Q3 2023 Levi Strauss & Co Earnings Call

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Speaker 1: You

Yeah.

Speaker 2: Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company third quarter earnings conference call for the period ended August 27, 2023. All parties will be in a listen only mode until the question and answer session at which time instructions will follow.

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

August 27, 2023, all parties will be in a listen only mode until the question and answer session at which time instructions will follow.

Speaker 2: This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company.

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

Speaker 2: This conference call is being broadcast over the internet and a replay of the webcast will be accessible for one quarter on the company's website, LeviStrauss.com

This conference call is being broadcast over the Internet.

A replay of the webcast will be accessible for one quarter on the company's website Levi Strauss dotcom.

Speaker 2: I would now like to turn the call over to Ida Orphan, Vice President of Investor Relations at Levi Strauss.

I would now like to turn the call over to Ida orphan Vice president of invasive and.

Investor Relations at Levi Strauss <unk> company.

Speaker 3: Thank you for joining us on the call today to discuss the results for our third fiscal quarter of 2023. Joining me on today's call are Chip Berg, our President and CEO , Michelle Goss, our President, and Harmeet Singh, our Chief Financial and Growth Officer.

Thank you for joining us on the call today to discuss the results for our third fiscal quarter of 2023, joining me on today's call are chip Bergh, President and CEO, Michelle Gass, our president and Harmeet Singh, our chief financial and growth Officer.

Speaker 3: We have posted complete Q3 financial results in our earnings release on the IR section of our website, investors.levisjraus.com. The link to the webcast of today's conference call can also be found on our site.

It posted complete Q3 financial results in our earnings release on the IR section of our web site investors don't lead by strong dotcom. The link to the webcast of today's conference call can also be found on our site.

Speaker 3: We'd like to remind you 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 factor section of our form 10K and the information included in our quarterly report on form 10Q that we filed today for the factors that could cause our results to differ. Also note that the forward looking statements on-

I'd like to remind you 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 our Form 10-K, and the information included in our quarterly report on Form 10-Q that we filed today.

So 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.

Speaker 3: are based on information available to us as of today and we assume no obligation to update any of these dates.

Speaker 3: During this call, we will discuss certain non- GAAP financial measures. These non- GAAP measures are not intended to be a substitute for our gap results. Reconciliation of our non- GAAP measures to their most comparable gap measure are included in today's press release. Finally, this call is being webcast on our IR website and a replay of this call will be available on the website shortly.

During this call we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results.

Tiliaceous of our non-GAAP measures to their most comparable GAAP measure are included in today's press release.

Finally, this call is being webcast on our IR website and a replay of this call will be available on our website shortly.

Speaker 3: Please note that Chip Michelle and Hermite will be referencing constant currency numbers unless otherwise noted. 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.

Please note that ship, Michelle and her meet will be referencing constant currency numbers unless otherwise noted.

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.

Now I'd like to turn the call over to chip.

Speaker 4: Thank you, Adda. Good afternoon, everyone. And thank you for joining us. I'm delighted to have Michelle joining us on the call today. I'll start with some high-level comments overall on the business before passing it to Michelle, who will share her impressions and thoughts on the business after nine months.

Thank you Ed and good afternoon, everyone and thank you for joining us I'm delighted to have Michelle joining us on the call today I'll start with some high level comments overall on the business before passing it to Michelle who will share her impressions and thoughts on the business after nine months.

Speaker 4: Our meat will then take you through the financials and guidance, and I will wrap up before Q&A.

Pete will then take you through the financials and guidance and I will wrap up before Q&A.

Speaker 4: Overall, we had a solid quarter, despite the challenging environment. Reported revenues were flat to prior year and down 2% on a constant currency basis. As the strong double digit growth of our direct to consumer business was offset by continued softness in the wholesale channel, particularly in the US.

Overall, we had a solid quarter, despite the challenging environment.

Reported revenues were flat to prior year and down 2% on a constant currency basis as strong double digit growth of our direct to consumer business was offset by continued softness in the wholesale channel, particularly in the U S.

Speaker 4: Gross margins exceeded our outlook, even as we continue to make excellent progress on inventory. With inventory growth now roughly in line with revenue on a comparable basis.

Gross margins exceeded our outlook, even as we continued to make excellent progress on inventory with inventory growth now roughly in line with revenue on a comparable basis.

Speaker 4: Our disciplined execution, combined with the margin upside, enabled us to deliver EPS consistent with our expectation.

Our disciplined execution combined with the margin upside enabled us to deliver EPS consistent with our expectations.

Speaker 4: There are three main points I want to make about the quarter and our business overall.

There are three main points I wanted to make about the quarter and our business overall.

Speaker 4: One, the Levi's brand continues to go from strength to strength and arguably is the strongest it has ever been. This is backed up by several proof points.

One <unk>.

The Levi's brand continues to go from strength to strength and arguably is the strongest it has ever been.

This is backed up by several proof points first <unk> continued to grow despite the pricing action. We took in the U S. Wholesale at the end of Q3, primarily driven by mix.

Speaker 4: First, A-Wars continue to grow. Despite the pricing action we took in the US wholesale at the end of Q3, primarily driven by MIX.

Speaker 4: We continue to grow share with the higher income consumer and see strength in our full price mainline business with strong sales momentum of our tier one and tier two products.

We continue to grow share with the higher income consumer and strengthen our full price mainline business with strong sales momentum of our tier one and tier two products.

Speaker 4: In addition, the Levi's brand continues to gain US market share up in men's, women's, and our core 18 to 30 year old age group.

In addition, the Levi's brand continues to gain us market share up in mens womens and our core 18 to 30 year old age group.

Speaker 4: Finally, we continue to see strength in our brand equity metrics, growing our brand consideration and unaided awareness in denim across key marks.

Finally, we continue to see strength in our brand equity metrics growing our brand consideration and unaided awareness in denim across key markets.

Speaker 4: As we look forward to the holiday season in 2024, we have an exciting pipeline of product initiatives and collaborations to build upon the strength of the brand.

As we look forward to the holiday season in 2024, we have an exciting pipeline of product initiatives and collaborations to build upon the strength of the brands.

Speaker 4: including partnerships with Crocs, Kenzo, denim tears, the K-pop band, New Jeans, and more.

<unk> partnerships with Crocs, Kenzo denim tiers, the K pop band new genes and more.

Speaker 4: Our other brand segment also shows strength. Together, dockers and beyond yoga are now generating nearly a half a billion dollars in the annual revenue.

Our other brands segment also showed strength together dockers and beyond yoga now generating nearly a half a billion dollars in annual revenue.

Speaker 4: Yandrelga had a very strong quarter, a 25% versus prior year.

Beyond yoga had a very strong quarter up 25% versus prior year.

Speaker 4: Despite the impairment charge we took on Beyond Yoga, which Harmeet will explain in more detail, we remain very bullish about this brand long term. We will finish this fiscal year with six retail stores, including our first store outside of California in Chicago.

Despite the impairment charge, we took on beyond yoga, which hermite will explain in more detail. We remain very bullish about this brand long term.

We will finish this fiscal year with six retail stores, including our first store outside of California and Chicago.

Speaker 4: Two, our strategies are right. They're working and they're driving our results.

To.

Our strategies are right. They are working and they are driving our results.

Speaker 4: I just covered our first strategic priority of driving our brands and being brand-led. Our second priority is to strategically focus on DTC, which both Michelle and Harmeet will discuss further.

I just covered our first strategic priority of driving our brands and being brand led our second priority is to strategically focus on DTC.

Which both Michelle and Heartbeat will discuss further.

Speaker 4: The DTC business grew 13% in Q3 versus prior year and comped positively in every region and across mainline outlet and e-commerce.

The DTC business grew 13% in Q3 versus prior year and comp positively in every region and across mainline outlet and ecommerce.

Speaker 4: Compt traffic was also up in every region and in every channel, underscoring the strength of the Levi's brand. Are e-commerce results have accelerated with 18% growth this quarter on top of the 16% growth in the prior year?

Comp traffic was also up in every region and in every channel underscoring the strength of the Levi's brand.

Our ecommerce results have accelerated with 18% growth this quarter on top of the 16% growth in the prior year quarter.

Speaker 4: in the US, our DTC business grew 10%. And US mainline, which sells our most premium product, comp double digit versus year ago.

In the U S. Our DTC business grew 10% and U S mainline, which sells our most premium product comp double digit versus year ago.

Speaker 4: Well, DTC is our channel priority and will continue to be a key growth driver for the company. Our wholesale business remains important. It amplifies our brands, creates access for consumers, and contributes to the bottom line.

While DTC is our channel priority and will continue to be a key growth drivers for the company. Our wholesale business remains important it amplifies our brands creates access for consumers and contributes to the bottom line.

Speaker 4: However, wholesale will continue to be a smaller part of our mix over time as we drive outsized growth in DTC.

However, wholesale will continue to be a smaller part of our mix over time as we drive outsized growth in DTC.

Speaker 4: Well, the wholesale was the drag on our business in Q3 down 10% this quarter compared to up 6% in the prior year.

Global wholesale was the drag on our business in Q3 down 10% this quarter compared to up 6% in the prior year.

Speaker 4: We're focused on the controllables, the stabilizes channel, and wholesale is showing sequential improvement from the prior quarter.

We're focused on the controllable to stabilize this channel and wholesale is showing sequential improvement from the prior quarter.

Speaker 4: Early indications from the pricing actions we took in US wholesale, late in Q3 are positive. Exiting the quarter, we also began to see the impact of our lower inventories and improved filtrace.

Early indications from the pricing actions, we took in U S. Wholesale late in Q3 are positive exiting the quarter. We also began to see the impact of our lower inventories and improved fill rates we.

Speaker 4: We expect sequential improvement in U.S. wholesale trends behind the impact of the surgical pricing actions in August and customer fill rates normalizing in Q4.

We expect sequential improvement in U S wholesale trends behind the impact of the surgical pricing actions in August and customer fill rates normalizing in Q4.

Speaker 4: will also ensure greater newness on the floors we head into the critical holiday period.

This will also ensure greater newness on the floor as we head into the critical holiday period.

Speaker 4: Our third key strategic priority is to continue to diversify the company, driving growth in international women's...

Our third key strategic priority is to continue to diversify the company driving growth in international women's and tops.

Speaker 4: Our international business continued outpaced the total company, growing plus 5% excluding Russia.

Our international business continued to outpace the total company growing plus 5% excluding Russia.

Speaker 4: Asia was again the standout with strong double digit growth in our three largest Asian markets India, China and Japan

Asia was again, the standout with strong double digit growth in our three largest Asian markets, India, China and Japan.

Speaker 4: Our women's business was up driven by a 5% increase in Levi's women's bottom.

Our women's business was up driven by a 5% increase in Levi's women's bottoms, we continue to see a shift to low rise and ongoing strength in loose fits where we continue to expand and evolve the assortment.

Speaker 4: We continue to see a shift to low rise and ongoing strength and loose fits where we continue to expand and evolve the assortment.

Speaker 4: Pops Resbynew also grew driven by strength in woven's non-graphic teas, outerwear dresses and polo.

<unk> revenue also grew driven by strengthened Robbins, non graphic Tees outerwear dresses and polo's.

Speaker 4: Finally, three, we have a strong team around the world to deliver on the strategy in our long-term goal.

Finally, three.

A strong team around the world.

Deliver on this strategy and our long term goals.

Speaker 4: The big reason for my confidence in the future is my success.

A big reason for my confidence in the future as my successor.

Speaker 4: I knew when we hired Michelle late last year that she was going to be a great leader for our company, that she brings 30 years of retail experience, including five years as a CEO .

I knew when we hired Michelle late last year that she was going to be a great leader for our company as she brings 30 years of retail experience, including five years as the CEO.

Speaker 4: After working very closely together for the last nine months, I'm even more convinced that she is a great choice.

After working very closely together for the last nine months I'm, even more convinced that she is a great choice.

Speaker 4: On my top priorities for this year, it's been the set us up for a successful and seamless success.

My top priorities for this year has been to set us up for a successful and seamless succession.

Speaker 4: Michelle has been a quick study and as you will hear clearly sees the opportunities ahead of us which will allow us to achieve our long-term goals. Now it's time you hear from her about her impressions and how she is seeing the future. Michelle?

Michelle has been a quick study and as you will hear clearly sees the opportunities ahead of us which will allow us to achieve our long term goals now lets time, you'll hear from her about her impressions and how she is seeing the future Michelle.

Speaker 5: Thanks, Chef, and welcome everyone. Since I joined the company in January , I have fully immersed myself in our business, getting to know our company, our customers, our consumers, and our employees around the globe. We have a vibrant global business, phenomenal brand, a fantastic culture and heritage, and amazing people. It's an honor and privilege to be part of this incredible organization.

Thanks, Jeff and welcome everyone. Since I joined the company in January I fully immersed myself in our business getting to know our company our customers our consumers and our employees around the globe.

Have a vibrant global business the nominal brand a fantastic culture and heritage and Amazing people, it's an honor and privilege to be part of this incredible organization.

Speaker 5: Over the past decade, the company has made great progress and I teach tremendous opportunity to build on the strong foundation in the years ahead.

Over the past decade, the company has made great progress and I see tremendous opportunity to build on this strong foundation in the years ahead.

Speaker 5: I joined Alice and Co because of the global potential of our business and our brand, particularly the iconic Levi's brand, as well as the company's long standing commitment to profits through principles and doing right by our employees and consumers.

I joined Ellison call because of the global potential of our business and our brands, particularly the iconic Levi's brand as well as the companys longstanding commitment to profits through principles and doing right by our employees and consumers.

Speaker 5: Now nine months in, my optimism and conviction has only grown as I have learned more about the strengths of the brand and our growth opportunities.

Now nine months in my optimism and conviction has only grown as I've learned more about the strength of the brand and our growth opportunities.

Speaker 5: After seeing this business up close and working with our talented team, I believe now more than ever that our strategic choices and goals introduced during our investor day in 2021, being brand-led, taking a DTC first approach, and diversifying our portfolio, are the right ones to generate long-term value for all of our stakeholders.

After seeing this business up close and working with our talented team I believe now more than ever that our strategic choices and gone introduced during our Investor day in 2021 being brand led taking a DTC first approach and diversifying our portfolio are the right ones to generate long term value for all of our stakeholders.

Speaker 5: Today, we are at an important inflection point and by leaning into our strength, I have strong conviction that we will unlock the next decade of profitable growth for our company.

Today, we are at an important inflection point and by leaning into our strengths I have strong conviction that we will unlock the next decade of profitable growth for our company.

Speaker 5: As part of our strategic pillars, I've observed three key areas that will be instrumental in helping us achieve our ambition to become a nine to ten billion dollar company.

As part of our strategic pillars I've observed three key areas that will be instrumental in helping us achieve our ambition to become a $9 billion to $10 billion company.

Speaker 5: First, accelerating international growth, second, becoming a denim apparel lifestyle business, and third, transforming our operating model into a best-in-class DTC first organization.

First accelerating international growth.

Becoming a denim apparel lifestyle business and third <unk>.

<unk>, forming our operating model into a best in class DTC first organization.

Speaker 5: First, I'll start with the Gross Potential International.

First I'll start with the growth potential internationally.

Speaker 5: Levi's is the number one denim brand in the world, figure than the next three global competitors combined.

Levi's is the number one denim brand in the world bigger than the next three global competitors combined.

Speaker 5: The Levi's brand has wide appeal with leadership across all generations.

The Levi's brand has wide appeal with leadership across all generations.

Speaker 5: is increasingly relevant with a younger and more diverse generation and is solidifying the next generation of Levi's fans.

Is increasingly relevant with a younger and more diverse generation and is solidifying the next generation of Levi's van.

