with our capabilities since what gives me confidence that we're going to be able to.

Be able to drive this business.

Continue that double.

Double digit growth trajectory and do it very very profitably and I think over time, it's gonna be a meaningful contributor to the business.

Got it great chip.

Oh, I'm, sorry, the only thing I'd.

The only thing I'd add.

If you look at the.

The history since chip got here.

The last decade.

We have not only increased capital, but we also includes increased returns.

So I think.

As we scale this with disciplined capital Allocators, and if you think about the three filters.

Based on our board approved this acquisition or any acquisition the financial filter is as important as a culture of filter and the strategic filter. So we're on the hook to scale and grow and we think this can be really big.

Got it got it and then just and then just to clarify when you said harmeet accretive to margins you mean.

Accretive to the <unk>.

The current <unk> margin, which I think you said, there's going to be over 12%.

Beyond July it's already above that.

Yes.

Great. Thanks, guys for all the color good luck.

Thanks amongst Omar.

Thank you. Our next question comes from the line of Kimberly Byrd from Morgan Stanley. Your question. Please.

Oh, great. Thank you so much.

I'm noticing very nice growth, obviously compared to 2019 in the Americas, and Europe, where he talked about that high single digit growth rate.

Asia I think is suffering from some store closures I was just wondering if you could talk about the path to recovery in that geography, and I am assuming that the first step is let's get all the all the stores open and operational and sort of life back to normal as it may be a first step, but what are the key.

The things that you need to come do you think need to come together.

Get that business.

Back to where where it ought to be and then separately on our supply chain and inventory.

It's very evident that you've managed through the supply chain challenges.

Very very well I suspect the inventory, which I think if I'm looking at the right numbers here.

It's down around 4% from 2019, I suspect that's going to be one of the best numbers that we're going to see through this earnings season.

So youre in.

What looks like.

Quite good shape, but I know you have aspirations to get that inventory number into the positive territory.

Do you do you have sort of line of sight as to when you think you'll be able to get that inventory back into positive territory.

And do you see any are you experiencing delays because it just looks like you're sort of sailing through all of the supply chain challenges in a way that is better than than what we're hearing from others. So any color there would be helpful. Thanks, so much.

Sure Kimberly Thank you for your question.

Asia.

Performance.

In the quarter.

Is.

Largely driven by the fact that.

There were lockdowns and continue to be lockdowns in different forms.

In different countries around Asia.

Think about a store base during the quarter.

We had 20% of our store base closed during the quarter and I think if you look at the revenues go down 23% so.

A little bit of traffic.

Softness, but it's essentially driven by Lockdowns and.

As you think about it.

The World I'd say, the western part of the was higher vaccination rates the eastern part of the world scaling up.

Over time, so that's it.

Whats really driving.

The softer numbers in Q in Q2, it was largely India that was run through.

Tough resurgence of Covid that drag.

The numbers.

As we think about Q4.

Our view is.

Q4.

Will be it will be less down than Q3 and.

We Havent dog September because we're just closing September was the first month of the quarter, but what we're seeing is definitely the business is.

Bouncing back, there's probably still and you know flat.

Flat to slightly down, but nowhere near the.

The 22% that you saw now.

So that's just a little bit of color on in Asia Asia. As you know represents a much smaller piece of our business is.

<unk> 31%.

It's probably our largest opportunity and.

Just given the.

The number of consumers in Asia, and the strength of the brand. So it's clearly.

<unk>, we are pursuing starting with China, China was down in the quarter essentially driven by the Lockdowns.

And we do think China bounces back in quarter four.

And then we continued the momentum that we've seen.

Just before.

Before the recent.

Round of logged out so that's all.

Our perspective on Asia to your question on inventory.

You're right inventory.

Is down 4% relative.

2019.

In the end of quarter three our expectation for quarter four is inventory will probably be up about 4%. So that's what the reference by positive it will grow and is essentially our expectation.

What's driving the growth is really the fact that we're gearing up for holiday season.

We believe like the NFL.

Just said that holiday should be strong 3% to 5% up.

Relative to last year.

Brands that have inventory like us will meet consumer demand.

Others.

Dawn.

Our view is.

The growth in inventory is driven by the fact that we get off of holiday and as you know our fiscal end in November December.

December so we're gearing up.

For December the other pieces beyond yoga is not in our numbers and that is.

Appointed two so those are the two pieces that drive the growth in inventory, but the overall principle I mean I look at our we look at inventory in two ways. One is okay, what's the inventory levels for the year.

Unexpected demand, but importantly, what's the health of the inventory and the <unk>.

Inventory continues to be really really good.

And that's largely driven by the fact that we have a logical.

Terrific color. Thanks, so much.

Thanks Kimberly.

Thank you. Our next question comes from the line of Bob <unk> from Guggenheim Securities. Your question. Please.

Hi, good afternoon guys.

Two questions actually if I could.

The first one is on the I guess, we go back to cotton for a second.

What you have locked in I guess my question is like.

How much wiggle room to your suppliers have like how tight are your contracts.

Okay.

Been any discussions about given the move that we've seen recently their ability to sort of break the contract or anything along those lines that would be helpful. And then I think the second one is just when you think about the gross margin.

On the price increases that you've had you've talked a little bit before about sort of the benefits to the top line, but also the benefits. The margin just wondering if you could maybe share a little bit more in terms of.

The price increases that you have taken.

The expectation like the buckets for the gross margin with pricing, but also how much that does really help you on the top line.

Yes, so Bob.

I think.

The contracts, we have with us.

<unk> is a manufacturer of partners.

A pretty tight.

When things are tough things are tough.

FX for example can work against Us and we do.

On her up benefit when things are tough they own a bit of it but there are wonderful in a relationship that have been cultivated for years.

It really helps us is.

A couple of things one the.

Fact that we have a large coal and core is going to be here for very very long time. So you can start thinking about placing those orders along with them and manufacture the windows can think about this demand being there for a long long time, I think that helps both sides as well as the wallet.

Of.

What we can bring to the table.

And so I would say that would be the answer to your first question about the second riches Halloween taking pricing.

And what are you doing about it I think.

<unk>.

Our teams on the ground to a phenomenal job thinking through this.

Obviously benchmark.

Competitors.

And because we are in market leadership position in a lot of areas.

We can flex our muscle.

To ensure that we don't.

HUD consumer demand the other thing that we've we're beginning to unlock and it's a huge opportunity for US long term is the use of AI and machine learning.

And given that we do have stores you can always desk pricing.

I think chip referenced the fact that we've been proactive on pricing.

I like to say you take pricing.

It is important to take pricing when you don't need it and then when you need it in because we've been.

Doing it on the back of a strong brand and.

Styles and silhouettes resonating with the consumers we feel good.

Pricing is different.

In different parts of the world for a whole bunch of reasons.

Difficult to say with precision.

It's 4% here in 5% or 3%, but we have taken pricing during the pandemic in the U S. For example on our women's style that was sold into wholesale in quarter three of last year. We took it up 10 bucks and that generally stock and so there's a bit of.

Odd and a bit of science, but I think what is going to really help us longer term is the use of AI and machine learning and build a lot more disciplined in the process.

Thank you.

Thank you. Our next question comes from the line of Ike Portugal from Wells Fargo. Your question. Please.

Hey, good afternoon, everyone.

Chip for harmony and I'm not sure Who's best to answer this question, but sort of the elevated freight and distribution pressure that youre seeing today for Q3 Q4 are you trying to pass any of that pressure onto your retail partners at wholesale or are you just kind of taking the hit yourself I'm trying to parse it out.

And then the second follow up when you say you're confident you can offset next year is low single digit mid single digit inflation in <unk> is that from initiatives in AUR.

Already implemented or is also predicated on future strategies that you plan to kind of implement.

Sure.

Yes.

Thank you for asking the question.

We haven't.

Possibly if rate.

Costs onto.

Our retailers.

Because it's big it's happening and we are reacting to it.

It's more important to.

To meet.

Consumer demand.

And as we think about our relationship with our wonderful retailers I mean, there's a whole profit pool, if freight and other things that are just part of it. So that's how we're thinking about it.

At least for now.

The answer to your second question is.

We feel good about so we've taken pricing actions and the pricing actions were taken.

60.

Six to 12 months ago, we feel good about offsetting the inflation in the first half and inflation up too.

I would say mid single digits in this in the second half that would be we are contemplating right now if things get tougher than you know obviously will sharpen the pencil on.

Two things one is obviously pricing in the second is cost initiatives I mean, our job is to balance consumer demand and profitability.

And ensure that we go after the wonderful growing.

The addressable market that chip and Matt referred to as well as ensuring that we drive profitability to our shareholders and other stakeholders.

Okay.

Thank you. Our next question comes from the line of Polish way from Citi. Your question. Please.

Hey, guys. Thanks.

Environment, where we're talking so much about prices going up you guys, taking price curious how youre thinking about units how are your wholesale partners ordering units if theres any color you can provide on order books for.

First half from a unit perspective that that can be helpful. And then just second do you expect supply chain delays to have more of an impact than the $10 million you called out in <unk>.

As we think about for kit.

I could take the second piece, though and chip or feel free to.

<unk> so.

I think I referenced.

I was I may not have been as clear we do expect that.

$10 million.

You know that we probably would.

We're not able to service it and call it three to increase in quarter four so the good news is there is demand.

The better news as our growth accelerates, but if he had.

More inventory and foster.

More product, we could probably sell more.

I think it's.

It's a it's a key balance between building a lot of inventory, ensuring the be able to manage all the constraints that.

I think chip referred to in supply chain and made demand so I think there.

We're managing through that as best as we can.

But there is demand out there and and doing our best to address it I think to yours.

Your second question Paul was about.

Our demand book, an order book and volumes volumes are down.

If you look at it year over year.

Mentioned.

Sales was up 3%, but I think volumes are.

Slightly down relative to 19.

As we think.

But the order books.

Haven't publicly talk about volume, but.

I can.

Say that the.

The playbook as well.

Think about the first half and it was really a pre book is really Europe PE book is up.

But we haven't publicly talked about different new volume in and says I think and follows a similar trend that we're seeing so far I think over time, because you know the.

The rest of market has increased I think over time, I think volumes as well.

We'll then too.

Also accelerate and grow.

Relative to 19 difficult predict when but that's what I'd say at this time.

Okay. Thank you.

Thanks.

Thank you our next question.

As a final question for today comes from the line Jay sole from UBS. Your question. Please.

Great. Thank you so much chip.

Ask you beyond your question sort of the opposite of the earlier question is it.

Is it possible that beyond yoga can help the Levi's brand with its women's assortment outside of the core <unk> business. When it comes to tops and some of the outerwear potential that it could possibly do you you've talked about potential acquisitions in the past being something that could bring skills is a company that can help you grow your business is there an aspect of beyond yoga that maybe we would.

Give some insights into how you grow that lifestyle components of the of the women's business.

Yes in fact, I mean, thank you for kind of piling on and one of the reasons. We did the strategically is.

One of our key strategic pillars is to continue to diversify the company and we said our ambition is to get our women's business to 50% of our total business. This is clearly going to help there, but they do bring capabilities and skills that I think will help us.

Beyond just beyond yoga, if you well and.

I mean, one of the things that we're trying to really protect us.

This.

Very soon.

Scrappy team if you will but has demonstrated an ability to just build this business organically again by focusing on really satisfying and meeting their consumer and.

Levering, great product and I think a lot of what they are doing we're going to be able to take some of those learnings back.

Back to our core business and and I think it will help us over time, but.

One of the big strategic reasons for doing this is to further diversify the company.

It puts us into a market size.

Bigger than total denim by a lot and it's a tiny little brand, but I think has so much potential long term so on its own it should be very accretive but beyond that the skills that they bring some of the capabilities that I think we will learn about fabric. Some fabrication in this more performance oriented business.

This can help us on the rest of our business and.

Could really halo over the rest of the company and that's my hope over time that we see it do that.

Yeah.

Got it thank you so much.

Yeah, Thanks, a lot guys.

I know that there are still a couple of calls a couple of questions left on the call and we do have to wrap up here, but I want to thank everybody.

We just have to be punchy or I guess in answering a question. So that we can get through all of the questions on the line, but I know that we've got follow up calls with <unk>.

Everybody and we'll get to everybody in my follow up calls and.

If you didn't get a question to answer but that's for an incentive for item, we'll make sure that we get it turned around real quickly, but thank you all for joining US our next call isn't until the end of January when we will have our Q4 and full year.

Announcement.

And at that point in time, we'll also provide guidance for fiscal 'twenty two but thank you all for joining us and since we won't be talking to you in a big way.

I hope everybody has a really safe and happy holiday ahead of them and.

Go out and biological levis them put them under the tree. Thank you all very much and we'll talk to you again soon.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

[music].

[music].

[music].