Speaker 5: We've done this by constantly putting Levi's at the center of culture, driving a strong connection and building brand love with consumers around the world through leading products and impactful marketing.

We've done this by constantly putting levi's at the center of culture, driving a strong connection and building brand love with consumers around the world through leading products and impactful marketing.

Speaker 5: This year, Chikhar Meeht and I visited a dozen markets abroad. And in each one, I've been inspired by how the Levi brand transcends cultures and demographics and is beloved across March.

This year chip Hermite, and I visited a dozen markets abroad and in each one I've been inspired by how the Levi's brand transcended cultures and demographics and his beloved across markets.

Speaker 5: Over the last decade, our international business has grown more than 50%. And we've become the number one player in many markets where we've invested in growth.

Over the last decade, our international business has grown more than 50% and we've become the number one player in many markets, where we've invested in growth.

Speaker 5: And given the immense opportunity we see looking ahead, we are confident in our ability to sustain high single digit growth in our international business over the long term.

And given the immense opportunity we see looking ahead, we are confident in our ability to sustain high single digit growth in our international business over the long term.

Speaker 5: Levi's is not just an iconic American brand, but has become one of the most iconic brands in the world. And today, while we are in 110 countries, there is great opportunity to grow in markets where we already have a strong, longstanding presence as well as a new and emerging market. Let me give you two examples. Let me give you two examples.

Levi's is not just an iconic American brand, but it has become one of the most iconic brands in the world and today. While we are in 110 countries. There is great opportunity to grow in markets, where we already have a strong long standing presence as well as the new and emerging market let me.

Give you two examples Mexico and India.

Speaker 5: Mexico is the company's largest market after the U.S. Failed to have grown nearly 40% versus pre-pandemic levels while generating strong profitability.

Mexico was the company's largest market after the U S sales have grown nearly 40% versus pre pandemic levels, while generating strong profitability today.

Speaker 5: Today, Mexico boasts the highest brand equity in the world.

Today, Mexico boasts the highest brand equity in the world.

Speaker 5: We have done this through strong execution across brand building, locally relevant product of development, great real estate decision and DTC in wholesale moment.

We have done this through strong execution across brand building locally relevant product assortment, great real estate decision and DTC and wholesale momentum.

Speaker 5: Our team does a great job keeping our eyes on emerging trends in the market and capitalizing on center of culture moments, enabling us to connect with authenticity to the local consumers.

Our team did a great job keeping our eyes on emerging trends in the market and capitalizing on center of culture moment, enabling us to connect with authenticity the local consumer.

Speaker 5: For instance, we recently opened a house of strouse in the Mexico City neighborhood in the heart of the action with a booming design, art, music, and architecture community. We opened our first house of strouse nearly two decades ago in LA as a dedicated place to build relationships with creative and entertainment communities and interact with those that drive culture and shape future fashion trends that become mainstream.

For instance, we recently opened a how's this drought in the Mexico City neighborhood in the heart of the action with a booming design art music and architecture community.

We opened our first half it's dropped nearly two decades ago in L. A as a dedicated place to build relationships with creative and entertainment community and interact with those that drive culture and shape future fashion chance that become mainstream.

Speaker 5: Our house in Mexico City has already generated tons of buzz and high engagement with billions of impressions on social media so far.

Housing Mexico City has already generated tons of Bud and high engagement with billions of impressions on social media so far.

Speaker 5: Next month, we'll also be front and center at Corona Capital, the largest music festival in Mexico, with an exclusive product release featuring a range of stylish pieces, including limited edition trucker jackets and graphic teas, driving tons of energy through local relevance and overall excitement around the world.

Next month, we will also be front and center at Corona capital The largest music festival in Mexico with an exclusive product release, featuring a range of stylus pieces, including limited edition Trucker jackets, and graphic Ts driving tons of energy through local relevance and overall excitement around the brand.

Speaker 5: We know there's an opportunity to deploy the same playbook, constantly keeping the brand at the cultural center around the world. And our success in Mexico has provided us with great learnings we plan to use at scale moving forward.

We know there is an opportunity to deploy the same playbook constantly keeping the brand at the cultural center around the world and our success in Mexico has provided us with great learnings, we plan to use at scale moving forward.

Speaker 5: India is another country that not only highlights our successful regional expansion playbook, also demonstrates our ability to deliver a true denim lifestyle off.

India is another country that not only highlights our successful regional expansion playbook, but also demonstrates our ability to deliver a true denim lifestyle offering.

Speaker 5: One of the most exciting consumer markets. India is the fastest growing major economy in the world in 2023.

One of the most exciting consumer market, India is the fastest growing major economy in the world in 2023.

Speaker 5: And with more than half the population under the age of 30, we see India as one of our significant growth opportunities with the company.

With more than half the population under the age of 30, we see India as one of our significant growth opportunities of the company.

Speaker 5: The Levi's brand has increased nearly 50% in this important market compared to pre-pandemic revenue levels, becoming our sixth largest country and now the largest in Asia.

The Levi's brand has increased nearly 50% in this important market compared to pre pandemic revenue levels, becoming our sixth largest country and now the largest in Asia.

Speaker 5: India is primarily a franchise market, and the strong growth is largely a reflection of the conviction of our partners in the power of our brand. For example, during the pandemic, our franchisees double-believe-age brand square footage in Chimal, the cross-India, to take advantage of the long-term opportunity they see.

India is primarily a franchise market and the strong growth is largely a reflection of the conviction of our partners and the power of our brands for example, during the pandemic our franchisees doubled the Levi's brand square footage in key models across India to take advantage of the long term opportunity they see.

Speaker 5: When I visited the market earlier this year, I was energized hearing from our consumers about their optimism for the future and how excited they are about the Levi's brand. And how they see Levi's not just as a denim brand, but as a full lifestyle brand.

When I visited the market earlier this year I was energized hearing from our consumers about their optimism for the future and how excited they are about the Levi's brand and how they see levis not just to the denim brands, but as a full lifestyle brand.

Speaker 5: In India, the team has done a great job curating a diverse product disortment across pots and bottoms, driven both by our global design engine, as well as our local product capability.

In India. The team has done a great job curating, a diverse product assortment across tops and bottoms.

Given both by our global design engine as well as our local product capability.

Speaker 5: Back India has our highest top penetration in the world selling one top for everybody.

In fact, India has our highest penetration in the world selling one top for every bottom.

Speaker 5: We are further strengthening our connections with the youthful Indian consumer through local collaborations and brand building. Such as our partnership with Bollywood Superstar Deepaka Taducone, who has been our brand ambassador since 2021, has become one of the biggest celebrities in the country and worldwide.

We are further strengthening our connection with the youthful Indian consumer through local collaborations and brand building such as our partnership with Bollywood Superstar Debugger, <unk>, who has been our brand ambassadors through 2021 has become one of the biggest celebrities in the country and worldwide.

Speaker 5: We see similar brand residents across many emerging markets and plans to expand our presence in a similar way.

We see similar brand residents across many emerging markets and plan to expand our presence in a similar way.

Speaker 5: My second observation, building in our diversification strategy, is that we have an incredible opportunity to evolve from being known as a great Dean's brand into a true apparel lifestyle.

My second observation building on our diversification strategy is that we have an incredible opportunity to evolve from being known as a great Jean brand into a true apparel lifestyle brand.

Speaker 5: As I referenced earlier, Levi's is the unequivocal global leader in gene and by a big margin.

As I referenced earlier Levi's is the unequivocal global leader in gene and by a big margin.

Speaker 5: And we can take this denim leadership into head to toe denim dressing across skirts, dresses, and more tops.

And we can take this denim leadership into head to toe denim dressing across skirts dresses and more top.

Speaker 5: We can and will become the market share leader in all aspects of denim dressing, which is an untapped market for us today.

We can and will become the market share leader in all aspects of denim dressing, which is an untapped market for us today.

Speaker 5: Recognizing this opportunity earlier this year, we chased into denim skirts and dresses for the summer and fall, using a new agility capability we're building.

Recognizing this opportunity earlier this year, we chased into denim skirts and dresses for the summer and fall using our new agility capability. We're building while still a small business for US today, we are seeing promising results with dresses and skirts up nearly 40% in Q3 and looking.

Speaker 5: While it's still a small business for us today, we are seeing promising results with dresses and skirts up nearly 40% in Q2.

Speaker 5: And looking forward, we have chased into more products just in time for the holidays, and I'm excited about what's coming in 2024.

<unk> forward, we have chased into more products just in time for the holidays and I'm excited about what's coming in 2024.

Speaker 5: We are also uniquely positioned to extend our authority and bottom to categories beyond them. For example, we are seeing great success with platforms like the XXChino which grew over 40% in 23%. We are continuing to develop this category and we have some exciting new fabric innovations coming next year that we would forward to sharing in the coming months.

We are also uniquely positioned to extend our authority in bottom two categories beyond denim. For example, we are seeing great success with platforms like the Xx Chino, which grew over 40% in Q3.

We are continuing to develop this category and we have some exciting new fabric innovations coming next year that we look forward to sharing in the coming months.

Speaker 5: And while we have made steady progress over the past few years growing our top business to over a billion dollars annually with staples like our signature keys and truckers, the opportunity remains much larger.

And while we have made steady progress over the past few years growing our tops business to over $1 billion annually with staples like our signature T is in truckload the opportunity remained much larger.

Speaker 5: Over the last year, the team has spent time sharpening our strategy on how we can build a more differentiated casual tops business.

Over the last year. The team has spent time sharpening our strategy on how we can build a more differentiated casual tops business.

Speaker 5: We're investing in design and product development capabilities, reducing our speed to market, and expanding our vendor base to become more competitive.

We are investing in design and product development capabilities, reducing our speed to market and expanding our vendor base to become more competitive.

Speaker 5: This work is underway and I'm excited about what is coming in top and outerwear for Q4 and especially about what is in the pipeline for 2020.

This work is underway and I am excited about what is coming in tops and outerwear for Q4, and especially about what is in the pipeline for 2024.

Speaker 5: Finally, my third area to emphasize is the importance of our transformation into a world class DTC First Company.

Finally, my third area to emphasize is the importance of our transformation into a world class DTC first company.

Speaker 5: Over the last decade, the company has made phenomenal progress. More than doubling our direct-to-consumer revenue while engaging consumers with the highest expression our brand in our store.

Over the last decade, the company has made phenomenal progress more than doubling our direct to consumer revenue, while engaging consumers with the highest expression of our brand in our stores.

Speaker 5: And we see a clear line of sight to the mid-teens DTC growth rate target of our long-term financial financial algorithms.

And we see a clear line of sight to the mid teens DTC growth rate target of our long term financial algorithm.

Speaker 5: With this strong momentum and consumer permission, now is the time to accelerate our transition to DTC, where we will evolve our culture and operating model, and our consumer centricity will drive every aspect of how we operate.

With this strong momentum in consumer permission now is the time to accelerate our transition to DTC, where we will evolve our culture and operating model and our consumer Centricity will drive every aspect of how we operate.

Speaker 5: As I have visited many stores around the world, I have been impressed by the passion and commitment of our team, how they have driven consistent, strong comp grows over the last few years, and how they serve our millions of Levi's fans all over the world.

As I visited many stores around the world I have been impressed by the passion and commitment of our team how they have driven consistent strong comp growth over the last few years and how they serve our millions of Levi's and all over the world.

Speaker 5: However, I've also observed that we have many opportunities to drive greater productivity and enhance the consumer experience.

Over I've also observed that we have many opportunities to drive greater productivity and enhance the consumer experience.

Speaker 5: It starts with thinking like a merchant and mastering retail fundamentals, like having key items always in stock, elevating our in-store storytelling, adopting a chase mentality, and broadening our sortment to drive traffic and increase shopping frequent.

It starts with thinking like a merchant and mastering retail fundamentals like having key items always in stock.

<unk>, our in store storytelling, adopting a chase mentality and broadening our assortment to drive traffic and increase shopping frequency.

Speaker 5: We also have the opportunity to streamline our backroom operations so that our store teams can focus even more time on serving customers and less time on administrative and operational

We also have the opportunity to streamline our back room operations. So that our store teams to focus even more time on serving customers and less time on administrative and operational tasks.

Speaker 5: Unlocking further productivity in our stores is a critical enabler to driving overall profitable growth and to accelerate further news store expansion opportunities globally.

Unlocking further productivity in our stores as a critical enabler to driving overall profitable growth and to accelerate further new store expansion opportunities globally.

Speaker 5: I also see tremendous upside in our e-commerce business. We have a great team in place that is focused on addressing the fundamentals, driving quick wins in areas like search and navigation. We are already seeing the benefit today and our results as e-commerce costs are accelerated.

I also see tremendous upside in our ecommerce business, we have a great team in place that is focused on addressing the fundamentals driving quick wins in areas like search and navigation.

We're already seeing the benefit today in our results as ecommerce comps are accelerating.

Operator: Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co. Third Quarter earnings conference call for the period ended August 27, 2023. All parties will be in a listen only mode into the question and answer session at which time instructions will follow.

Speaker 5: Looking forward, we are focused on expanding our offer to our broadest best of Levi's assortment, as well as enhancing the site experience.

Looking forward, we are focused on expanding our offer to our broadest best of Levi's assortment as well as enhancing that experience.

Speaker 5: We're also focused on expanding and evolving our successful loyalty program, which gains nearly two million members in the third quarter to reach 28 million members globally. This successful program is helping us forge deeper consumer connections while developing valuable insights from our most loyal fans.

We're also focused on expanding and evolving our successful loyalty program, which gained nearly 2 million members in the third quarter to reach 28 million members globally.

Operator: This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. This conference call is being broadcast over the Internet. And a replay of the webcast will be accessible for one quarter on the company's website, Levi Strauss.com.

This successful program is helping us forge deeper consumer connections, while developing valuable insights from our most loyal fan.

Speaker 5: On the path of becoming a DTC-driven company, our wholesale business remains an important part of our business and a driver of consumer connection.

On the path of becoming a DTC driven company our wholesale business remains an important part of our business and a driver of consumer connection.

Aida Orphan: I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Co. Thank you for joining us on the call today to discuss the results for our third fiscal quarter of 2023. Joining me on today's call, our Chip Bergh, our president and CEO, Michelle Gass, our president, and Harmit Singh, our Chief Financial and Growth Officer. We have posted complete Q3 financial results in our earnings release on the IR section of our website, investors.

Speaker 5: wholesale amplifies our DTC strategy and extends consumer reach. We have strong, decades-long relationships with our T-Hole-Tale partners. And while the recent year has been challenging, I am looking forward to working with our partners to stabilize and return this channel to growth.

Wholesale amplifies, our DTC strategy and extends consumer reach we have strong decade's long relationships with our key wholesale partners and while the recent year has been challenging I am looking forward to working with our partners to stabilize and return this channel to growth.

Speaker 5: Near-term opportunities include improving our supply chain execution, ensuring the continued success of our pricing optimization plan, and delivering more newness and innovation.

Near term opportunities include improving our supply chain execution, ensuring the continued success of our pricing optimization plan and delivering more newness and innovation.

Aida Orphan: Levi Strauss.com. The link to the webcast of today's conference call can also be found on our site. We'd like to remind you 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-factor section of our form 10K and information included in our quarterly report on form 10Q that we filed today for the factors that could cause our results to differ.

Speaker 5: The work we are doing today in the years ahead will help us further drive sustainable, profitable, long-term growth.

The work we are doing today and in the years ahead will help us further drive sustainable profitable long term growth.

Speaker 5: I could not be more excited to be here at Ellison Toe, working with this amazing team to build upon our legacy, fuel the momentum we have built over the past 10 years, and guide the company to the next phase of growth.

I could not be more excited to be here at Allison co working with this amazing team to build upon our legacy.