Good day, ladies and gentlemen, and welcome to the Levi Strauss <unk> Company third quarter earnings Conference call for this period ending August 2009, 2021, all parties will be in a listen only mode until the question and answer session at which time instructions will follow.

This conference is being recorded and may not be reproduced in whole or in part without written permission from the company a.

A telephone replay will be available two hours after the completion of this call through October 13th 2021.

Use conference I'd 1570959 this.

This conference call also is being broadcast over the Internet and a replay of this webcast will be accessible for one quarter on the company's website at Levi Strauss Dot Com I would now like to turn the call over to Aida orphan senior director of shareholder relations and risk management at Levi Strauss <unk> company.

Thank you for joining us on the call today to discuss the results for our third fiscal quarter of 2020. One joining me on today's call are chip Bergh, President and CEO of Levis Strauss and Harmeet Zhang our CFO, we have posted complete Q3 financial results in our earnings release on our IR section of our web site investors that Levi Strauss dotcom.

The link to the webcast of today's conference call can also be found on our site, we'd like to remind everyone that we will be making forward looking statements on this call, which involve risks and uncertainties 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 the quarterly report on form.

<unk> 10-Q that we filed today 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 reconciliations to the most directly comparable GAAP financial measures are provided in today's earnings release on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally this call in its entirety is being webcast on our IR website and a replay of this call will be available on our web.

Site. Shortly 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 the call over to chip.

Good afternoon, everyone and thanks for joining us today.

We delivered another strong quarter.

Revenues were $6.0 billion up 41% versus Q3, 2020, and up 3% versus pre pandemic levels with Q3 2019 with profitability at a multi decade high well exceeding our expectations.

Our results the continued acceleration over the past few quarters and our improved structural economics, clearly underscore that the Levi's brand continues to be hot our strategies are working and we are emerging from the pandemic stronger than ever.

And all of this is despite the ongoing impacts of Covid supply chain constraints and other macro issues, including in Flushing inflationary pressures.

The Casuals Asian trends that have been accelerated by the pandemic globally are here to stay and the denim cycle. We started pre pandemic is continuing to drive growth.

In the U S. Both the apparel segment and the denim category are now larger than pre pandemic with denim growth outpacing total apparel for the second quarter in a row we.

We expect these drivers will provide our business with a multiyear tailwind.

The impressive bounce back we saw in our U S business in the second quarter accelerated into Q3 up 8% to 2019 on a reported basis and consumer demand in Europe remained strong with the region inflect into growth up 7% versus 2019 as stores reopen.

Despite tourism being down markedly in both the U S and Europe.

We're excited to see consumers returning to our stores as markets reopen with company operated brick and mortar revenue returning to pre pandemic levels impressive results given traffic remains down versus 2019, and 10% of our doors were closed in the quarter.

Importantly, despite stores reopening revenues through digital channels were up 10% versus prior year and represented approximately 20% of total third quarter revenues.

This follows 60% growth last year.

Our team is doing an outstanding job mitigating the unprecedented challenges on the supply and logistics side.

Our globally diversified sourcing strategy combined with our scale are a source of competitive advantage.

Long ago decided that we would not source more than 20% of our product from any one country.

Our sourcing currently spans 24 countries.

Did those to avoid concentrations to be less exposed to bottlenecks and production capacity.

What's going on currently with Vietnam.

Our exposure is less than 4% of our global volume.

We also have implemented a strategy to cross source key products for example, more than 50% of our current bottoms volume is approved for production of suppliers and at least two different source countries, sometimes more for men's core.

A large portion of tops are also cross source.

Our supply chain network, including the cross sourcing allows us to quickly shut production.

As an example, after the China tariffs were implemented.

Rapidly reduced our China exposure in the U S from 8% to less than 1% and more recently as backups at West Coast ports began to intensified we quickly redirected the vast majority of our goods to come in through East coast ports.

We're also leveraging our scale expertise and strong relationships with our vendors to protect our capacity and control costs, we have locked in approximately 70% of ocean volume and costs through the summer of next year.

And since cotton is very much in the news I will remind you that we have negotiated most of our product costs through the first half of 2022 at very low single digit inflation and for the second half we are anticipating a mid single digit increase which we offset with pricing actions we've already.

Taken.

Let me now shift to some key highlights from our third quarter.

The Levi's brand was up 4% versus 2019, and even stronger in our top five markets up 9%.

Both our women's and men's bottoms businesses saw strong sequential acceleration.

Men's bottoms returned to growth up 7% versus 2019 women's bottoms outperformed all categories in Q3 up 18% driven by strong performance in high rise and fashion pits.

The trends towards looser fits continue representing almost half of our women's and men's bottoms assortment.

We're seeing increased demand for our iconic products like the 501, which was up 20% versus Q3 2019.

Our global wholesale channel grew 3% versus 2019, primarily driven by strong performance in the U S. Our efforts to elevate the brand within U S. Wholesale are working our <unk> are up high single digits, underscoring our pricing power and our premium business is up 24%.

Both versus 2019.

And our direct to consumer channel accelerated momentum in the Americas and the reopening of stores in Europe drove significant growth over prior year in both regions more.

More importantly revenues from our DTC business returned to growth versus pre pandemic 2019 levels up 4% driven by strength in E Commerce.

Despite 10% of our doors being closed in the quarter global brick and mortar was up 1% to 2019 with strong growth in the Americas and Europe.

In the U S and Europe higher conversion and strong increases in AUR driven by the pricing power of the Levi's brand have offset lower store traffic and while tourist stores have not yet recovered our local doors are growing demonstrating our assortments are resonating with consumers.

Our Nextgen concept continues to show encouraging results.

Smaller footprint doors or some of the most profitable in our U S mainline fleet supporting our objective to increase distribution of our premium products in the U S marketplace.

We are continuing to elevate our mainline fleet globally and are on track to open 100, new doors. This year, most of which will be nexgen.

We also continue to enhance the omnichannel experience for our consumers during the quarter, we introduce tailor shop virtual workshops began piloting self checkout and launched a shop the store function on our App and the Americas.

Two final quick points.

First we completed the beyond yoga acquisition in late September.

The acquisition puts us in the fast growing and high margin premium activewear category with the successful and authentic brand that is rooted in body positivity inclusivity diversity and quality I believe the combination of their category expertise deep consumer understanding.

And outstanding product with our expertise and capability in brand building retail operations mens and international is a powerful combination that makes me confident we can meaningfully and profitably scale. This brand for the long term.

I'm also very proud that the entire impressive beyond yoga team of roughly 80 innovators and entrepreneurs have stayed with the business and have joined Dallas and co.

Finally, we recently released our first Standalone sustainability report I invite you all to read the 200 plus page report in full but I want to flag two pieces of it here.

First we are centering our ESG efforts on three main pillars climate consumption and community.

A key objective of our report is to hold ourselves publicly accountable and to challenge ourselves to be even more ambitious and our efforts we plan an annual reporting cadence going forward.

Now over to Hermes to share the details of the quarter pardon me.

Thank you chip good afternoon, everyone.

We delivered solid results against a continued challenging macro backdrop.

For the third quarter, both revenue and adjusted EBIT margin exceeded our expectations, demonstrating the strength of our brand and outstanding execution against our strategic initiatives.

These results were strong relative to last year's Covid impacted quarter, but more importantly, what above Q3 of 2019.

The structure and economics of our business continue to get stronger driven by a largest share of digital business.

Dana will gross margin accretion across all channels and disciplined cost management.

Sequentially relative to 2019, both revenue growth and profitability has improved over the last three quarters.

We believe that this momentum will continue into quarter four.

Reflected in our revised guidance that I will share shortly.

The strength of our performance this year and the confidence in the long term health of the business have enabled us to allocate capital across all areas of our strategy as we invest in growing our business.

Paying down debt closing, our inorganic acquisition and returning incremental cash to shareholders.

As I walk you through our third quarter results my commentary will reference constant currency comparisons.

As I indicate otherwise.

Compared to third quarter of 2019 constant currency revenues were up 2%.

Notably currency only had revenues by roughly one point half of what we expected.

And thanks to the strength of our supplies Janet Chip. Just described we were able to limit the revenue impact of the supply chain disruption to less than $10 million in the quarter.

Adjusted diluted EPS in the third quarter was up 17 cents or 55% ahead of 2019, driven by the improved structural economics of the business and continued momentum in the Levi's brand.

Let me share some color on the details.

Key performance metrics.

Direct to consumer channel is getting stronger.

AUR was up mid teens compared to 2019, driven by higher conversion price increases and more full price selling.

Total digital ecosystem sales represented 20% of sales in the quarter.

And well since Q3 2019 company operated e-commerce is up more than 40% and remains profitable.

Our third quarter adjusted EBIT margin of 14, 8%, whereas the third quarter a record high.

Given by continued gross margin expansion and cost discipline.

Relative to 2019, we reported adjusted EBIT margins were up 260 basis points.

Adjusted gross margin of 57, 5% expanded 450 basis points compared to 2019, despite a headwind of 70 basis points from higher airfreight.

Guaranteed benefits were negligible.

Three quarters of the margin expansion is sustainable resulting from a higher proportion of sales from our direct to consumer channel.

The price increases we have taken across all channels and a number of geographies our highest share of womens health. Your U S wholesale mix and better margin management, using AI and machine learning.

One fourth of the expansion reflected lower levels of promotions, given tighter inventories and lower promotional levels across the industry, which potentially may not be sustainable over the long term.

Moving to SG&A, we are managing expenses, while also continuing to strategically invest in our long term growth opportunity.

As expected SG&A expenses were 50 million higher than Q3 2019.

About 30 million of the increase was due to DTC investments higher advertising and the impact of currency. Additionally, we accrued higher incentives of approximately $20 million, reflecting outperformance against our internal expectation.

I'll now share a few highlights from our three region for which I will reference comparisons against the third quarter of 2019.

In the Americas net revenues grew 9% led by growth in company operated E Commerce and strength in U S wholesale.

The Levi's brand was up double digits and company operated stores inflected to growth in part due to a larger store network in the Andean region.

The signature brand was up 36%, reflecting the strength of our value offering.

We are pleased with the momentum that continues in Europe as Lockdowns have lifted.

Demand for the Levi's brand remains strong with the region posting net revenue growth of 3%.

Our direct to consumer business increased 9% as stores reopen and company E Commerce grew 34%.

This reflects strength across the region, including an adult markets, France, Germany, and the UK, which collectively were up double digits.

Turning to Asia revenues were down 23% as the region was adversely impacted by virus resurgence is across markets.

In addition to nearly 20% of those being closed in the region during the quarter traffic remained far below 2019 levels.

Well, China sales were down due to a significant surge of the delta wherein we remain confident in the long term opportunity in the country.

Turning to balance sheet and cash flows.

Inventories at the end of the quarter were 4% below third quarter 2019.

We are prioritizing our key holiday style and using air freight as needed.

Overall, the composition of our inventory remains healthy with the right balance of fresh product and does that carry over into future seasons.

We expect to end the year with inventory up mid single digits as we gear up for holiday and incorporate beyond yoga.

Cash and liquidity remains strong and at the end of the quarter net debt was negative $221 million and overall liquidity was $4.0 billion.

Adjusted free cash flow through the first nine months was $220 million strong improvement versus the $28 million in the comparable period of 2019.

In addition to a higher profitability, we have embraced cash discipline and substantially improved working capital as reflected by our cash conversion cycle, which is 25% shorter than it was in 2019.

We are deploying capital across all our strategic capital allocation priorities.

These include high ROI growth investments in our business, returning capital to our shareholders and executing both organic and inorganic M&A.

We continued to concentrate our capital investments in new stores distribution capacity and technology.

The outlook for capital expenditure in 2021 is approximately $175 million.

We have taken a dividend back up to pre pandemic levels.

And the board of director has approved 200 million for share repurchases.

Additionally, given the strong free cash flow and consistent momentum in our business last month, we paid down our remaining 5% notes due 2025 and our gross debt is again in line with pre pandemic levels.

This will save us $10 million in annual interest expense.

After the quarter, we completed our acquisition of beyond Yoga, which we purchased for approximately $400 million.

The acquisition is expected to generate over 100 million in revenues next year with an EBITDA margin that is accretive.

The brand has a strong runway for profitable double digit growth, while our expanded categories geographies and distribution.

Now turning to our fourth quarter outlook.

Despite the pandemic surging in different parts of the world given the strength of consumer demand for our brands. We are confident that we will be able to sustain the momentum in our business as we head into the fourth quarter.

We expect fourth quarter reported revenue growth to continue to accelerate relative to 2019 up 6% to 7%.

This is reflective of trends we are seeing in September and represents an increase to our prior guide.

Note that currency is benefiting us only one point.

The FX benefit we guided last quarter.

But this will be offset by the addition of beyond yoga.

Relative to 2020 this translates to reported revenue growth of 22, 21%.

We now expect fourth quarter gross margin around 57, 5%.

This expectation incorporates a similar impact of air freight as we saw in Q3 2021.