Fuel the momentum we have built over the past 10 years and guide the company to the next phase of growth.

Speaker 5: Now I'll turn it over to her meat to walk through the financials for the court.

Now I'll turn it over to Hanmi to walk through the financials for the quarter.

Aida Orphan: 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-gap financial measures. These non-gap measures are not intended to be a substitute for our gap results. Reconciliation of our non-gap measures to their most comparable gap measure are included in today's press release. Finally, this call is being webcast on our IR website and a replay of this call will be available on the website shortly. Please note that Chip Michelle and Hermit will be referencing constant currency numbers unless otherwise noted.

Speaker 6: Welcome everyone. I will begin my comments today by sharing three key observations about our business and our results before diving into the numbers.

Welcome everyone I will begin my comments today by sharing three key observations about our business and our results before diving into the numbers.

Speaker 6: First, we are achieving strong progress in our areas of strategic focus. In the third quarter, we sustain prior year revenues.

First we are achieving strong progress in our areas of strategic focus in the third quarter, we sustained prior year revenues.

Speaker 6: by driving growth in our direct to consumer and international business.

By driving growth in our direct to consumer and international businesses.

Speaker 6: We are seeing a strong momentum in these businesses continue. And we exited both July and August with positive overall growth as a company. I can also share that we are seeing our business in the US improve relative to quarter three driven by an improvement in US wholesale.

We are seeing a strong momentum in these businesses continue and we exited both July and August with positive overall growth of the company.

Operator: 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.

Can also share that we are seeing our business in the U S improved relative to quarter three driven by an improvement in U S wholesale.

Chip Bergh: And now I'd like to turn the call over to Chip. Thank you, Adam. Good afternoon, everyone, and thank you for joining us. I'm delighted to have Michelle joining us on the call today. I'll start with some high-level comments overall on the business before passing it to Michelle who will share her impressions and thoughts on the business after nine months. Hermit will then take you through the financials and guidance and I will wrap up before Q&A.

Speaker 6: Second, our operating discipline is driving results. In Q3, we brought inventory growth down to just 1% on a comparable basis, but not at the expense of gross margin, which exceeded our expectations for quarter three, and enable us to deliver a just-a-d bit in line with our-

Second our operating discipline is driving results in Q3, we brought inventory down to just 1% on a comparable basis, but not at the expense of gross margin, which exceeded our expectations for quarter three.

Chip Bergh: Overall, we had a solid quarter despite the challenging environment reported revenues were flat to prior year and down 2% on a constant currency basis as the strong double digit growth of our direct to consumer business was offset by continued softness in the wholesale channel, particularly in the US. Gross margins exceeded our outlook even as we continue to make excellent progress on inventory with inventory growth now roughly in line with revenue on a comparable basis. Our disciplined execution combined with the margin upside enabled us to deliver EPS consistent with our expectation.

And enable us to deliver adjusted EBITDA in line with our outlook.

Speaker 6: Finally, as Michelle mentioned, over the coming year, we will accelerate our transition to a DGC-driven business by creating a more nimble and consumer-centric organization to support our evolution into a global powerhouse in retail and e-commerce while supporting a low growth wholesale business.

Finally, as Michel mentioned over the coming year, we will accelerate our transition to a DTC driven business by creating a more nimble and consumer centric organization to support our evolution into a global powerhouse in retail and e-commerce.

While supporting our low growth wholesale business.

Speaker 6: Given the strategic acceleration to DDC and a smaller US wholesale business, we have initiated a broad based review of our overall operating model and our entire cost structure.

Given the strategic acceleration to DTC.

Smaller U S wholesale business.

Chip Bergh: There are three main points I want to make about the quarter and our business overall. One, the Levi's brand continues to go from strength to strength and arguably is the strongest it has ever been. This is backed up by several proof points. First, AURs continue to grow, despite the pricing action we took in the US wholesale at the end of Q3, primarily driven by mix. We continue to grow share with the higher income consumer and see strength in our full price mainline business with strong sales momentum of our tier one and tier two products.

We have initiated a broad based review of our overall operating model.

<unk> cost structure.

Speaker 6: We expect this review will result in material, cost and working capital savings, including increased profitability and productivity of our DDC business.

We expect this review will result in material cost and working capital savings, including increased profitability and productivity.

DDC business.

Speaker 6: As we have demonstrated in the past, we are confident that these efforts will solidify a long-term adjusted EBIT margin goal, and we plan to share more details about the impact of this initiative. Next quarter.

As we have demonstrated in the past we are confident that these efforts will solidify our long term adjusted EBIT margin goal.

And we plan to share more details about the impact of this initiative next quarter.

Chip Bergh: In addition, the Levi's brand continues to gain US market share up in men's, women's and our core 18 to 30 year old age group. Finally, we continue to see strength in our brand equity metrics, growing our brand consideration and unaided awareness in denim across key markets. As we look forward to the holiday season and 2024, we have an exciting pipeline of product initiatives and collaborations to build upon the strength of the brand, including partnerships with Crocs, Kenzo, denim tiers, the K-pop band, new jeans and more.

Speaker 6: Now let's turn to our third quarter results. Our DDC channel posted 13% growth, lapping high single digit growth in Q322, with continued broad-based positive comp sales growth across geographies and all channels driven by higher traffic and volume.

Now, let's turn to our third quarter results.

Our DTC channel posted 13% growth lapping high single digit growth in Q3 to any too with.

Continued broad based positive comp sales growth across geographies, and all channels driven by higher traffic and volumes.

Speaker 6: Com sales have been positive since 2022 reflecting six consecutive quarters of growth.

Comp sales have been positive since 2022.

Collecting six consecutive quarters of growth.

Speaker 6: We view our franchises as a complimentary extension of our own direct business.

We view, our franchisees as a complementary extension of our own direct business.

Chip Bergh: Our other brand segment also shows strength, together dockers and beyond yoga are now generating nearly a half a billion dollars in the annual revenue. Beyond yoga had a very strong quarter of 25% versus prior year. Despite the impairment charge we took on beyond yoga, which Harmeet will explain in more detail, we remain very bullish about this brand long term. We will finish this fiscal year with six retail stores, including our first store outside of California in Chicago.

Speaker 6: enabling us to present our brand in the best light while driving strong return.

Enabling us to present, our brands in the best light, while driving strong returns.

Speaker 6: Along with our franchisey partners, we have opened 61 nest stores year-to-date, excluding Russia. And together, our DDC and franchise business comprised almost 50% of total net revenues in Q3, up from 44% in the prior year.

Along with our franchisee partners. We have opened 61 net stores year to date, excluding Russia, and together DTC and franchise business comprise almost 50% of total net revenues in Q3 up from 44%.

In the prior year.

Speaker 6: Adjusted gross margin of 55.6% came in better than our expectations, driven by the favorable mixed shift to DDC.

Adjusted gross margin of 55, 6% came in better than our expectations driven by the favorable mix shift to DTC.

Chip Bergh: Two, our strategies are right, they are working and they're driving our results. I just covered our first strategic priority of driving our brands and being brand led. Our second priority is to strategically focus on DTC, which both Michelle and Harmeet will discuss further. The DTC business grew 13% in Q3 versus prior year and comped positively in every region and across mainline outlet and e-commerce. Comp traffic was also up in every region and in every channel, underscoring the strength of the Levi's brand.

Speaker 6: versus prior Gross Margin contracted 130 basis points, yet was 260 basis points above Q319.

Was this Brian gross.

<unk> contracted 130 basis points, yet was 260.

Basis points above Q3 19.

Speaker 6: Overall, the contraction was driven by lower full price sales, higher product costs, and strategic pricing actions to drive volume and capture market share.

Overall, the contraction was driven by lower full price sales and higher product costs.

And strategic pricing actions to drive volume and capture market share.

Speaker 6: partially offset by favorable channel and geographic mix, lower a freight and FX.

Partially offset by favorable channel and geographic mix.

Chip Bergh: Our e-commerce results have accelerated with 18% growth this quarter on top of the 16% growth in the prior year quarter. In the US, our DTC business grew 10%, and US mainline, which sells our most premium product, comp double digit versus year ago. While DTC is our channel priority and will continue to be a key growth driver for the company, our wholesale business remains important. It amplifies our brands, creates access for consumers and contributes to the bottom line.

If freight.

And FX.

Speaker 6: Adjusted as she inexpensive in the quarter worth 700 to million up 4% to last year in line with our guide

Adjusted SG&A expenses in the quarter were $702 million up 4% to last year in line with our guidance.

Speaker 6: The increase was entirely driven by DVC expansion with company or prayer store count up 9%.

The increase was entirely driven by DTC expansion.

With company operated store count up 9%.

Speaker 6: Adjusted even margin was 9.1% and adjusted diluted EPS was 28 cents both in line with our expectation.

Adjusted EBIT margin was nine 1% and adjusted diluted EPS was <unk> 28.

Both in line with our expectations.

Chip Bergh: However, wholesale will continue to be a smaller part of our mix over time as we drive outsize growth in DTC. Global wholesale was the drag on our business in Q3, down 10% this quarter compared to up 6% in the prior year. We're focused on the controllables, the stabilizes channel and wholesale is showing sequential improvement from the prior quarter. Early indications from the pricing actions we took in U.S, wholesale late in Q3 are positive.

Speaker 6: Our adjusted diluted EPS excludes a 90 million non-cash charge related to the impairment of the beyond yoga acquisition in conjunction with our annual test.

Our adjusted diluted EPS excludes a $90 million noncash charge related to the impairment of the beyond yoga acquisition.

Conjunction with our annual testing.

Speaker 6: The impairment was due to strategically investing in the brand and team and slowing previously anticipated expansion in response to the current macro economic conditions as well as an increase in discount rates.

The impairment was due to strategically investing in the brand and team and slowing previously anticipated expansion in response to the current macroeconomic conditions as well as an increase in discount rates.

Chip Bergh: Exiting the quarter, we also began to see the impact of our lower inventories and improved fill rates. We expect sequential improvement in U.S, wholesale trends behind the impact of the surgical pricing actions in August and customer fill rates normalizing in Q4. This will also ensure greater newness on the floors we head into the critical holiday period.

Despite the accounting impact to EPS.

Speaker 6: Beyond yoga, continue to perform well. Up 25% in Q3 and 21% here today.

Beyond yoga continued to perform well up 25% in Q3 and 21% year to date.

Speaker 6: We are being disciplined with our approach to growing the brand and remain committed to driving its long term, profitable growth.

We are being disciplined with our approach to growing the brand and remain committed to driving long term profitable growth.

Chip Bergh: Our third key strategic priority is to continue to diversify the company, driving growth in international women's and tops. Our international business continued outpaced the total company, growing plus 5% excluding Russia. Asia was again the standout with strong double digit growth in our three largest Asian markets, India, China and Japan. Our women's business was up driven by a 5% increase in Levi's women's bottoms. We continued to see a shift to low rise and ongoing strength and loose fits where we continued to expand and above the assortment. Topso Resvenew also grew driven by strength and woven non-graphic teas, outerwear dresses and polos.

Speaker 6: Here are the key highlights by segment with all revenue growth in constant current.

Here are the key highlights by segment with all revenue growth in constant currency.

Speaker 6: In the America's net revenues declined 7% on top of 3% growth in Europe .

Yeah.

In the Americas net revenues declined 7% on top of 3% growth a year ago.

Speaker 6: DDC strength with growth of 11% was broad-based on top of 8% growth in the prior year.

<unk> strength with growth of 11% was broad based on top of 8% growth in the prior year.

Speaker 6: Latin America's subcontinent rose up 7% driven by all markets led by Mexico and Brazil. While Europe is

Latin America continued growth up 7% driven by all markets led by Mexico and Brazil.

While Europe was down 3% excluding Russia.

Speaker 6: We saw sequential improvement as you move through the quarter with both July and August up versus prior year. Despite record

We saw sequential improvement as you move through the quarter with both July and August up versus prior year.

Despite record temperatures this summer.

Chip Bergh: Finally, we have a strong team around the world to deliver on the strategy and our long-term goals. A big reason for my confidence in the future is my successor. I knew when we hired Michelle late last year that she was going to be a great leader for our company, as she brings 30 years of retail experience, including five years as a CEO. After working very closely together for the last nine months, I'm even more convinced that she is a great choice.

Speaker 6: DDC momentum continued with the channel up 11% excluding Russia, driven by broad base growth across countries and a particularly strong performance in our mainline business.

DTC momentum continued with the general up 11% excluding Russia.

Given by broad based growth across countries and a particularly strong performance in our mainland business.

Speaker 6: Strength in DDC was offset by wholesale softness as customers broadly remain cautious with their open to buy.

Strength in DTC was offset by wholesale softness as customers broadly remain cautious with their open to buy.

Speaker 6: While we're continuing to focus on accelerating our DDC business, we're also working closely with our wholesale partners to ensure they have the right assortment and deliver newness, including lighter weight denim, more dresses and tops.

While we are continuing to focus on accelerating our DTC business. We're also working closely with our wholesale partners to ensure they have the right assortment and deliver newness, including lighter weight denim more dresses and tops.

Chip Bergh: On my top priorities for this year, it's been to set us up for a successful and seamless succession. Michelle has been a quick study, and as you will hear, clearly sees the opportunities ahead of us, which will allow us to achieve our long-term goals.

Speaker 6: Asia, against our strong growth, up 18% while lapping very high 53% growth last year.

Asia again saw strong growth up 18%, while lapping very high 53% growth last year.

Michelle Gass: Now it's time you hear from her about her impressions and how she is seeing the future. Michelle? Thanks, Chef, and welcome everyone. Since I joined the company in January, I have fully immersed myself in our business, getting to know our company, our customers, our consumers, and our employees around the globe. We have a vibrant global business, phenomenal brand, a fantastic culture and heritage, and amazing people.

Speaker 6: Driven by continuous trend across all channels, particularly DDC and almost all Marks.

Given by continued strength across all channels, particularly DDC in almost all markets.

Speaker 6: Asia's top market India-China and Japan were all up strong double digits as were Turkey, Thailand and several other

Asia stock markets, India, China, and Japan were all up strong double digits as with Ducky, Thailand and <unk>.

Others.

Speaker 6: Asia's operating margin also expanded 330 basis points to 12.3% due to strong leverage.

Asia is operating margin also expanded 330 basis points to 12, 3% due to strong <unk>.

Michelle Gass: It's an honor and privilege to be part of this incredible organization. Over the past decade, the company has made great progress in IT tremendous opportunity to build on this strong foundation in the years ahead. I joined Alice and Co because of the global potential of our business and our brand, particularly the iconic Levi's brand, as well as the company's long-standing commitment to profits through principles in doing right by our employees and consumers.

Leverage.

Now looking to our balance sheet and cash flow.

Speaker 6: We achieved strong progress on inventory goal in Q3. Reported in inventory dollars increased six-

We achieved strong progress on inventory goal in Q3 reported inventory dollars increased 6%.

Michelle Gass: Now nine months in, my optimism and conviction has only grown as I have learned more about the strengths of the brand and our growth opportunities. After seeing this business up close and working with our talented team, I believe now more than ever that our strategic choices and goals introduced during our investor day in 2021, being brand-led, taking a DTC first approach, and diversifying our portfolio, are the right ones to generate long-term value for all of our stakeholders.

Speaker 6: However, more than two-thirds of the year to year increase was driven by the modification of supplier terms with us now taking ownership of inventory for goods being brought into the Americas closer to the point of shipment rather than destination.

More than two thirds of the year to year increase was driven by the modification of supplier terms with US now taking ownership of inventory for goods being brought into the Americas.

Closer to the point of shipment rather than destination.

Speaker 6: This is consistent with existing terms for goods sent to Europe and Asia.