This also means full year gross margin will be above 57% and more than 350 basis points above full year 2019.

We expect Q.

Q4, adjusted SG&A will be $50 million higher than Q4.19 with the primary drivers being DTC advertising, we expect advertising to approach, 90% of Q4 revenues nearly 250 basis points higher than it was in Q.

Three but only slightly above Q4 2019.

In terms of profit, we expect fourth quarter adjusted EBIT margin of around 12%.

This will translate to second half adjusted EBIT margin of approximately 13% 100 basis points higher than what we shared last quarter.

With respect to taxes, we expect our fourth quarter tax rate in the mid teens.

This would yield a full year tax rate in the high single digits.

And we expect to deliver adjusted diluted EPS of <unk> 38 to 40 cents in the fourth quarter, which brings us to $44.0

Two $46.0 for the folio.

An increase of at least 12 cents all of what we said last quarter.

Compared to 2019, this equates to a full year growth of more than 27% and more than a dollar above last year's 21 cents.

Before we go to Q&A I'd like to leave you with three key thoughts.

First we once again exceeded our expectations and are raising our full year outlook.

I anticipate full year revenues, nearly reaching 2019, while delivering a significantly higher profitability and ensuring that we emerge from the pandemic a stronger company.

Our momentum is broad based which we attribute to tailwind from the denim cycle, which we are leading and I've continued brand strength best demonstrated by our pricing power and AUR increases.

Second the benefits of our structural economics are largely sustainable and will enable us to offset inflationary pressures.

We continue to get stronger through the pandemic as we operate with cleaner inventory more favorable margin dynamic and the ability to drive robust free cash flows.

And they're making discretionary investments to propel the Levi's brand and accelerate D. D C.

And third we continue to increase capital deployment across all our priorities, while generating higher returns on invested capital was <unk> 2019.

We are extremely optimistic about the future as we continue to advance our strategic initiatives and leverage our strong balance sheet to drive future profitable growth.

I will now open it up for questions.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Matthew Boss from Jpmorgan. Your question. Please.

Great Thanks, and congrats on a nice quarter.

Thanks, Joe.

Chip in a world with Covid, you Brandon category are doing well, particularly on a relative basis I guess, how much of this do you think is company specific versus expanding category Tam maybe tied to casually nation and then just on the other side of the crisis, how do you feel about market share opportunity I know you've cited <unk>.

<unk> consolidation you guys have changed your wholesale distribution I. Thank you for that.

Outlined a pretty robust retail door expansion and from a pricing power perspective do you believe you have the opportunity to continue to take price from here.

Okay.

Yeah. Good question Matt.

First of all I would say.

Clearly, we are benefiting and our peers are benefiting from some of the tailwind, which we talked about in the prepared remarks.

The casualization trends with new denim cycle, which I think I was the first to declare it a couple of quarters ago and I think we can say now quite confidently that these new Lucerne pit new silhouettes are definitely driving a new denim cycle and in fact I just got some data.

The total jeans category in the past nine months past nine month basis.

It is up to $13.0 billion here in the U S. That's higher than it was pre pandemic.

During the same nine month period was $16.0 billion and way higher than it was during the pandemic at $13.0 billion. So clearly a category is bouncing as people need to refill their wardrobes and that's helping everybody, but I think the vast majority of our results are driven by the strategic choices that we've made and the quality of execution.

And that we are driving over the past couple of quarters and I think that's gonna be true going forward.

The majority of our gains are being driven by the fact that the brand is really really strong that's probably best demonstrated by our ability to take and secure price increases with the AUR growths that we referred to.

But we're also highly focused on premium rising the brand, particularly here in the U S still our largest market by far.

We have really focused on our wholesale distribution footprint, which you alluded to which is much healthier today and more premium.

With a negligible amount of off price.

Helped by a low promotion environment today as well.

These next Gen stores, which we're launching are working.

And we're committed as we said in the script, we're going to we're going to.

Have a total of 100, new Nextgen doors. This year not all in the U S to be clear, but we're committed to premium rising here in the U S.

Would argue based on the supply chain results. This past quarter that we're navigating that and have been very very thoughtful and.

<unk> had good poor side I guess in terms of how to navigate this.

Which has helped us pretty significantly during this challenging quarter.

And then finally, you know is harmeet alluded to towards the close of our prepared comments the structural economics that reach.

Kind of worked on very very hard late during the pandemic has left us with a very different looking company from a P&L standpoint.

It's driving significant improvement in cash flow, but it's also giving us a lot of powder in ammunition to invest in driving profitable growth and that's that's what we're doing so.

Clearly the tailwind or helping us, but we think there is share growth opportunity and last I should mentioned don't forget we acquired beyond yoga, which puts us into those performing performance athletic category and I've got the data on that as well and in the U S. On the past nine months basis, that's a 50 billion.

Dollar category five times bigger than the total jeans category and also up versus pre pandemic and even on a past nine month basis.

Versus the pandemic period. So you know I think our future is really really bright there is share growth opportunities and then we've got these tailwind. So that I think are going to help us and as long as we can continue to navigate the challenges thrown at us.

Every single quarter, I think we're going to come out and the winning place.

That's great color best of luck.

Thanks, Matt Thanks.

Thank you. Our next question comes from the line of their own vessel lets go from Exane BNP. Your question. Please.

Oh, good afternoon chip good afternoon Hanmi. Thank you very much for taking my question.

Chip I think you mentioned in your prepared remarks.

The hot topic de jure is obviously cotton I think you'd called out cotton for one H 'twenty two.

And just to be up low single digits and anticipated up mid single digits for the back half of 'twenty. Two can you talk about your business and your pricing power relative to the last cotton bubble seen in 2011, I think you are in a much stronger position today, what percentage of your Cogs actually come from cotton and I know.

You didn't provide explicit FY any guidance really on FY 'twenty, two but how should we think there is still further runway on the gross margin interest here.

Now let me chip.

You want to go first to Okay, Yeah, let me start on it.

Great question and thank you for asking because I think we are in a very very different place than we were in 2011. In fact I've joined the company in September of 2011 in the midst of the cotton run up.

At that point in time, but let me just kind of paint a picture of how different we are and which gives me a great deal of confidence in our ability to work our way through the cotton.

Increased cotton market and by the way.

Low single digit that we referred to in the prepared remarks was total cogs not cotton. So it's total cost of goods, but.

In 2011, when I joined the company, 48% of our business was U S wholesale.

Our U S business, our total U S business was almost 60% of the total company.

Today.