This is consistent with existing tenants for goods sent to Europe and Asia.

Speaker 6: This change is enabled by the recent upgrade of our ERP and simplifies our global ways of working with suppliers in line with industry standards.

This change is enabled by the recent upgrade of our ERP and.

And simplifies our global ways of working with suppliers in line with industry standards.

Speaker 6: adjusting for this change in inventory increased just 1% representing a 17-point deceleration from last quarter.

Adjusting for this change inventory increased just 1% representing a 17 point deceleration from last quarter.

Michelle Gass: Today, we are at an important inflection point and by leaning into our strengths, I have strong conviction that we will unlock the next decade of profitable growth for our company. As part of our strategic pillars, I've observed three key areas that will be instrumental in helping us achieve our ambition to become a nine to ten billion dollar company. First, accelerating international growth. Second, becoming a denim apparel lifestyle business and third, transforming our operating model into a best-in-class DTC first organization.

Speaker 6: Inventory in the US is already below last year's level and we expect to continue to make progress in Q4 with overall inventory below prior levels by year and on a comparable base.

Inventory in the U S is already below last year's level and we expect to continue to make progress in Q4 with overall inventory below prior levels by year end on a comparable basis.

Speaker 6: So inventories are known line with expected revenue growth and by Q4 end will be down year over year. We are working to further optimize inventories and improve turns and working capital.

The inventories are now in line with expected revenue growth and by Q4 and will be down year over year.

Working to further optimize inventories and improved Johns and working capital.

Speaker 6: Adjusted free cash flow with a negative 21 million in the quarter down from 12 million in the third quarter last year

Adjusted free cash flow was a negative $21 million in the quarter down from $12 million in the third quarter last year.

Michelle Gass: First, I'll start with the growth potential internationally. Levi's is the number one denim brand in the world, figures in the next three global competitors combined. The Levi's brand has wide appeal with leadership across all generations is increasingly relevant with a younger and more diverse generation and is solidifying the next generation of Levi's fans. We've done this by constantly putting Levi's at the center of culture, driving a strong connection and building brand love with consumers around the world through leading products and impactful marketing.

Speaker 6: As we continue to improve our inventories through the year, we also expect to end the year with positive pre-cash.

As we continue to improve our inventories through the year. We also expect to end the year with positive free cash flow.

Speaker 6: We're confident in a cash flow position and I've now fully repaid this outstanding ABL borrower.

We are confident in our cash flow position and have now fully repaid this outstanding ABL borrowings.

Speaker 6: In the quarter, we returned approximately 40 million in capital to shareholders via dividend, which were in line with...

In the quarter, we returned approximately $48 million in capital to shareholders via dividend.

Which were in line with Q3 last year.

Speaker 6: For Coro 423, we've declared a dividend of 12 cents per share in line with last quarter.

For quarter four 2003, we declared a dividend of 12 cents per share in line with last quarter.

Michelle Gass: This year, Chiff Hart meet and I visited a dozen markets abroad and in each one, I've been inspired by how the Levi brand transcends cultures and demographics and is beloved across markets. Over the last decade, our international business has grown more than 50 percent and we've become the number one player in many markets where we've invested in growth. And given the immense opportunity we see looking ahead, we are confident in our ability to sustain high single-digit growth in our international business over the long term.

Speaker 6: Now turning to our outlook, while the portal revenue was flat for the third quarter, as mentioned earlier, we exited quarter three with continued momentum in our global DDC business and improving trends in US wholesale in September .

Now turning to our outlook, while reported revenue was flat for the third quarter as mentioned earlier, we exited quarter three with continued momentum in our global DTC business and improving trends in U S wholesale in September.

Speaker 6: However, given the ongoing uncertainty in the macro environment, we are taking a cautious approach to our outlook for the fourth quarter.

However, given the ongoing uncertainty in the macro environment.

Taking a cautious approach to our outlook for the fourth quarter.

Speaker 6: For the fully urban guiding revenues flat, 2 up 1%

For the full year, we're now guiding revenue is flat to up 1%.

Michelle Gass: Levi's is not just an iconic American brand but has become one of the most iconic brands in the world. And today, while we are in 110 countries, there is great opportunity to grow in markets where we already have a strong, long-standing presence as well as in new and emerging markets. Let me give you two examples, Mexico and India. Mexico is the company's largest market after the U.S., sales have grown nearly 40 percent versus pre-pandemic levels while generating strong profitability.

Speaker 6: By segment, we continue to expect a low single-digit decline in the Americas, despite continuous 20 US DDC and in Latin America.

By segment, we continue to expect a low single digit decline in the Americas. Despite continued strength of U S DTC and in Latin America.

Speaker 6: Europe's goal is still expected within the previously guided range of up-low single digits, excluding Russia.

Europe's growth is still expected within the previously guided range of up low single digits, excluding Russia.

Speaker 6: And for Asia, we continue to expect growth in the low team.

And for Asia, We continue to expect growth in the low teens.

Speaker 6: For the fourth quarter, this implies a low to mid single digits revenue increase.

For the fourth quarter. This implies a low to mid single digit revenue increase.

Speaker 6: We continue to expect a just a gross margin to contract approximately 90 basis points from prior years, 57.6%. This translates to approximately 300 basis points versus 20.

We continue to expect adjusted gross margin to contract approximately 90 basis points from prior years.

Michelle Gass: Today, Mexico boasts the highest brand equity in the world. We have done this through strong execution across brand building, locally relevant product assortment, great real estate decisions and DTC and wholesale momentum. Our team does a great job keeping our eyes on emerging trends in the market and capitalizing on center of culture moments, enabling us to connect with authenticity to the local consumers. For instance, we recently opened a House of Strauss in the Mexico City neighborhood in the heart of the action with a booming design, art, music and architecture community.

57, 6%.

This translates to approximately <unk>.

300 basis points versus 2019.

For the full year and the fourth quarter.

Speaker 6: We continue to expect a full year mid single budget increase in SNA dollars, yielding an adjusted EBIT margin of up to 9% for the full year and approximately 12% for the fourth quarter.

We continue to expect our full year mid single digit increase in SG&A dollars.

Yielding an adjusted EBIT margin of up to 9% for the full year and approximately 12% for the fourth quarter.

Speaker 6: Given these factors, we're narrowing our EPS outlook to the low end of our previous range of $1.10 to $1.20.

Given these factors we are narrowing our EPS outlook to the low end of our previous range of $1 10 to $1 20.

Michelle Gass: We opened our first House of Strauss nearly two decades ago in LA as a dedicated place to build relationships with creative and entertainment communities and interact with those that drive culture and shape future fashion trends that become mainstream. Our house in Mexico City has already generated tons of buzz and high engagement with billions of impressions on social media so far. Next month, we'll also be front and center at corona capitol, the largest music festival in Mexico, with an exclusive product release featuring a range of stylish pieces including limited edition trucker jackets and graphic teas, driving tons of energy through local relevance and overall excitement around the brand.

Speaker 6: Lastly, we expect a queue for tax rate in the high single digits.

Lastly, we expect a Q4 tax rate in the high single digits.

Speaker 6: and inventory levels blow prior by quarter end on a comparable base.

And inventory levels below prior year by quarter and on a comparable basis.

Speaker 6: I will now turn it back over the chip for closing remarks before opening up the call for Q&A.

I will now turn it back over to chip for closing remarks.

Before opening up the call for Q&A.

Speaker 4: We continue to control the controlables while navigating an environment with a heightened level of macro uncertainty around the world.

We continue to control the controllable, while navigating an environment with a heightened level of macro uncertainty around the world.

Speaker 4: We're confident in the strength of our brand and the newness and innovation pipeline we have coming.

We're confident in the strength of our brand and the newness and innovation pipeline, we have coming.

Speaker 4: Our actions to stabilize US wholesale are working and our continued strong performance in global DTC underscores the strength of our brand and deep connection with consumers. And is enabling us to deliver near-term results while laying the foundation for sustainable, profitable growth in the years ahead.

Michelle Gass: We know there's an opportunity to deploy the same playbook, constantly keeping the brand at the cultural center around the world, and our success in Mexico has provided us with great learnings we plan to use at scale moving forward. India is another country that not only highlights our successful regional expansion playbook, but also demonstrates our ability to deliver a true denim lifestyle offering. One of the most exciting consumer markets, India is the fastest growing major economy in the world in 2023, and with more than half the population under the age of 30, we see India as one of our significant growth opportunities with the company.

Our actions to stabilize U S. Wholesale are working and our continued strong performance in global DTC underscores the strength of our brand and deep connection with consumers and is enabling us to deliver near term results, while laying the foundation for sustainable profitable growth in the years ahead.

Speaker 4: And as you heard from Michelle and Harmey, given our momentum, now is the time for us to accelerate our transition to a DTC driven business, by advancing the organizational structure to support our ambition.

And as you heard from Michelle and her meet given our momentum now is the time for us to accelerate our transition to a DTC driven business by advancing the organizational structure to support our ambition.

Speaker 4: My confidence in our leadership and our team remains extremely high and we're focused on executing with discipline and rigor on our priorities. With teeth with that, you can open...

Our confidence in our leadership and our team remains extremely high and we're focused on executing with discipline and rigor on our priorities.

Michelle Gass: The Levi brand has increased nearly 50 percent in this important market compared to pre-pandemic revenue levels, becoming our six largest country, and now the largest in Asia. India is primarily a franchise market and the strong growth is largely a reflection of the conviction of our partners in the power of our brand. For example, during the pandemic, our franchisees doubled the Levi brand square footage in T-Mall across India to take advantage of the long-term opportunity they see.

Latif with that you can open the floor to Q&A.

Speaker 2: Thank you. The floor is now open for questions. If you have a question, please press star then the numbers 1, 1 on your telephone key pass.

Thank you. The floor is now opened for questions. If you have a question. Please press Star then the number is one one on your telephone keypad.

Speaker 2: Due to time constraints, the company requests that she only let ask one question. If you have an additional question, please queue up again.

Due to time constraints the company requests that you only ask one question. If you have an additional question. Please queue up again if.

Speaker 7: If at any point your question has been answered, you may remove yourself from the cue by pressing star 1-1 again.

At any point. Your question has been answered you may remove yourself from the queue by pressing star one one again.

Michelle Gass: When I visited the market earlier this year, I was energized hearing from our consumers about their optimism for the future and how excited they are about the Levi's brand and how they see Levi's not just as a denim brand, but as a full lifestyle brand. In India, the team has done a great job curating a diverse product assortment across tops and bottoms, driven both by our global design engine as well as our local product capability.

Our first question.

Comes from the line of Bob <unk>.

With Guggenheim.

Speaker 8: Michelle, welcome. I guess if I could just like to focus a couple questions from Michelle, two part one question. What's surprising in your first nine months at Levi's so far, and I guess the second part of it would be, just giving you a background, what steps do you think are necessary to really stabilize the wholesale business? Thanks.

Michelle Welcome I guess, if I could just like to focus a couple of questions from Michele two part one question.

What surprised you in the first nine months at Levi's, So far and I guess, the second part of it would be just given your background. What steps do you think are necessary to really stabilize the wholesale business. Thanks.

Michelle Gass: In fact, India has our highest tops penetration in the world, selling one top for every bottom. We are further strengthening our connections with the youthful Indian consumer through local collaborations and brand building, such as our partnership with Bollywood Superstar Deepaka-Paducone, who has been our brand ambassador since 2021, and has become one of the biggest celebrities in the country and worldwide. We see similar brand residents across many emerging markets and plans to expand our presence in a similar way.

Speaker 5: So thanks, Bob. Thank you for the question. So first in terms of being surprised, well, I first say that I just couldn't be more excited to be here. It is an incredible company. It's one of the most iconic brands in the world.

Well, thanks, Bob and thank you for the question.

So first in terms of being surprised what per se that I just couldnt be more excited to be here. It is an incredible company. It's one of the most iconic brands in the world.

Speaker 5: Awesome opportunities for growth ahead and an amazing team and so it really is just an honor and privilege to be here. I'd say what's been most surprising is you know I think back to the seat I held before and I knew Levi's much more as a US wholesale bottom

Awesome opportunities for growth ahead, and an amazing team and so it really is just an honor and privilege to be here.

Michelle Gass: My second observation, building on our diversification strategy, is that we have an incredible opportunity to evolve from being known as a great gene brand into a true apparel lifestyle brand. As I referenced earlier, Levi's is the unequivocal global leader in gene and by a big margin. And we can take this denim leadership into head to toe denim dressing across skirts, dresses, and more tops. We can and will become the market share leader in all aspects of denim dressing, which is an untapped market for us today.

Say, what's been most surprising is I think back to the seat I held before and I knew levi's much more as a U S wholesale bottoms business.

Speaker 5: and I've sent the nine last nine months traveling around the world with chip and harming and others of the team and I've just honestly been blown away.

And is that the nine last nine months traveling around the world with chip and Hermes and others of the team and I've, just honestly been blown away by the power of our brand internationally.

Speaker 9: by the power of our brand internationally. The DTC present.

The DTC presence, how our brand so that much more of a lifestyle brand candidly in many other markets outside of the U S. How premium we are the residents with new sales center of culture. We are across all of our markets. Yeah. We have got the power of the global brand, but then how the local market adapt to be highly relevant.

Speaker 9: how our brand shows up much more the lifestyle brand candidly and many of the markets outside of the US, how premium we are, the resonance with use that allows center of culture, we are across all of our markets. You know, we have got the power of the global brand, but then how the local markets adapt to be highly relevant.

Michelle Gass: Recognizing this opportunity earlier this year, we chased into denim skirts and dresses for the summer and fall using a new agility capability we're building. While it's still a small business for us today, we are seeing promising results with dresses and skirts up nearly 40% in Q3. And looking forward, we have chased into more products just in time for the holidays and I'm excited about what's coming in 2024. We are also uniquely positioned to extend our authority and bottom to categories beyond denim.

Speaker 9: And while we're investing and growing the brand, our partners are cute. I mean, as you know, we've got many franchisee partners around the world and through our travels, I've had the opportunity here from a number of them.

And while we're investing in growing the brand our partners are too I mean, as you know we've got many franchisee partners around the world and through our travels I've had the opportunity to hear from a number of them and they are really passionate really committed and they too are investing I mentioned, India on the call where they invest a lot of dollars in the pandemic.

Speaker 9: And they are really passionate, really committed, and they too are investing. I mentioned India on the call, where they invest a lot of dollars in the pandemic to dramatically grow our stores and grow our footprints. So yeah, so I'd say for me, one of the biggest takeaways has been that, and I just see a ton of growth potential. Now as I mentioned in my remarks, and I'll just hit these very quickly, but beyond, beyond international, this pivot to DTC is really incredible. And we're talking about international, the US market is still clearly very important. We're seeing DTC growth as we talked about earlier on the call across all channels of DTC, so a lot of upside there.

<unk> dramatically grow our store, then and grow our footprint so.

Yeah. So I'd say for me one of the biggest takeaways has been that and I just see a ton of growth potential. So as I mentioned in my remarks, I'll just hit these very quickly but beyond the <unk>.

Michelle Gass: For example, we are seeing great success with platforms like the XX Chino which grew over 40% in Q3. We are continuing to develop this category and we have some exciting new fabric innovations coming next year that we look forward to sharing in the coming months. And while we have made steady progress over the past few years growing our top business to over a billion dollars annually with staples like our signature teas and truckers, the opportunity remains much larger.

On international this pivot.

Pivot to DTC is really incredible and yes, we're talking about international and the U S market is still clearly very important we are seeing DTC growth as we talked about earlier on the call across all channels of DTC as a lot of upside there.