It's a very very different picture, we were 20% DTC back then we're now I think this last quarter, we were $35, 36% DTC. So he's got a very different looking distribution footprint much more of our businesses overseas now international which skews higher gross margin more.

Retail on stronger brand, particularly in Europe.

So that is a big big difference and then I think the second thing that is just night and day differences the strength of the brand I mean back in 2011, when we were still a wholesale dominant business. It was a turnaround situation when I joined the brand was weak we hadn't really.

Revenues and profits at the same time in over a decade.

And yeah, we worked in their early days very very hard on getting this brand back into the center of culture and resonating with the consumer in 2011, we didn't have pricing power I have Jim Collins come and talk to our leadership team and he said you know you've got a strong brand when you don't have to hold the prior meeting to take pricing.

And in 2011, we needed a prayer meeting.

Very different situation today is I think our AUR is clearly support we've been able to take pricing over the last 12 months and it's sticking and I think if the inflation issues <unk> cotton and our cost of goods.

It's worse than what we've got built into our model right now.

If we have to take more pricing, we'll figure out where and how to do that we're also much more disciplined and have much better capabilities in terms of data data analytics machine learning.

Where we can apply some of those tools to make very very strategic decisions on I'm getting incremental pricing, if that's going to be necessary, but we have taken pricing over the last 12 months in anticipation of of cost going up and so that's and that's part of the reason we're seeing these incredible gross margins.

For the last couple of months is repriced ahead of some of these inflationary pressures hitting us so.

Can you talk a little bit about the cotton piece.

Yes sure.

Thanks Chip just two things.

Answer the question on gross margin in a second but just some garden.

As chip said, it's not a one to one ratio.

Used two pounds of Garten and every bank to think about Gordon driving 20% of the cost of our wonderful denim bottoms.

And as we redo.

Bye.

In two halves to two seasons, we have locked in prices for the first half of 'twenty two at about 1% inflation due 'twenty one numbers. The second half we are in the process of negotiating as we speak we think we can land at about mid single digit inflation.

And we think you know between the pricing actions, we have taken that chip referenced and the ones that would be if you have to take.

Given the strength of the brand will be able to mitigate.

The impact on Cogs to your question about gross margins.

Isn't it beautiful to have gross margins of 57% and sustaining as record gross margins and if you go back the last couple of quarters sequentially, it's only improve.

As I said in my script.

You know it's difficult because the environment is less promotional everybody's running with leaner inventories my view of the world is that strong brands like ours as Matthew US will come out of this lot stronger I mean, that's what we.

Between chip and I and the team we have.

Experienced a fire recession, that's probably what's happened.

Go back a couple of <unk>.

Gnomic hardship strong banks really come on relative to do the right thing.

So as you think about.

Our margin accretion gross margin accretion I would say.

About three fourths of it is structural and here to stay and that's all driven by the diversification.

Use of AI more international <unk>, a product price increases et cetera.

For the 100 basis points potentially.

The environment becomes more promotional et cetera.

We'll all have to figure out.

To your question about what is the appropriate guidance for 2022 on gross margin I think history is a good predictor of the future I mean, we have successfully.

Growing gross margin.

Over the years.

And I'd say, our intent is to continue growth continue to grow gross margin.

And we have puts and takes in gross margin I mean, we are right now the headwind is air freight it's about 70 basis points as reflected in Q3 is reflected in our guidance for Q4.

And our view is that we.

Our intent is to meet consumer demand and economically if you have to air freight we will effort to make made that but I think gross margin has a few things working against us in a lot of things working for us So I'd say.

We'd probably give a better perspective on 2020 do when we come out with earnings for the year.

Q4 sometime mid January early February.

Thank you very much for all the color.

Yeah.

Thank you. Our next question comes from the line of Omar Saad from Evercore. Your question. Please.

Hi, good afternoon. Thanks for taking my question great job on the quarter.

I wanted to ask you about I wanted to ask you about the absolutely I wanted to ask about beyond yoga.

First chance, we have to ask you about it in.

In public on a conference call.

It's obviously, a small transaction, it's relative to the core Levi's brand.

But maybe you could talk a little bit about how you're.

Your experience on the platform you built a kind of a turnaround and rejuvenate levis, which was already large and widely recognized as a brand, but you know, albeit under monetize but how you bring that to bear in this more early stage hyper growth situation.

Yoga what are the key elements from Levis you thought you could go to apply is it marketing is it international.

And then I have one small follow up if that's okay gotcha okay.

Yeah, we touched on this a little bit in the prepared remarks, but maybe I'll just elaborate on it I mean I.

I guess, the first thing I would say and I think most of you know this.

The end of the day I'm a brand Guy and then spent 28 years of PNG building brands launching new brands, creating brands turning around brands.

And when I joined Levis I mean part of the reason I joined was there was a turnaround opportunity and my thesis coming want coming in was.

Levis was 85% of the company and if I could turn the brand around we could turn the company around and that's fundamentally at the end of the day is kind of what we've done over the last year and it's not about me. This is about the whole team that did it but that's pretty much what we've done.

And so so when we were kind of looking at acquisitions I mean, one of the things that really impressed us about beyond yoga is.

It has legs I mean this is a brand that is built on a deep consumer insight around.

Body positivity and the fact that any woman can be an athlete and and and.

10, workout and should feel good about working out and her body, regardless of her body shape and that is part of the insights and it celebrates that inclusion and diversity and when you look at the website you will see it in and it resonates with consumers, but it is real.

<unk> fundamental consumer insight.

And we think that what they bring to the party is the deep consumer understanding and insight they built a community of users they know their consumer really well.

Combined with a deep understanding of the category.

And amazing product and great product knowledge, what we bring to the party I think is an ability to scale.

Rand and really bring great brand building capabilities to bear.

This is a this is a brand that by the way its grown double digit.

In the last 10 years, and they've been profitable their entire existence and.

But they've managed the business kind of the old fashioned way to say it made money they put it back into growing the business and so our capital will also be a help to them and.

But what we bring to bear is.

The steep brand building capability.

Number two.

Deep understanding of men's which is a clear opportunity for this brand. Its total white space. At this time number three is retail capabilities because retail is clearly an opportunity and given the structural economics of this business.

It's almost a no brainer, but we're not going to go out really fast we're going to learn our way there and then finally this is a brand that can travel internationally right now almost all of its businesses here in the U S. Most of it online a little bit of a wholesale business and so.

We think all of those things together their capabilities combined with our capabilities since what gives me confidence that we're going to be able to.

Be able to drive this business.

Continue that double.

Double digit growth trajectory and do it very very profitably and I think over time, it's gonna be a meaningful contributor to the business.

Got it isn't great chip.

Oh, I'm, sorry, the only thing I'd.

The only thing I'd add.

If you look at the.

The history since chip got here.

The last decade.

We have not only increased capital, but we also include <unk>.

These returns in.

So I think.

As we scale this with disciplined capital Allocators, and if you think about the three filters.

Based upon our board approved this acquisition or any acquisition the financial filter is as important as a culture of filter and the strategic filter. So we are on the hook to scale and grow and we think this can be really big.

Got it would have got it and then just and then just to clarify when you said accretive to margins you mean.

Accretive to the <unk>.

The current L. S. A coe margin, which I think you said, there's going to be over 12%.

July is already above that.

Yes.

Great. Thanks, guys for all the color good luck.

Thanks amongst Omar.

Thank you. Our next question comes from the line of Kimberly Greenberger from Morgan Stanley. Your question. Please.

Oh, great. Thank you so much.

I'm noticing very nice growth, obviously compared to 2019 in the Americas, and Europe, where he talked about that high single digit growth rate.

Asia I think is suffering from some store closures I was just wondering if you could talk about the path to recovery in that geography, and I am assuming that the first step is let's get all the all the stores open and operational and sort of life back to normal as it may be a first step, but what are the key.

Key things that you need to come do you think need to come together so they.

To get that business.

Back to where where it ought to be and then separately on our supply chain and inventory.

Very evident that you've managed through the supply chain challenges.

Things are going well I suspect the inventory, which I think if I'm looking at the right numbers here.

It's down around 4% from 2019, I suspect that's going to be one of the best numbers that we're going to see through this earnings season.

So you're you're in.

What looks like.

Quite good shape, but I know you have aspirations to get that inventory number into the positive territory.

Do you do you have sort of line of sight as to when you think you'll be able to get that inventory back into positive territory.

Do you see any are you experiencing delays.

It just looks like you're sort of sailing through all of the supply chain challenges in a way that is better than what we're hearing from others. So any color there would be helpful. Thanks, so much.

Sure Kimberly Thank you for your question.

Asia.

<unk>.

In the quarter.

Is.

Largely driven by the fact that.

There were lockdowns and continue to be lockdowns in different forms.

In different countries around Asia.

Think about a store base during the quarter.

We had 20% of our store base closed during the quarter and I think if you look at the revenues were down 23%. So.

A little bit of traffic.

Softness, but it's essentially driven by Lockdowns and.

As you think about it.

The World I'd say, the western part of the world higher vaccination rates, the eastern part of the world scaling up.

You know over time so that's.

What's really driving.

The softer numbers in Q in Q2, it was largely India that was went through.

Tough resurgence of Covid that.

Drag the numbers.

As we think about Q4.

Our view is.

Q4.

Will be it will be less down than Q3.

And.

You know, we Havent dog September because we're just closing.

September was the first month of the quarter, but what we're seeing is definitely the business is.

Bouncing back there's probably still.

And splat.

Flat to slightly down, but nowhere near the.

The 22% that you saw now so so that's just a little bit of color on in Asia Asia. As you know represents a much smaller piece of our business is 15.

15% to 16%.

It's probably our largest opportunity and.

Just given the.

The number of consumers in Asia, and the strength of the brand. So it's clearly.

Opportunity, we are pursuing starting with China, China was down in the quarter essentially driven by the Lockdowns.

And we do think China bounces back in quarter four.

And then we continue the momentum that we've seen.

Just before.

Before the recent.

Round of logged out so that's all.

Our perspective on Asia to your question on inventory.

You're right inventory.

Is down 4% relative.

2019.

In the end of quarter three our expectation for quarter four is inventory will probably be up about 4%. So that's what you referenced by positive it will grow and is essentially our expectation.

What's driving the growth is really the fact that we're gearing up for holiday season.

We believe like DNS.

You know just said that you know holiday should be strong 3% to 5% up.

Relative to last year.

Brands that have inventory like us will meet consumer demand.

Others.

Dawn.

Our view is that the growth in inventory is driven by the fact that we geared up for holiday and as you know our fiscal end in November not December so we're gearing up for.

For December the other pieces beyond yoga is not in our numbers and that is you know a.

Appointed two so those are the two pieces that drive growth in inventory, but the overall principle I mean I look at when we look at inventory in two ways. One is okay, what's the inventory levels for the year.

And expected demand, but importantly, what's the health of the inventory and the health of the inventory continues to be really really good.

And that's largely driven by the fact that we have a logical.

Terrific color. Thanks, so much.

Thanks Kimberly.

Thank you. Our next question comes from the line of Bob <unk> from Guggenheim Securities. Your question. Please.

Hi, good afternoon guys.

Two questions actually if I could.

The first one is on the I guess, we go back to cotton for a second.

You know what you have locked in I guess my question is like.

How much wiggle room to your suppliers have like how tight are your contracts.

There have been any discussions about.

Given the move that we've seen recently their ability to sort of break the contract or anything along those lines that would be helpful. And then I think the second one is just when you think about the gross margin.

On the price increases that you've had you've talked a little bit before about sort of the benefits of the topline, but also the benefit to the margin. Just wondering if you could maybe share a little bit more in terms of the.

The price increases that you have taken.

The expectation like the buckets for the gross margin with pricing, but also how much that does really help you on the top line. Thanks.

Yes, so Bob.

I think.

The contracts we have.

With us.

Suppliers of manufacturer partners.

A pretty tight.

Sure.

When things are tough things are tough.

FX for example can work against Us and we just owner up benefit when things are tough they own a bit of it but they are wonderful.

Relationship that had been cultivated for years.

That really helps us is.

A couple of things one.

The fact that we have a large coal and core is going to be here for very very long time. So you can start thinking about placing those orders along with them and ours manufacturer. The windows can think about the demand being there for a long long time, I think that helps both sides as well as the wall.

Of what.

What we can bring to the table.

And so I would say that would be the answer to your first question about the second which is how long are we taking pricing.

And what are we doing about it.

Thank you now.

Our teams on the ground do a phenomenal job thinking through this.

Obviously benchmark our competitors.

And because we are in market leadership position and a lot of areas.

We can flex our muscle.

To ensure that we don't.

HUD consumer demand the other thing that we are.

We are beginning to unlock and it's a huge opportunity for US long term is the use of AI and machine learning.

And given that we do have stores you can always desk pricing.

I think chip referenced the fact that we've been proactive on pricing.

I like to say you take pricing.