Speaker 9: And then lastly, I just hit on, and then maybe no questions on this, but this opportunity to continue to build on the work the team has done to really pivot the brand from a, from a gene's brand to a denim apparel lifestyle and happy to entertain further questions on that. But that's head to toe denim is everything from denim tops to denim skirts, the denim dresses and beyond. And there's a lot of uncapped opportunity there. And then lastly, I'd say the team leader at ICE is, is Barnum. I'm just an incredibly talented team.

Then lastly, I'll just hit on and then may be more questions on this but there's opportunity to continue to build on the work. The team has done to really to that the brand from a from a jeans brand to a denim apparel lifestyle and happy to entertain further questions on that but that head to toe denim is everything from denim tops denim skirt and denim dresses and beyond and Theres a lot of.

Michelle Gass: Over the last year, the team has spent time sharpening our strategy on how we can build a more differentiated casual top business. We are investing in design and product development capabilities, reducing our speed to market and expanding our vendor base to become more competitive. This work is underway and I'm excited about what is coming and toss an outerwear for Q4 and especially about what is in the pipeline for 2024.

Untapped opportunity there and then lastly, I'd say the teams.

It is is bar, none just an incredibly talented team.

Speaker 9: seat bench and then not only with the great talent we have in place, but we're bringing in new talent to complement the capabilities we have here today. We talked about before, we've got a new chief digital officer, we have a new chief marketing officer, and then most recently a new head of logistics and distribution. So we're really set up with the team to drive our agenda.

Michelle Gass: Finally, my third area to emphasize is the importance of our transformation into a world class DTC first company. Over the last decade, the company has made phenomenal progress more than doubling our direct to consumer revenue while engaging consumers with the highest expression our brand in our stores. And we see a clear line of sight to the mid teens DTC growth rate target of our long term financial algorithm. With the strong momentum and consumer permission, now is the time to accelerate our transition to DTC where we will evolve our culture and operating model and our consumer centricity will drive every aspect of how we operate.

<unk> bands and then not only with the great talent, we have in place, but we're bringing in new talent to complement the capability we have here today.

Talked about before we brought a new chief Digital officer, we have a new chief marketing Officer, and then most recently a new head of logistics and distribution. So we're really set up with the team to drive our agenda. So part two of your question is around wholesale which indeed I do have some familiarity with and while as we look ahead DTC.

Speaker 9: So part two of your question is around wholesale, which indeed I do have some familiarity with.

Speaker 9: And while as we look ahead, DTC will be significant growth, hostess still really important to our business. It's an incredibly important channel.

It will be significant growth.

Still really important to our business is an incredibly important channel, it's big it's profitable and I think strategically and importantly, it extends our reach with consumers, we're not going to show up in every single pound across America and across the world and so our partnerships are really instrumental in extending our our brand in <unk>.

Speaker 9: big, it's profitable, and I think strategically and importantly, it extends our reach with consumers. We're not going to show up in every single town across America and across the world, so our partnerships are really instrumental in extending our brand and product reach.

Michelle Gass: As I have visited many stores around the world, I have been impressed by the passion and commitment of our team, how they have driven consistent strong comp grows over the last few years. And how they serve our millions of Levi's fans all over the world. However, I've also observed that we have many opportunities to drive greater productivity and enhance the consumer experience. It starts with thinking like a merchant and mastering retail fundamentals, like having key items always in stock, elevating our in store storytelling, adopting a chase mentality and broadening our sortment to drive traffic and increase shopping frequency.

<unk> reach we have long relationships with these customers we are important to them and they are important to us.

Michelle Gass: We also have the opportunity to streamline our back room operations so that our store teams can focus even more time on serving customers and less time on administrative and operational tasks. Unlocking further productivity in our stores is a critical enabler to driving overall profitable growth and to accelerate further news store expansion opportunities globally. I also see tremendous upside in our e-commerce business. We have a great team in place that is focused on addressing the fundamentals, driving quick wins in areas like search and navigation.

I'm really excited I met with many of them. During my time here, it's not the year that any of US anticipated there are clearly headwind, but we have our arms around the issue that I'd point to three things one is the macro issues. We're all familiar with second is some value.

Turns that our customers were talking to us about some of our pits, which we've addressed and then third we have faced over the course of the year. Some congestion in our D C, which are largely behind us as we've addressed these issues. We have seen sequential improvement I think chip mentioned that earlier on the call.

Speaker 9: behind us. As we've addressed these issues, we have seen sequential improvement. I think Chip mentioned that earlier on the console. And so at each month across the quarter improved, and then even in the early days of this quarter, we're continuing to see improvements there. I think beyond that though, so addressing, I call it the fundamentals of the value equation and executing our shipments, it's about product and it's about innovation. And we talk about just having this lifestyle expression of our brand and our own stores and we can do a better job there with our wholesale partners.

And so each month across the quarter improved and then even in the early days of this quarter. We are continuing to see improvement there I think beyond that though so addressing I call. It the fundamentals of the value equation and executing our shipments it's about product and it's about innovation and we talk about just having this lifestyle.

L expression of our brand and our own stores in two weeks and we can do a better job there with our wholesale partners and so whether that head to toe denim dressing, bringing more fashion, bringing more innovation and you're going to see some of that as early as this fall and holiday where I believe we're really set up but I think importantly, as we look into 2024, we have a very deep.

Michelle Gass: We are already seeing the benefit today in our results as e-commerce costs are accelerated. Looking forward, we are focused on expanding our offer to our broadest best of Levi's assortment as well as enhancing the site experience. We're also focused on expanding and evolving our successful loyalty program which gains nearly two million members in the third quarter to reach 28 million members globally. This successful program is helping us forge deeper consumer connections while developing valuable insights from our most loyal fans.

Speaker 9: And so whether that's head to toe denim dressing, bringing more fashion, bringing more innovation. And you're going to see some of that as early as this fall and holiday, where I believe we'll really set up. But I think importantly, as we look into 2024, we have a very deep pipeline we've presented, we've been presenting to customers, we have a new innovation platform.

Pipeline, we presented we've been presenting to customers, we have a new innovation platform.

Speaker 9: That we've already started to tease out there. I'll talk about that at some point in the future. So, but we've got a lot in front of us to believe that we can stabilize and ultimately reinstate growth in this important channel.

That we've already started to tease out there I'll talk about that at some point in the future. So, but we've got a lot in front of us to believe that we can stabilize and ultimately reinstate growth in this important channel.

Speaker 4: Good luck. Thank you, Bob. Thank you. Thank you. Please stand by for our next question. Which comes from the line of J. Soul of UBS. Great. Thank you so much. Harmi, you mentioned going through an overview of the cost structure, maybe outlining a little bit more or elaborate a little bit more on what you mean in terms of quantifying the impact that you see. Maybe if you put it in a context of the adjusted margin guidance of 15%.

Michelle Gass: On the path of becoming a DTC-driven company, our wholesale business remains an important part of our business and a driver of consumer connection. Wholesale amplifies our DTC strategy and extends consumer reach. We have strong, decades-long relationships with our T wholesale partners and while the recent year has been challenging, I am looking forward to working with our partners to stabilize and return this channel to growth. Near-term opportunities include improving our supply chain execution, ensuring the continued success of our pricing optimization plan, and delivering more newness and innovation. The work we are doing today in the years ahead will help us further drive sustainable, profitable long-term growth.

Thank you good luck thanks, Bob Thank you.

Speaker 2: Thank you. Please stand by for our next question.

Thank you.

Please standby for our next question.

Speaker 2: which comes from the line of J Soul of UBS.

Which comes from the line of Jay sole of UBS.

Speaker 4: Great, thank you so much. Harmi, you mentioned going through an overview of the cost structure, maybe outline a little bit more, or elaborate a little bit more on what you mean in terms of quantifying the impact that you see. And maybe if you put it in a context of the adjusted, you could margin guidance of 15% that was given, you know, as part of the long term financial targets to the investor day in June 22. That'd be super helpful, thank you. East theasti Da.

Great. Thank you so much Herman you mentioned going through an overview of the cost structure can maybe outline a little bit more or elaborate a little bit more on what you mean in terms of.

Quantifying the impact that you see maybe if you put it in the context of the adjusted EBIT margin guidance of 15% that was given as part of the long term financial targets at the Investor Day in June.

22, that'd be super helpful. Thank you.

Sure Jay.

Speaker 6: The, you know, Michelle talked about how we're making this faster pivot to DDC. And, you know, we believe that will accelerate our growth. You know, while it's early, we recognize.

Michel talked about how we're make faster pivot to DTC.

Michelle Gass: I could not be more excited to be here at Alison Toe, working with this amazing team to build upon our legacy, fuel the momentum we have built over the past 10 years, and guide the company to the next phase of growth.

And we believe that will accelerate our growth in a while.

It is early we recognize that this company has a lot of opportunities to be faster more agile to be efficient, including shorter go to market calendar. So, let's let me give you an example.

Speaker 6: that this company has a lot of opportunities to be faster, more agile, to be efficient.

Harmit Singh: Now I'll turn it over to Harmeet to walk through the financials for the quarter.

Speaker 6: including shorter go-to market calendar. So let me give you an example. You know, before Michelle arrived, we didn't have dresses and skirts and a bike for this year. You've got it, right? That is, you know, acting more like a vertical retailer, versus a wholesaler who has go-to-marked the color of, you know, over 12 to 15 months.

Harmit Singh: Welcome everyone. I will begin my comments today by sharing three key observations about our business and our results before diving into the numbers. First, we are achieving strong progress in our areas of strategic focus. In the third quarter, we sustain prior year revenues by driving growth in our direct-to-consumer and international businesses. We are seeing our strong momentum in these businesses continue, and we exited both July and August with positive overall growth as a company.

Before Michel arrived we then have dresses and skirts and five for this year you've got it right that is.

Acting more like a vertical retailer versus a wholesaler who has go to Michael Gallo over 12 to 15 months.

Speaker 6: You know, we're going to take a hard look at our sortmen and drive more productivity like a lot of companies We also have a lot of tail, but the tail doesn't move as fast. So taking a hard look at that. I think is critical So we're looking at all processes

We're going to take a hard look at our assortment and drive more productivity like lot of companies. We also have a lot of tail.

The tail doesn't move as fast so taking a hard look at that.

I think is critical.

So we're looking at all processes.

Speaker 6: We're looking at go to market and, you know, we are going to be a lot more consumer centric in terms of areas, you know, we think this drives more productivity in our DDC operations and profitability. We think it does

We're looking at go to market and.

We are going to be a lot more consumer centric.

Harmit Singh: I can also share that we are seeing our business in the U.S, improve relative to quarter three driven by an improvement in U.S, wholesale. Second, our operating discipline is driving results. In Q3, we brought in mentoring growth down to just 1% on a comparable basis, but not at the expense of gross margin, which exceeded our expectations for quarter three, and enabled us to deliver adjusted EBIT in line with our outlook. Finally, as Michelle mentioned, over the coming year, we will accelerate our transition to a DGC-driven business by creating a more nimble and consumer-centric organization to support our evolution into a global powerhouse in retail, retail, and e-commerce while supporting a low growth wholesale business.

Terms of areas.

We think this drives.

More productivity in our DTC operations and profitability, we think.

It does.

Speaker 6: you know drive a better S.A.N.S. structure. It improves our supply chain operations including COGS.

Drive a better SG&A structure, it improves our supply chain operations, including Cogs and clear working capital improvements as we drive higher tones.

Speaker 6: and clear working capital improvements as we drive higher turns. Because we're not satisfied, you know, why we get to blow in mentoring levels, below last year, mentoring levels at the end of the year, we think there's a lot more opportunity. And, you know, I know, I really understand if I was in your shoes, you want, you know, as to quantify this fairly quickly, but what I will tell you is that, you know, give us through the end of quarter-povenly relief.

Because we are not satisfied while we get to blow inventory level below last year inventory levels at the end of the year, we think theres a lot more opportunity.

And I know I really understand if I was in your shoes, you want us.

As to quantify this fairly quickly, but what I will tell you is that.

US through the end of quarter four when we release our expectations for next year.

Speaker 6: our expectations for next year, you know, we've got the impact, your question about, you know, the 15% EBIT margins, we are completely behind that. We are going to be a company that has 15%.

The impact to your question about.

The 15% EBIT margins.

We are completely behind that we are going to be a company that is 15%.

Harmit Singh: Given the strategic acceleration to DGC and a smaller U.S, wholesale business, we have initiated a broad-based review of our overall operating model and our entire cost structure. We expect this review will result in material, cost and working capital savings including increased profitability and productivity of our DDC business. As we have demonstrated in the past, we are confident that these efforts will solidify a long-term adjusted EBIT margin goal and we plan to share more details about the impact of this initiative next quarter.

Speaker 6: even margins over time, you know, this focus, we're looking at the entire cost structure of the company just solidified our part to get

EBIT margins over time.

<unk>.

Our focus we're looking at the entire cost structure of the company just solidifies.

But to get there.

Speaker 6: and get there the right way and doing the time frame that we believe is acceptable to our long-term shareholders. So we're committed to the 15% this helps.

And get the right way.

During the timeframe that we believe is acceptable to our.

Long term shareholders.

We are committed to the 15% this helps get us their enterprise.

Speaker 10: Get us there, certain antifides are there, and then really make this company a lot more efficient than I just. Yeah, thank you so much.

And then really make this company logo inhibition in the jet.

Got it thank you so much.

Thank you.

Please standby for our next question.

Speaker 2: Next question comes from the line of Matthew Boss, of JP Morton.

Our next question comes from the line of Matthew Boss of Jpmorgan.

Harmit Singh: Now let's turn to our third quarter results. Our DDC channel posted 13% growth, lapping high single-digit growth in Q322 with continued broad-based positive comm sales growth across geographies and all channels driven by higher traffic and volumes. Com sales have been positive since 2022, reflecting six consecutive quarters of growth. We view our franchisees as a complementary extension of our own direct business, enabling us to present our brand in the best light while driving strong return.

Speaker 11: Great, thanks. So Chip, maybe on global health of the brand and catapult.

Great. Thanks, So chip maybe on global health of the brand in a category.

Speaker 11: Could you just elaborate on the sequential sales improvement?

Could you just elaborate on the sequential sales improvement and speak to current demand trends that youre seeing across channels in North America and Europe today.

Speaker 11: to current demand trends that you're seeing across channels in North America and Europe today. And then for Harmeet, could you speak to inventory health across distribution channels and just the puts and takes that are embedded in your fourth quarter gross margin outlook relative to three months?

And then for Harmeet could you speak to inventory health across distribution channels.

Just the puts and takes that are embedded in your fourth quarter gross margin outlook relative to three months ago.

Harmit Singh: Along with our franchisey partners, we have opened 61 net stores year-to-date, including Russia, and together our DDC and franchise business comprised almost 50% of total net revenues in Q3 up from 44% in the prior year. A adjusted growth margin of 55.6% came in better than our expectations, driven by the favorable mixed shift to DDC. Versus prior, gross margin contracted 130 basis points, yet was 260 basis points above Q319. Overall, the contraction was driven by lower full-price sales, higher product costs, and strategic pricing actions to drive volume and capture market share, partially offset by favorable channel and geographic mix, lower afrate, and effects.

Speaker 4: Sure, first of all Matt, you know, I will try not to be too repetitive with what was in the prepared remarks, but you know, we're seeing.

Sure first of all Matt.

<unk>.

I'll try not to be too repetitive with what was in the prepared remarks, but we're seeing.

Speaker 4: You know, a dramatic or stark contrast between the results in our direct to consumer business versus wholesale. So direct to consumer up, you know, pretty strong double digits up in every region, up in mainline outlet and the commerce, plus we come positively in each chain in each region and each channel in each region. So really strong results.

A dramatic a stark contrast between the results in our direct to consumer business versus wholesale.

Our direct to consumer up pretty strong double digits up in every region up in mainline outlet and E Commerce, plus we comped positively in each train in each region and each channel in each region.

So really strong results there.

Speaker 4: during the quarter and wholesale down, pretty soft. And as we've kind of been digging into this, one of the things to consider is our DTC assortment is very, very broad. Top, bottoms, men's, women's. We can also be pretty agile in responding to it. We're gonna work on becoming even more agile as Michelle said, but.

During the quarter.

Wholesale down pretty soft.

As we've kind of been digging into this one of the things to consider as are our DTC assortment is very very broad tops bottoms mens womens we could also be pretty agile in responding to it we're going to work on becoming even more agile as Michele said, but.

Speaker 4: It's been a pretty hot summer as everybody knows and you all have known me for a long time. I rarely talk about the weather report when I'm talking about our business results, but I think there's no doubt that our wholesale business was somewhat impacted by the really, really hot summer. Because the wholesale assortment is pretty much that in bottom.

It's been a pretty hot summer as everybody knows.

You all have known me for Bob.

I rarely talk about the weather report when I'm talking about our business results, but.

I think theres no doubt that our wholesale business was somewhat impacted by the really really hot summer because.

The wholesale assortment is pretty much denim bottoms.

Harmit Singh: Adjusted edge in expenses in the quarter was 702 million, up 4% to last year, in line with our guidance. The increase was entirely driven by DDC expansion, with company operator stock count up 9%. Adjusted EBIT margin was 9.1%, and adjusted diluted EPS was 28 cents, both in line with our expectations. Our adjusted diluted EPS excludes a 90 million non-cash charge related to the impairment of the beyond yoga acquisition in conjunction with our annual testing.

Speaker 4: We did take the pricing action late in Q3. So we announced it. We first talked about it on this call. We announced it to our customers and it went into effect in early August . Every customer kind of executes it on their own timing and they execute it their own way and that kind of happened throughout the month of August . So what impact we did see on those six items where we took pricing actions here in the US.

We did take the pricing action late in Q3, So we announced that we first talked about it on this call we announced that to our customers and went into effect in early August every customer kind of execute said their own timing and they execute it their own way and back kind of.

Throughout the month of August so what impact we did see on those six items, where we took pricing actions here in the U S.

Speaker 4: was waiting a quarter, but I will say that we are optimistic with what we're seeing. We are seeing an improvement in trends.

Harmit Singh: The impairment was due to strategically investing in the brand and team, and slowing previously anticipated expansion in response to the current macroeconomic conditions, as well as an increase in discount rates. Despite the accounting impact to EPS, Beyond Yoga continued to perform well, up 25% in Q3 and 21% here today. We are being disciplined with our approach to growing the brand and remain committed to driving its long term, profitable growth.

Was late in the quarter, but I will say that we are.

Optimistic with what we're seeing we are seeing an improvement in trends.

Speaker 4: on those items in those customers where we had seen the pricing reflected. And that gives us confidence that we did hit

On those items and those customers, where we have seen the pricing reflected and that gives us confidence that we did pick the right items I'll also say.

Speaker 4: I'll also say, you know, you all remember we did not take pricing down on a number of items, 501's being won statistically.

Well remember, we did not take pricing down on a number of items 500 ones being one.

Speaker 4: and the 501s were up this past quarter. So I think we really were very surgical and very strategic.

Quickly and the <unk>.

Five are ones were up this past quarter. So I think we've really we're very surgical in various strategic we're optimistic about that.

Speaker 4: Rock domestic about that. Of our wholesale trends, though they were down 10th or so ago.

Wholesale trends, though they were down 10% in Hawaii and were better than they were the previous quarter and our expectation is that theyre going to be better in the fourth quarter.

Speaker 4: They were better than they were the previous quarter and our expectation is that they're going to be better in the fourth quarter.

Speaker 4: And part because of the pricing actions that we've taken, having a full quarters impact of that, and part because this inventory situation that we've had for multiple quarters is now cleaned up and we're getting back to normalized customer fill rates, that's gonna help.

In part because of the pricing actions that we've taken having a full quarter's impact of that in part because.

Harmit Singh: Here are the key highlights by segment with all revenue growth in constant currency. In the Americas, net revenues declined 7% on top of 3% growth a year ago. DDC strength with growth of 11% was broad-based on top of 8% growth in the prior year. Latin America saw continued growth up 7% driven by all markets led by Mexico and Brazil. While Europe was down 3% excluding Russia, we saw sequential improvement as you move through the quarter with both July and August up versus prior year.

Inventory situation that we've had for multiple quarters is now cleaned up and we're getting back to more normalized customer fill rates that's going to help.

Speaker 4: Build a pipeline where there have been out of stocks. That's going to help get new product out of the floor. As Michelle said, both in a prepared remarks and in the earlier, earlier Q&A, you know, we've got a pretty strong pipeline coming for the holiday and into Q1. So, you know, cautiously optimistic. The category was soft. You know, the best data that we have is in the U.S. That's where we get really good concrete data on a quarterly basis.

Build the pipeline, where there have been out of stocks, that's going to help get new product out onto the floor as Michelle said.

<unk> remarks, and in the earlier earlier Q&A we've got.

A pretty strong pipeline coming for the holiday and into Q1 so.

We're cautiously optimistic.

The category was soft.

The best data that we have is in the U S. That's where we've got really good concrete data on a quarterly basis.

Speaker 4: It was down mid-single digits, a curl was down mid-single digits, again.

Was down mid single digits apparel was down mid single digits again, the consumer being pressured by a combination of that with the hot weather.

Harmit Singh: Despite record temperatures this summer, DDC momentum continued with the channel up 11% excluding Russia driven by broad-based growth across countries and a particularly strong performance in our mainline business. Strength in DDC was offset by wholesale softness as customers broadly remain cautious with their open to buy. While we are continuing to focus on accelerating our DDC business, we are also working closely with our wholesale partners to ensure they have the right assortment and deliver newness including lighter weight denim, more dresses and tops.

Speaker 4: consumer being pressured the combination of that with the hot weather did have a negative impact on the category, but having said that we grew share.

Good have.

Negative impact on the category, but having said that we grew share and <unk>.

Speaker 4: And we do share on men's, we do share on women's, we do share with the critical 18 to 30 year old. So the gradient is absolutely strong and we're wearing control of it in our own directed consumer channels.

We grew share of our men's we grew share of women's we grew share with the critical 18 to 30 year olds.

So the brand is absolutely strong and where we're in control of it in our own direct to consumer channels.

Speaker 4: We're we're killing it right now and the other issue is fundamentally about the wholesale channel and and and as I said, we're making sequential improvements there and I think it's going to help.

We're killing it right now and the other issue is fundamentally.

The wholesale channel.

And.

And as I said, we're making sequential improvements there and I think that's going to help.

Speaker 6: And Matt, to your question, I think you asked two questions. One was inventory and the second was gross margins for Q4. So on inventory, you know, we'll be at the end of the quarter better than where we thought we'd be. The US is actually down relative to last year already, which is great, given the large wholesale presence here. I look, we also look at trade inventory in terms of number of months of our tea.

Harmit Singh: Asia again saw strong growth up 18% while lapping very high 53% growth last year. Driven by continuous trend across all channels, particularly DDC and almost all markets. Asia's top markets, India, China and Japan were all up strong double digits as were Turkey, Thailand and several others. Asia's operating margin also expanded 330 basis points to 12.3% due to strong leverage.

And Matt.

To your question I think you had you asked two questions one was inventory and the second was gross margins for Q4, so on inventory.

We ended the quarter better than where we thought we'd be the U S is actually down.

Relative to last year already which is great.

Given the large wholesale presence here I look we also look at trade inventory in terms of number of months of a key.

Speaker 6: wholesale customers and that is better than a quarter of a goal so that inventory situation is getting better, you know, inventory in Europe is in a good spot because, you know, you're up with a little soft. So I think overall, you know, largely because

Wholesale customers and that is better than a quarter of those so that inventory situation is getting better.

Harmit Singh: Now, looking to our balance sheet and cash flow, we achieved strong progress on our inventory goal in Q3, reported in inventory dollars increased 6%. However, more than two-thirds of the year to year increase was driven by the modification of supplier terms with us now taking ownership of inventory for goods being brought into the Americas, closer to the point of shipment rather than destination. This is consistent with existing terms for goods sent to Europe and Asia.

Inventory in Europe is in a good spot because Europe was a little soft so I think overall.

Largely because.

Speaker 6: a large piece of our assortment is core and we sell a lot of core I think we're in a good spot from that perspective. Your question about gross margins which are getting to the business, we beat gross margin expectations in quarter three largely driven by the continuous trend in our direct to consumer business. If you think of the push and take, I know it's a key question that my friend Lauren and you asked which is, you know, so what draw?

A large piece of our assortment as core and we sell a lot of core I think we are in a good spot from that perspective to your question about gross margins, which are getting into the business, we beat gross margin expectations and quarter three largely driven by.

The continued strength in our direct to consumer business, you would think of the puts and takes I know it's a key question my friend.

Harmit Singh: This change is enabled by the recent upgrade of our ERP and simplifies our global ways of working with suppliers in line with industry standards. Adjusting for the change in inventory increased just 1%, representing a 17-point deceleration from last quarter. Inventory in the U.S, is already below last year's level and we expect to continue to make progress in Q4 with overall inventory below prior levels by year and on a comparable basis. In the quarter, we return approximately 40 million in capital to shareholders via dividend, which were in line with Q3 last year. For quarter 423, we have declared a dividend of 12 cents per share in line with last quarter.

Which is.

Speaker 6: Gross margins relative to expectation largely.

What drove.

Gross margins relative to expectation largely.

Speaker 6: the growth in DDC which is structural and here to spare.

The growth in DTC, which is structural and here to stay.

Speaker 6: I think relative to a favorable channel makes favorable effects.

I think relative to go forward.

Favorable channel mix favorable FX.

Speaker 6: and lower air freight were the tailwind, the headwinds were largely surprising actions that we've initiated and lower full price sales relative to a year ago. Thinking about Cordefort, you know, Cordefort we expect to be a headwindier in Gross margin, you know, still ending the year slightly down, but Cordefort, you know, as I said in a prepare marks, Gross margin should be 300 basis.

And lower air freight where the tailwind the headwinds were largely the pricing actions that we have been initiated and lower full price sales relative to a year ago thinking about quarter four.

In quarter, four we expect to be to be.

Okay.

In gross margin still ending the year slightly down but.

Quarter four in as I said in the prepared remarks gross margin should be 300 basis points higher than 2019, and so what's the what are the puts and takes in the.

Speaker 6: higher than 2019. And so what are the puts in the tailwinds on gross margins in Kodafor, you know, product costs, you know, a little better largely because, you know, commodities have come back and you start seeing this benefit essentially in 24 lower air freight and lower promotions relative to a year ago. I mean, Kodafor last year was very promotion.

The tailwind on gross margins in quarter four product costs.

A little better largely because commodities have come back and use the.

We start seeing this benefit.

Essentially in 2020 four.

Lower air freight.

And lower promotions relative to a year ago quarter four last year was very promotional but our expectation is that.

Speaker 12: Our expectation is that since trade and mentoring is in a better spot, our mentoring is in a better spot. Michelle talked about us, you know, having our, you know, a better pipeline as we head into our holidays season across both channels, that should drive, you know, a lot more innovation interest. So I think those are the factors that we think really help, you know, lift gross margins year over year in Kaurapur. Great. very deep.

Trade inventory is in a better spot.

<unk> is in a better spot Michelle talked about us.

Having our.

A better pipeline as we head into holiday season across both channels that should drive.

A lot more innovation interesting. So I think those are the factors that we think really helped lift.

Harmit Singh: Now turning to our outlook, while reported revenue was flat for the third quarter, as mentioned earlier, we exited quarter 3 with continued momentum in our global DC business and improving trends in U.S, wholesale in September. However, given the ongoing uncertainty in the macro environment, we are taking a cautious approach to our outlook for the fourth quarter. For the full year, we are not guiding revenues flat to up 1%. By segment, we continue to expect a low single digit decline in the Americas, despite continued strength in U.S. D.D.C, and in Latin America.

Lift gross margins.

And colorful.

Great Best of luck.

Q.

Yes.

Thank you.

Our next question.

Comes from the line.

Oliver Chen of TD Cohen.

Speaker 13: I thank you, Hitchib, Parmita and Michelle. Our question was about capabilities and the capabilities you may need to.

Alright, Thank you Hi, chip Permian Michelle.

Our question was about our capabilities and the capabilities you may need to prioritize as you become more of a lifestyle brand with with non denim execution, as well and that that likely ties into your thinking around the agility and chasing capabilities, which will be very powerful.

Speaker 13: as you become more of a lifestyle brand with non-denum execution as well. And that likely ties into your thinking around the agility and chasing capabilities, which will be very powerful.

Harmit Singh: Europe's growth is still expected within the previously guided range of up-low single digit, excluding Russia. And for Asia, we continue to expect growth in the low teams. For the fourth quarter, this implies a low to mid single digit revenue increase. We continue to expect adjusted growth margin to contract approximately 90 basis points from prior years 57.6%. This translates to approximately 300 basis points versus 2019 for the full year and the fourth quarter.

Speaker 13: A follow up was on still rate. It sounded like

A follow up was on fill rate it sounded like fill rates are where you want them to be.

Speaker 13: still rates are where you want them to be. What's happening there and you don't expect any more changes there? Are you happy with that? Because it's been a work in progress for the past few quarters. Thanks.

What's happening there and you don't expect any more changes there or are you happy with what that because thats been a work in progress for the past few quarters. Thanks.

Speaker 9: Hey Oliver, great to hear you. I'm Michelle here. So I'll take the first part of the question on capabilities and then I'll hand it over to Harmeet on Fillrate. So yeah, like I said, I'm super excited about the opportunities we have. I'd say both.

Hey, Oliver.

Good to hear from Michelle here, So I'll take the first part of the question on capabilities and then I'll hand, it over to Amit on fill rate so yeah.

Yeah, like I said I'm Super excited about the opportunities we have I would say both well all of the opportunities we have whether that's growing our international business.

Speaker 9: Well, all of the opportunities we have, whether that's growing our international business, it's DTC and then of course, category expansion and we're building capability across all fronts candidly. I think related to I put DTC together with

And then of course category expansion and we are building capability across all fronts candidly related.

Harmit Singh: We continue to expect a full year mid single digit increase in SG&A dollars, yielding an adjusted ebit margin of up to 9% for the full year and approximately 12% for the fourth quarter. Given these factors, we are narrowing our EPS outlook to the low end of our previous range of a dollar 10 to a dollar 20. Lastly, we expect a queue for tax rate in the high single digits and inventory levels blow prior by quarter end on a comparable basis.

Related to I'd I'd put DTC together with.

Speaker 9: with the lifestyle category piece in that in both cases, to operate like a vertical retailer, you need speed and agility.

With the lifestyle category piece and that in both cases to operate like a vertical retailer you need speed and agility.

Speaker 9: And, you know, we talk about more broadly making this pivot. It's operational and it's cultural. It's how we data to drive real-time decisions. Capability-wise, I've gotten two fronts. One, it relates to products, which I think was largely around your question. It's really end-to-end. So we start with our go-to-market timeline. It's too long today. So we built over years highly successful, but was built to serve a US wholesale autumn business that can move a lot slower than if you're a direct-to-consumer global denim lifestyle business.

And we talk about more broadly, making that pivot, it's operational and it's cultural it's how we use data to drive real time decision.

Capability why icon two fronts, one as it relates to products.

Largely around your question, it's really end to end. So we start with our go to market timeline, it's too long today.