It is important to take pricing when you don't need it and then when you need it in because we've been.

Doing it on the on the back of a strong brand and.

You know styles and silhouettes resonating with the consumers, we feel good and pricing is different.

In different parts of the world for a whole bunch of reasons.

Difficult to say.

Staying with precision, where the 4% and 5% or 3%, but we have taken pricing during the pandemic in the U S. For example on our women's style that was sold into wholesale in quarter three of last year. We took it up 10 bucks and that generally stock and so there's a bit of.

Odd and a bit of science, but I think what is going to really help us along with them is the use of AI and machine learning and build a lot more disciplined in the process.

Yeah.

Thank you.

Yes.

Thank you. Our next question comes from the line of like Portugal from Wells Fargo. Your question. Please.

Hey, good afternoon, everyone. So chip.

Or maybe I'm not sure who's best to answer this question, but so.

So the elevated freight and distribution pressure that youre seeing today for Q4 are you trying to pass any of that pressure onto your retail partners at wholesale or are you just kind of taking the hit yourself im trying to price it out.

The second follow up when you say you're confident you can offset next year is low single digit mid single digit inflation in one agent to which is that from initiatives in AUR, you've already implemented or is that also predicated on future strategies that you plan to kind of implement early next year.

Yes, thank you for asking the question.

We haven't.

Possibly if freight costs onto.

Our retailers.

Yeah, because it is happening and where we.

Reacting to it.

It's more important to.

To meet.

Consumer demand.

And as we think about our relationship with our wonderful retailers I mean, there's a whole profit pool.

<unk> and <unk>.

Another thing that is just part of it so that's how we're thinking about it.

At least for now.

Yes.

The answer to your second question is.

We feel good about so we've taken pricing actions and the pricing actions were taken.

Six to 12 months ago, we feel good about offsetting the inflation in the first half and inflation up too.

I would say mid single digits in the second half that would be we are contemplating right now if things get tougher than you know obviously will sharpen the pencil on two things one is obviously pricing in the second as you know cost initiatives.

<unk> job is to balance consumer demand and profitability.

And ensure that we go up to the wonderful growing.

Addressable market that chip and Matt referred to as well as ensuring that we drive profitability to our shareholders and other stakeholders.

Thank you.

Thank you. Our next question comes from the line of Polish way from Citi. Your question. Please.

Hey, guys. Thanks.

An environment, where we're talking so much about prices going up you guys, taking price curious how youre thinking about units.

How are your wholesale partners ordering units that there is any color you can provide on order books for <unk>.

First half from a unit perspective.

That can be helpful. And then just second do you expect supply chain delays to have more of an impact than the $10 million you called out in <unk>.

As we think about <unk>.

I could take the second piece, though and chip or feel free to.

Jump on so.

I think I referenced it but I was a man I've.

Been as clear we do expect.

The $10 million.

You know that we probably.

We're not able to service it and call it three to increase in quarter four so the good news is there is demand.

The better news as our growth accelerates, but if he had.

More inventory and foster.

More product, we could probably sell more.

I think it's.

It's a it's a key balance between building a lot of inventory ensuring that we're able to manage all the constraints that.

I think chip referred to in supply chain and made demand. So I think there were.

We're managing through that as best as we can.

But there is demand out there and and we're doing our best to address it I think to yours.

Your second question Paul was about.

Auto demand book, an order book and volumes volumes are down.

If you look at it year over year.

You mentioned.

Sales was up 3%, but I think volumes are.

Slightly down relative to 19.

As we think.

But the order books.

Haven't publicly talk about volume.

But I can.

Say that the.

Pre book as we think about the first half and the area where it really had pre book is really Europe PE book is up.

And.

But we haven't publicly talked about different new volume in and says I think can follow the similar trends that we're seeing so far I think over time, because you know the.

The addressable market has increased I think overtime I think volume will tend to.

Also accelerate and grow.

Relative to 19 difficult predict when but that's what I'd say at this time.

Okay. Thank you.

Comment.

Thank you our next question.

He is our final question for today comes from the line of Jay sole from UBS. Your question. Please.

Yes.

Great. Thank you so much chip I'm going to ask you a beyond your question sort of the opposite of the earlier question as it is.

Is it possible that beyond yoga can help the Levi's brand with its women's assortment outside of the core bottoms business. When it comes to tops and some of the outerwear potential that it could possibly do you you've talked about potential acquisitions in the past being something that could bring skills is a company that can help you grow your business is there an aspect of beyond yoga that maybe we will.

Give some insights into how you grow that lifestyle components of the of the women's business.

Yes in fact, I mean, thank you for kind of piling on and one of the reasons. We did the strategically is.

You know one of our key strategic pillars is to continue to diversify the company and we said.

Our ambition is to get our women's business to 50% of our total business. This is clearly going to help there, but they do bring capabilities and skills that I think will help us.

Beyond just beyond yoga, if you will and I.

I mean, one of the things that we're trying to really protect us.

Yes.

Barry.

Scrap the team if you will but.

<unk> demonstrated an ability to just build this business organically.

By focusing on really satisfying and meeting their consumer and delivering.

Delivering great product and I think a lot of what they are doing we're going to be able to take some of those learnings back.

Back to our core business and and I think it will help us over time, but.

You know one of the big strategic reasons for doing this is to further diversify the company I mean it.

It puts us into a market size.

Bigger than total denim by a lot and it's a tiny little brand, but I think has so much potential long term so on its own it should be very accretive but beyond that the skills that they bring some of the capabilities that I think we will learn about fabrics from fabrication and this more performance oriented business.

This can help us on the rest of our business and.

Could really halo over the rest of the company and that's my hope over time that we see it do that.

Yeah.

Got it thank you so much.

Yeah, Thanks, a lot guys.

I know that there are still a couple of calls a couple of questions left on the call and we do have to wrap up here, but I want to thank everybody.

We just have to be punchy or I guess in answering your questions. So that we can get through all of our questions on the line, but I know that we've got follow up calls with <unk>.

Everybody and we will get to everybody in my follow up calls.

And if you didn't get a question to answer but that's for an incentive for Aida and we'll make sure that we get it turned around real quickly, but thank you all for joining US our next call isn't until the end of January when we will have our Q4 and full year.

Announcement.

And at that point in time, we'll also provide guidance for fiscal 'twenty two but thank you all for joining us and since we won't be talking to you in a big way.

I hope everybody has a really safe and happy holiday ahead of them and.

Go out and buy lots of levis them put them under their tree. Thank you all very much and we'll talk to you again soon.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.