Chip Bergh: I will now turn it back over to Chip for closing remarks before opening up the call for Q&A. We continue to control the controllables while navigating an environment with a heightened level of macro uncertainty around the world. We're confident in the strength of our brand and the newness and innovation pipeline we have coming. Our actions to stabilize U.S, wholesale are working and are continued strong performance in global DTC underscores the strength of our brand and deep connection with consumers and is enabling us to deliver near-term results while laying the foundation for sustainable, profitable growth in the years ahead.

Over year's highly successful, but was built to serve a U S. Wholesale bottoms business that can move a lot slower than if you're a direct to consumer global denim lifestyle business and there should be multiple tracks of timelines across different product for example, as you know.

Speaker 9: And there should be multiple tracks of timelines across different products. For example, as you know, tops and especially fashion tops operate on a much faster timeline than say your core 501 denim bottoms. Not saying we're gonna become fast fashion, that we're not going to, but getting inside of a 12 month timeline is imperative for us to both drive relevance in these categories and then make sure we get the kind of turns that we need in a DTC business.

Tops, and especially fashion top operate on a much faster timeline than say your core vital one denim bottoms, not saying, we're going to become fast fashion. In fact, we're not going to but getting inside of a 12 month timeline is imperative for us to both drive relevance in these categories.

And then make sure we get the kind of terms that we need in the DTC business.

Chip Bergh: And as you heard from Michelle and Harmit, given our momentum, now is the time for us to accelerate our transition to a DTC driven business by advancing the organizational structure to support our ambition. My confidence in our leadership and our team remains extremely high and we're focused on executing with discipline and rigor on our priorities.

Speaker 9: So there's lots of teams working on unpacking and refining what this new go-to-market process will be, and there's already been a lot of great progress.

So theres lots of teams working on kind of unpacking and refining what this new go to market process will be and there's already been a lot of great progress secondly.

Speaker 9: Secondly, as it relates to capability, it's design, it's product development, it's our vendor base. Again, I say over my time here, there's already been tremendous progress.

Secondly, as it relates to capability. It's design, it's product development is our vendor base again, I'd say over my time here Theres already been tremendous progress.

Speaker 9: We have deep capabilities today in design and product development. We're supplementing that. We're bringing in new talent across these fronts.

We have deep capabilities today in design and product development, we're supplementing that we're bringing in new talent across these fronts.

Operator: With teeth with that, you can open the floor to Q&A. Thank you.

Operator: The floor is now open for questions. If you have a question, please press star than the numbers 1-1 on your telephone keypad. Due to time constraints, the company requests that you only ask one question. If you have an additional question, please queue up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 1-1 again.

And I've been really excited to see again in my short time, how we've expanded our vendor base to bring it vendors, who have key capabilities and expertise in areas like tops or dresses et cetera, and then to your point.

I'm, an end to end supply chain, when you're and direct to consumer where that your stores are in econ, you want to be able to have the flexibility to chase into things that are working really well or pulled back if they're not and so that's in the supply chain side I think but it's literally like on the floor. So the last thing I'd say is real.

Speaker 6: or in E-Com, you want to be able to have the flexibility to chase into things that are working really well or pull back if they're not. And so that's in the supply chain side of things, but it's literally like on the floor. So the last thing I'd say is really excited about the capabilities we're building to run a retail organization. So what's happening with our stores, our people, training, really putting the stores in our E-Com channel at the center and giving our stores the empowerment to run their business. So a lot to do. I've done a lot of good progress already underway. And then meet everyone. So on fill rates, all of a let me just start by saying, you know,

Bob Durville: Our first question comes from the line of Bob Durville of Guggenheim.

Excited about the capabilities, we're building to run a retail organization, so what's happening with our stores our people training.

Michelle Gass: Michelle, welcome. I guess if I could just like to focus a couple questions from Michelle, two part one question. What surprised you in your first nine months at Levi's so far, and I guess the second part of it would be, just given your background, what steps do you think are necessary to really stabilize the wholesale business? Thanks. Thanks, Bob. Thank you for the question. So first in terms of being surprised, well I first say that I just couldn't be more excited to be here.

Speaker 9: training, really putting the stores in our e-commerce channel at the center and giving our stores the empowerment to run their business.

And really putting the stores and our E com channel at the center and giving our stores the empowerment to run their business.

Speaker 6: So a lot to do, I thought a lot of good progress already underway. And then to meet everyone. On fill rates, all of a, let me just start by saying, you know, we really have...

So a lot a lot to do but a lot of good progress already underway and then.

Until rates.

Oliver Let me just start by saying.

We really have.

Speaker 6: A lot of great people, a lot of good talent, running RDCs around the world and a shout out to them. It's been tough largely because we had more inventory. We really have been working collectively as a team to try and decongest that RDCs so that we could start servicing our customers and our stores. And so as, you know, and that

A lot of great people a lot of good talent running our dcs around the world and a shout out to them.

It's been tough largely because we had more inventory.

Michelle Gass: It is an incredible company. It's one of the most iconic brands in the world. Awesome opportunities for growth ahead and an amazing team. And so it really is just an honor and privilege to be here. I say what's been most surprising is, you know, I think back to the seat I held before, and I knew Levi's much more as a US wholesale bottom business. And I've said the last nine months traveling around the world with Chip and her meat and others of the team.

Having said that we really.

<unk> had been working collectively as a team to try and decongest.

Our Dcs so that we could start servicing our customers in our stores and so as that.

Speaker 6: sequentially improved as we exited quarter three is got a lot better in September . And you know, our view is that by the end of end of quarter four, you know, this issue is behind us from that perspective. We're also a couple of things. We have opened a new DC, the digital DC.

Sequentially improved as we exited quarter three is got a lot better in September.

Our view is that by the end of.

Michelle Gass: And I've just honestly been blown away by the power of our brand internationally. The DTC presence, how our brand shows up much more the lifestyle brand candidly and many of the markets outside of the US, how premium we are. The resonance with news that we're out of the center of culture, we are across all of our markets. You know, we have got the power of the global brand but then how the local markets adapt to be highly relevant.

And of course for.

This issue is behind us from that perspective, we're also.

Couple of things, we have opened a new Dcs the digital Dizzy.

Speaker 6: In the East Coast and that is a service IE.

In the east coast and that as a service.

Speaker 6: a platform that makes it different because we have more capacity.

Our platform that makes it different because we have more capacity and our focus right now is.

Speaker 6: And our focus right now is, you know, to service a full price.

To service a full price.

Speaker 6: skews to service DTC and ensure that as we get ready for the holiday season, the newness is on the floor. And so I think to your point, it's very...

Skus to serve as BDC.

Ensure that as we get ready for the holiday season. The newness is on the floor and so I think to your point it's.

Michelle Gass: And, you know, while we're investing and growing the brand, our partners are two. I mean, as you know, we've got many franchisee partners around the world and through our travels have had the opportunity here from a number of them. And they are really passionate, really committed. And they too are investing. I mentioned India on the call where they invest a lot of dollars in the pandemic to dramatically grow our stores and grow our footprint.

Speaker 6: every day and the teams are committed to ensure that, you know, we don't miss this.

Every day and the teams are committed to ensure that we.

We don't necessarily.

Thank you best regards.

Thanks Oliver.

Okay.

Thank you.

Speaker 2: Next question comes from Ron Vasilesky, a B&P parable.

Our next question.

Michelle Gass: So, yeah, so I'd say for me, one of the biggest takeaways has been that and I just see a ton of growth potential. You know, as I mentioned in my remarks, I'll just hit these very quickly but beyond, beyond international, you know, this pivot to DTC is really incredible. And we're talking about international, the US market is still clearly very important. We're seeing DTC growth as we talked about earlier on the call across all channels of DTC.

Comes from Iraq vessel eschew.

Powerbar.

Speaker 14: Good afternoon. Thank you very much for taking my question and Michelle, great to have your voice on the call.

Good afternoon, and thank you very much for taking my question and Michelle It's great to have your voice on the call.

Speaker 14: Chip Harmeet, I would love to ask about the strategic pricing actions you took in your Tier 3 distribution in the US.

Pardon me I would love to ask about the strategic pricing actions you took in your tier three distribution in the U S.

Speaker 14: Just a little bit more color around just what you saw in terms of price list elasticity.

A little bit more color around just what you saw in terms of pricing plasticity.

Speaker 14: Are you confident that, you know, it's really, it should be isolated into the tier 3 distribution or...

Are you confident that it's really it should be isolated into in the tier three distribution or.

Michelle Gass: So a lot of upside there. And then lastly, I just hit on and there may be more questions on this, but this opportunity to continue to build on the work that team has done to really pivot the brand from a from a jeans brand to a denim apparel lifestyle and happy to entertain further questions on that. But that's head to toe denim is everything from denim tops to denim skirts to denim dresses and beyond.

Speaker 14: Would you potentially revisit this across other still-o-wet styles and points of distribution? And then maybe just another question, if I may. I would love to hear, Harmey, we'll go back to 2021.

Would you potentially revisit this across other silhouettes.

Styles and points of distribution and then maybe just another question if I may.

Would love to hear Hanmi will go back to 2020, 'twenty. One you talked about $200 million of gross savings I know you are not necessarily prepared to talk about it but can we see some kind of magnitude of that type of savings as you think about 2024 and beyond.

Speaker 14: you know, you talked about $200 million of gross savings. I know you're not necessarily prepared to talk about it, but.

Michelle Gass: And there's a lot of uncapped opportunity there. And then lastly, I'd say the team is is bar none. Just an incredibly talented team, deep bench, and then not only with the great talent we have in place, but we're bringing in new talent to compliment the capabilities we have here today. We talked about before we bought a new chief digital officer. We have a new chief marketing officer and then most recently a new head of logistics and distribution.

Speaker 14: Can we see some kind of magnitude of that type of savings as you can think about 2024 and beyond?

Speaker 4: I'll take the first question on pricing and again, I'll try not to be too repetitive and I'll keep it pretty brief because the data is still pretty fresh. As I said, you know, we announced the price increase in early August , each customer implemented it on their own timing because it was based on Svallin.

Yes.

Take the first question on pricing and again I'll try not to be too repetitive, but I'll keep it pretty brief because the data is still pretty fresh and as I said, we announced the <unk>.

This increase in.

Early August each customer implemented it on their own timing because it was based on sell in.

Michelle Gass: So we're really set up with the team to drive our agenda. So part two of your question is around wholesale, which indeed I do have some familiarity with. And while as we look ahead, DTC will be significant growth. Whole still really important to our business is an incredibly important channel. It's big. It's profitable. And I think strategically and importantly, it extends our reach with consumers. We're not going to show up in every single town across America and across the world.

Speaker 4: And so the timing has kind of been rolled out or we doubt customer by customer. But where we have seen customers take pricing on these six items.

So the timing is kind of been rolled out or waived out customer by customer.

But where we have seen customers take pricing on these six items.

Speaker 4: We have seen the trend on those items in black. You know, we have seen it distinct change in trends.

We have seen the trend on those items and flat.

We have seen a distinct change in trends.

Speaker 4: It's still really, really early though. I mean, and we still have some customer, we have one customer that just put the price in the place, reduce price in the place this past week. So it is still really early days, and that's why I'm trying to temper this with a little bit of, you know, not getting too excited about it, but I will say, you know, we were very, very disciplined in trying to really understand what were the most price sensitive items in the line and adjusting the price on those items and those items only.

Still really really early though.

We still have some customer we have one customer that just put the price into place the reduced price into place this past week. So.

Michelle Gass: And so our partnerships are really instrumental in extending our our brand and product reach. We have a long relationship with these customers. We are important to them and they are important to us. And I'm really excited and met with many of them during my time here. It's not the year that any of us anticipated. There are clearly headwinds, but we have our arms around the issues. I point to three things. One is that the macro issues were all familiar with.

It is still really early days and Thats why im trying to temper this with a little bit of.

Not getting too excited about it but I will say we were very very disciplined in trying to really understand what were the most price sensitive items in the line and adjusting the price on those items and those items always.

Speaker 4: And I feel pretty confident that we've picked the right items and that we're not gonna have to go any further. I know that that was a big concern that many had. I think we've done a good job of isolating where we are really, really vulnerable and we addressed the price value of pleasure on those items.

Michelle Gass: Second is some value concerns that our customers were talking to us about some of our fits, which we've addressed. And then third, we have faced over the course of the year some congestion in our DCs, which are largely behind us. As we've addressed these issues, we have seen sequential improvement. I think Chip mentioned that earlier on the call. And so at each month across the quarter improve. And then even in the early days of this quarter, we're continuing to see improvements there.

And I feel pretty confident that we pick the right items and that we're not going to have to go any further.

That was a.

The big concern that many had.

I think we.

We've.

<unk> done a good job of isolating where we're really really vulnerable.

The price value equation on those items and.

Speaker 4: And our stronger items, as I said, the 501, you know, we didn't touch the pricing on 501. So I think we're in a pretty good place right now. My mother said, never say never. So we're not saying, we'll never take the prices down, but at the same time, I've got a pretty high degree of confidence that we're in a good place.

And our stronger items as I said the 501.

And we didn't touch the pricing of fiber awards so.

I think we're in a pretty good place right now my mother said never say never so we're not saying, we'll never take prices down but at the same time I've got a pretty high degree of confidence that we.

Michelle Gass: You know, I think beyond that though, you know, so addressing I call it the fundamentals of the value equation and executing our shipments. It's about product and it's about innovation. And we talk about just having this lifestyle expression of our brand and our own stores. And we can do a better job there with our wholesale partners. And so whether that's head to toe denim dressing, bringing more fashion, bringing more innovation. And you're going to see some of that as early as this fall and holiday, where I believe we'll really set up.

We're in a good place right now.

Speaker 6: Yeah, and and and I'll answer your direct question. I'm not going to get into the numbers. But but

Yes and no.

And to your direct question I'm, not going to get into the numbers.

But but.

Speaker 6: You know, the fact we're speaking in the call, the fact that I've said this material, you know, should indicate to you that this is an important piece of, or an initiative that the entire company is focused on.

The factory speaking on the call. The fact that I've said is material.

Should should indicate to you that this is an important.

Michelle Gass: But I think importantly, as we look into 2024, we have a very deep pipeline. We've been presenting to customers. We have a new innovation platform that we've already started to tease out there. I'll talk about that at some point in the future. So, but we've got a lot in front of us to believe that we can stabilize and ultimately reinstate growth in this importance. General. Thank you.

Piece of.

Our initiative the entire company is focused on.

Speaker 6: The difference between this and the last time we did it, and we've done it once or twice before, in fact, two times. And it's made...

The difference between this and.

The last time, we did it and we've done it once or twice before in fact 210.

Speaker 6: on operating margins. So we have history, you know, supporting us. But I think the difference in this case is that it's towards this pivot to DDC. So we're focused on how to drive more productivity and our store is focused on how to drive more of an improvement in working capital for inventory and returns and is looking at the cost. And so there is a difference. This is probably going to be.

And it's made a difference on operating margin. So we have history.

Supporting us, but I think the difference in this cases towards this pivot to a BDC. So we are focused on how to drive more productivity in our stores is focus on how to drive more of an improvement in working capital for inventory tons and is looking at the cost and so there is there is a difference this is probably.

Bob Durville: Good luck. Thank Bob. Thank you.

Operator: Please stand by for our next question.

Jay Sole: Which comes from the line of Jay Sole of UBS. Great. Thank you so much.

Speaker 6: you know, you're quadrant, then the past, but something that will sustain itself and very directed at strategically the evolution of this company into more of a DDP.

We're going to be.

Harmit Singh: Harmit, you mentioned, you know, going through an overview of the cost structure, maybe outline a little bit more, or elaborate a little bit more on what you mean in terms of, you know, quantifying the impact that you see. And maybe if you put it in a context of the adjusted, even margin guidance of 15% that was given, you know, as part of the long-term financial targets the investor day in June 22.

Different than the past, but something that would sustain itself and really directed at strategically the evolution of this company into more of a DTC comp.

Thank you very much.

Speaker 2: Thank you, Lon. Thank you at this time. I like to turn the floor back over to the company for any closing room.

Thank you Lauren. Thank you at this time I would like to turn the floor back over to the company for any closing remarks, alright, well I want to thank everybody we run over by just a little bit but thank everyone for hanging in there. Thank you for your questions.

Harmit Singh: That'd be super helpful. Thank you. Sure, Jay. The, you know, Michelle talked about how we're making this faster pivot to DDC. And, you know, we believe that will accelerate our growth. You know, while it's early, we recognize that this company has a lot of opportunities to be faster, more agile, to be efficient, including shorter go-to market calendar. So let's, let me give you an example. You know, before Michelle arrived, we didn't have dresses and skirts and five for this year.

Speaker 4: All right, well, I want to thank everybody we went over by just a little bit, but thank everyone for hanging in there. Thank you for your questions. I wish everybody, believe it or not, a happy holiday because the next time we are with you will be in late January when we close Q4 and report on Q4 and annual results looking forward to that.

Everybody believe it or not I happened to holiday because the next time, we are with you will be in.

In late January when we closed Q4 and report our Q4 and annual results looking forward to that.

Speaker 4: and have a good holiday and we'll talk to you all soon. Thank you very much.

And have a good holiday and we will talk to you. All soon thank you very much.

Speaker 2: Thank you, this concludes today's conference call. Please disconnect your lines at this time.

Thank you. This concludes today's conference call. Please disconnect your lines at this time.

Harmit Singh: You've got it, right? That is, you know, acting more like a vertical retailer versus a wholesaler who has a go-to market calendar of, you know, over 12 to 15 months. You know, we're going to take a hard look at our assortment and drive more productivity like the hub companies. We also have a lot of tail, but the tail doesn't move as fast. So taking a hard look at that, I think is is critical.

Okay.

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Yes.

Okay.

Harmit Singh: So we're looking at all processes. We're looking at go-to market and, you know, we are going to be a lot more consumer centric. In terms of areas, you know, we think this drives more productivity in our DDC operations and profitability. We think it does, you know, drive a better S&S structure. It improves our supply chain operations, including cogs and clear working capital improvements as we drive higher turns. Because we're not satisfied, you know, while we get to blow in mentoring levels, below last year, mentoring levels at the end of the year, we think there's a lot more opportunity.

Okay.

Okay.

Okay.

Yes.

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Okay.

Yes.

Okay.

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Okay.

Yes.

Yes.

Okay.

Okay.

Okay.

Okay.

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Harmit Singh: And, you know, I know, I really understand if I was in your shoes, you want, you know, as to quantify this fairly quickly, but what I will tell you is that, you know, give us through the end of quarter four when you release our expectations for next year. You know, we've recorded the impact. Your question about, you know, the 15%, the EBIT margins, we are completely behind that. We are going to be a company that has 15%, EBIT margins over time.

Okay.

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Sure.

Yes.

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Yes.

Dan.

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Yes.

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Okay.

Harmit Singh: You know, this focus, we're looking at the entire cost structure of the company just solidifies our part to get there and get there the right way and that, you know, during the time frame that, you know, we believe is acceptable to our, you know, long-term shareholders. So, you know, we're committed to the 15%, this helps get us there and defies our way and then really makes this company a lot more efficient in the next year.

Jay Sole: Thank you so much. Thank you.

Matthew Boss: Please stand by for our next question. Our next question comes from the line of Matthew Boss of JP Morgan. Great, thanks.

Chip Bergh: So Chip, maybe on global health of the brand and category, could you just elaborate on the sequential sales improvement and speak to current demand trends that you're seeing across channels in North America and Europe today? And then for Harmit, could you speak to inventory health across distribution channels and just the puts and takes that are embedded in your fourth quarter gross margin outlook relative to three months ago? Sure, first of all, Matt, I'll try not to be too repetitive with what was in the prepared remarks, but you know, we're seeing, you know, a dramatic or stark contrast between the results in our direct to consumer business versus wholesale, so direct to consumer up, you know, pretty strong double digits up in every region, up in mainline outlet and the commerce, plus we come positively in each chain in each region and each channel in each region.

Chip Bergh: So really strong results there during the quarter and wholesale down pretty soft. And you know, as we've kind of been digging into this, you know, one of the things to consider is our DTC assortment is very, very broad, you know, top, bottoms, men's, women's. We can also be pretty agile in responding to it. We're going to work on becoming even more agile as Michelle said, but it's been a pretty hot summer as everybody knows and you all have known me for a while.

Chip Bergh: I rarely talk about the weather report when I'm talking about our business results, but I think there's no doubt that our wholesale business was somewhat impacted by the really, really hot summer because the wholesale assortment is pretty much denim bottoms. We did take the pricing action late in Q3, so we announced it. We first talked about it on this call. We announced it to our customers and it went into effect in early August.

Chip Bergh: Every customer kind of executes it on their own timing and they execute it their own way and that kind of wrapped them on the bogus. So what impact we did see on those six items where we took pricing actions here in the US, you know, was late in the quarter, but I will say that we are, you know, optimistic with what we're seeing. We are seeing an improvement in trends on those items in those customers where we have seen the pricing reflected and that gives us confidence that we did pick the right items.

Chip Bergh: I also say, you know, you all remember, we did not take pricing down on a number of items. 501's being won specifically and the 501's were up this past quarter. So I think we really were very surgical and very strategic, we're optimistic about that. From our wholesale trends, though they were down 10th or slightly late, they were better than they were the previous quarter and our expectation is that they're going to be better in the fourth quarter in part because of the pricing actions that we've taken, having a full quarter's impact of that in part because, you know, this inventory situation that we've had for multiple quarters is now cleaned up and we're getting back to more normalized customer fill rates.

Chip Bergh: That's going to help. Bill the pipeline where there have been out of stocks, that's going to help get new product out of the floor. As Michelle said, both in a prepared remarks and in the earlier earlier Q&A, you know, we've got a pretty strong pipeline coming for the holiday and into Q1. So, you know, cautiously optimistic. The category was soft. You know, the best data that we have is in the U.S. That's where we get really good concrete data on a quarterly basis.

Chip Bergh: It was down mid-single digits of curl was down mid-single digits. Again, the consumer being pressured the combination of that with the hot weather did have a negative impact on the category. But having said that, we grew share. And we grew share on men's, we grew share on women's, we grew share with the critical 18 to 30 year old. So the gradient is absolutely strong and we're wearing control of it in our own directed consumer channels.

Chip Bergh: We're killing it right now. And the other issue is fundamentally about the wholesale channel. And as I said, we're making sequential improvements there, and I think it's going to help. And Matt, to your question, I think you asked two questions. One was inventory, and the second was gross margins for Q4. So on inventory, you know, the end of the quarter better than where we thought we'd be, the U.S, is actually down relative to last year already, which is great.

Chip Bergh: Given the large wholesale presence here, I look, we also look at trade inventory in terms of number of months of our key wholesale customers. And that is better than a quarter of a goal so that inventory situation is getting better. You know, inventory in Europe isn't a good spot because you know you're a little soft. So I think overall, you know, largely because, you know, a large piece of our apartment is core and sell a lot of core, I think we're in a good spot from that perspective.

Chip Bergh: Your question about gross margins, which are getting to the business, we beat gross margin expectations in quarter three, largely driven by, you know, the continuing strengthen our director consumer business. We think of the puts and takes. I know it's a key question that my friend Lauren and you ask which is, you know, so what drove gross margin relative to expectation, largely the growth in BDC, which is structural and here to spare.

Chip Bergh: I think relative to a favorable, favorable channel mix, favorable effect and lower air freight world, the tailwind, the headwinds were largely the pricing actions that we've initiated and lower for price sales relative to a year ago. So thinking about quarter for, you know, quarter for we expect to be, to be a headlier in gross margin, you know, still ending the year slightly down, but quarter for you know, as I said in a prepare marks gross margin should be 300 basis points higher than 2019.

Chip Bergh: And so what's the, what are the puts in the tailwinds and gross margins in quarter for, you know, product costs, you know, a little better, largely because, you know, commodities have come back and you start seeing this benefit essentially in 24 lower air freight and lower promotions relative to a year ago. I mean, quarter for last year was very promotional, but our expectation is that since trade and mentoring is in a better spot, our inventory is in a better spot.

Chip Bergh: Michelle talked about us, you know, having our, you know, a better pipeline as we head into a holiday season across both channels that should drive, you know, a lot more innovation interest. So I think those are the factors that we think really help, you know, lift gross margins year over year and quarter. Great, best of luck. Thank you.

Oliver Chen: Our next question comes from the line of Oliver Chen, up TD Cohen. Hi, thank you. Hi, Chip, Harmit and Michelle. Our question was about capabilities and the capabilities. You may need to prioritize as you become more of a lifestyle brand with with non-denum execution as well, and that likely ties into your thinking around the agility and chasing capabilities, which will be very powerful. A follow-up was on still rates. It sounded like still rates are where you want them to be. What's happening there and you don't expect any more changes there? Are you happy with that? It's been a work in progress for the past few quarters. Thanks. Hey, Oliver. Great to hear you, Michelle here.

Michelle Gass: So I'll take the first part of the question on capabilities, and then I'll hand it over to Harmit on still rates. So yeah, like I said, I'm super excited about the opportunities we have. I'd say both, well, all of the opportunities we have, whether that's growing our international business, its DTC, and then of course category expansion, and we're building capability across all fronts candidly. I think related to I'd put DTC together with the lifestyle category piece, in that in both cases, to operate like a vertical retailer, you need speed and agility.

Michelle Gass: And we talk about more broadly making this pivot. It's operational and it's cultural. It's how we use data to drive real-time decisions. Capability-wise, I've gotten two fronts. One, it relates to products, which I think was largely around your question. It's really end-to-end. So we start with our go-to-market timeline. It's too long today. Since it builds over years, highly successful, but was built to serve a US wholesale, bottoms business that can move a lot slower than if you're a direct-to-consumer global denim lifestyle business.

Michelle Gass: There should be multiple tracks of timelines across different products. For example, as you know, tops and especially fashion tops operate on a much faster timeline than say you're core 501 denim bottoms. Not saying we're going to become fast fashion, that we're not going to, but getting inside of a 12-month timeline is imperative for us to both drive relevance in these categories, and then make sure we get the kind of turns that we need in a DTC business.

Michelle Gass: So there's lots of teams working on unpacking and refining what this new go-to-market process will be, and there's already been a lot of great progress. Secondly, as it relates to Capability, its design, its product development, its our vendor base. Again, I'd say over my time here, there's already been tremendous progress. We have deep capabilities today in design and product development, we're supplementing that, we're bringing in new talent across these fronts, and I've been really excited to see, again, in my short time, how we've expanded our vendor base to bring inventors who have key capabilities and expertise in areas like tops or dresses, etc.

Michelle Gass: And then to your point, you know, from an end-to-end supply chain, you know, when you're and direct a consumer with that at your stores or in e-com, you want to be able to have the flexibility to chase into things that are working really well or pull back if they're not. And so that's in the supply chain side of things, but it's literally like on the floor. So the last thing I'd say is really excited about the capabilities we're building to run a retail organization. So what's happening with our stores, our people training, really putting the stores in our e-com channel at the center and giving our stores the empowerment to run their business.

Harmit Singh: So a lot to do, I did a lot of good progress already underway, and then to meet everyone. So on fill rates, all of a let me just start by saying, you know, we really have A lot of great people, a lot of good talent running our DCs around the world and a shout out to them. It's been tough largely because we had more inventory. And so we really have been working collectively as a team to try and decongest our DCs so that we could start servicing our customers and our stores.

Harmit Singh: And so as you know, and that sequentially improved as we exited quarter three, it's got a lot better in September. And you know, our view is that by the end of end of quarter four, you know, this issue is behind us from that perspective. We're also a couple of things. We have opened the new DCs, the digital DCs in the East Coast and that is a service, our ECM platform, that makes it different because we have more capacity.

Harmit Singh: And our focus right now is, you know, to service a full price, you know, skews to service DDC and ensure that as we get ready for the holiday season, the newness is on the floor. And so I think to your point, it's every day and the teams are committed to ensure that, you know, we don't miss a sale. Thank you, best regards. Thanks, Oliver.

Laurent Vasilescu: Thank you. And next question comes from the wrong vessel rescue, a BMP paraba. Good afternoon. Thank you very much for taking my question. And Michelle, great to have your voice on the call. Chip, I would love to ask about the strategic pricing actions you took in your tier three distribution, US, just a little bit more color around just what you saw in terms of price elasticity. Are you confident that, you know, it's really it should be isolated into in the tier three distribution, or would you potentially revisit this across other silhouette styles and points of distribution.

Laurent Vasilescu: And then maybe just another question, if I may, I would love to hear. We go back to 2021, you know, you talked about $200 million of gross savings. I know you're not necessarily prepared to talk about it, but can we see some kind of magnitude of that type of savings as you can think about 2024 and beyond.

Chip Bergh: Yeah, I'll take the first question on pricing. And again, I'll try not to be too repetitive and I'll keep it pretty brief because the data is still pretty fresh. As I said, you know, we announced the price increase in early August, each customer implemented it on their own timing, because it was based on selling. So the timing has kind of been rolled out or we doubt customer by customer. But where we have seen customers take pricing on these six items, we have seen the trend on those items in black, you know, we have seen at distinct change in trends.

Chip Bergh: It's still really, really early though. I mean, and we still have some customer, we have one customer that just put the price into place, reduce price into place this past week. So it is still really early days and that's why I'm trying to temper this with a little bit of, you know, not getting too excited about it, but I will say, you know, we were very, very disciplined in trying to really understand what were the most price sensitive items in the line and adjusting the price on those items.

Chip Bergh: And I feel pretty confident that we picked the right items and that we're not going to have to go any further law, you know, I know that that was a big concern that many had. I think we, you know, we've done a good job of isolating where we are really, really vulnerable and we addressed the price value of pleasure on those items and our stronger items, as I said, the 501, you know, we didn't touch the pricing on 501.

Chip Bergh: So I think we're in a pretty good place right now, you know, my mother said never say never. So we're not saying we'll never take the prices down, but at the same time, I've got a pretty high degree of confidence that we're in a good place. Yeah, and Laurent, to your direct question, I'm not going to get into the numbers, but, you know, the fact we're speaking in the call, the fact that I've said this material, you know, should, should indicate to you that this is an important piece of, you know, or initiative that the entire company is focused on the difference between this and, you know, the last time we did it, and we've done it once or twice before, in fact, two times, and, you know, it's made a difference on operating margins, so we have history, you know, supporting us, but I think the difference in this case is that it's towards this pivot to DDC.

Chip Bergh: So we're focused on how to drive more productivity in a store is focused on how to drive more of an improvement in working capital for inventory, and is looking at the cost, and so there is, there is a difference, this is probably going to be, you know, your quadrant, then the past fired something that will sustain itself, and really directed at strategically the evolution of this company into more of a DDC company. Thank you very much. Thank you, Lon.

Chip Bergh: Thank you, at this time, I like to turn the floor back over to the company for any closing remarks. All right, well, I want to thank everybody we went over by just a little bit, but thank everyone for hanging in there. Thank you to your questions.

Chip Bergh: I wish everybody leave it or not, I happen to holiday because the next time we are with you will be in late January when we close Q4 and report Q4 and annual results looking forward to that and have a good holiday and we'll talk to you all soon. Thank you very much.

Operator: Thank you, this concludes today's conference call.

Operator: Please disconnect your lines at this time.