Q2 2024 Levi Strauss & Co Earnings Call

June 26, 2024

and many more. And I'm proud to say that we have the world's first ever online course on technology. So join us next week. We hope you'll join us. We'll see you next week. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.

Operator: 2nd Quarter Fiscal 2024 Earnings Comprehension for the period ending May 26, 2024. All parties will be in a listen-only mode until the question-and-answer session, at which time instructions will follow.

Speaker Change: Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co. Second Quarter Fiscal 2024 Earnings Conference Call for the period ending May 26, 2024. All parties will be in a listen-only mode until the question and answer session, at which time instructions will follow.

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, levistrauss.com. I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Co. Thanks, Lateef.

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

Speaker Change: 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. I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Co.

Aida Orphan: Thank you for joining us on the call today to discuss the results for our second quarter, fiscal 2024. Joining me on today's call are Michelle Goss, our President and CEO, and Harmit Singh, our Chief Financial and Growth Officer. We'd like to remind you that we will be making forward-looking statements on this call that involve risks and uncertainties. The 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 for the year ended November 26, 2023, for the factors that could cause our results to differ.

Latif: Thanks, Lateef. Thank you for joining us on the call today to discuss the results for our second quarter, fiscal 2024. Joining me on today's call are Michelle Goss, our President and CEO , and Harmit Singh, our Chief Financial and Growth Officer.

Speaker Change: We have posted complete Q2 financial results and our earnings release on the IR section of our website, investors.levistrauss.com. The link to the webcast of today's conference call can also be found on our site.

Speaker Change: 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.

Speaker Change: Please review our filings with the SEC, in particular the Risk Factors section of our Form 10-K for the year ended November 26th.

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-GAAP financial measures, which are not intended to be a substitute for our GAAP results.

Speaker Change: 2023, for the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today, and we assume no obligation to update any of these statements.

Speaker Change: During this call, we will discuss certain non-GAAP financial measures.

Speaker Change: These non-GAAP financial measures are not intended to be a substitute for our GAAP results.

Speaker Change: Reconciliations of our non- GAAP measures to the most comparable GAP measure are included in today's press release.

Speaker Change: Reconciliation of non-GAP forward-looking information to the core SPAM-themed GAAP measures , however,

Speaker Change: cannot be provided without unreasonable efforts due to the challenge in quantifying various items, including but not limited to, the effects of foreign currency fluctuations, taxes, and any future restructuring, restructuring-related severance, and other charges.

Aida Orphan: Reconciliations of our non-GAAP measures to their most comparable GAAP measure are included in today's press release. However, reconciliation of non-GAAP forward-looking information to the corresponding GAAP measures cannot be provided without unreasonable effort due to the challenge in quantifying various items, including but not limited to the effects of foreign currency fluctuations, taxes, and any future restructuring, restructuring-related severance, and other charges. 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 Michelle and Harmit will be referencing constant currency numbers unless otherwise noted. And now, I would like to turn the call over to Michelle.

Speaker Change: 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 Michelle and Harmit will be referencing constant currency numbers unless otherwise noted. And now I would like to turn the call over to Michelle.

Michelle D. Gass: Thank you and welcome everyone to today's earnings call. We delivered another strong quarter with revenue up 9% in constant currency and 2% adjusted for the ERP shift and the exit of the denizen business, reflecting sequential improvement across the business. The ongoing acceleration in the business gives us confidence in the second half of the year and beyond. Here are a few highlights.

Michelle D. Gass: Thank you and welcome everyone to today's call. We delivered another strong quarter with revenue up 9% in constant currency and 2% adjusted for the ERP shift and the exit of the denizen business, reflecting sequential improvement across the business.

Michelle D. Gass: The ongoing acceleration in the business gives us confidence in the second half of the year and beyond. Here are a few highlights. We continue to see strong growth in our direct-to-consumer channel, up 11%, reflecting nine consecutive quarters of robust comp growth.

Michelle D. Gass: We continue to see strong growth in our direct-to-consumer channel, up 11%, reflecting nine consecutive quarters of robust comp growth. The Levi's brand continues to gain momentum, up 2% on an adjusted basis. Our Global Levi's Women's Business is accelerating and delivered 22% growth in DTC in Q2. Levi's now ranks number one in women's denim bottoms in the U.S. Our largest market, the U.S., once again delivered positive growth for a third consecutive quarter on an adjusted basis.

Michelle D. Gass: The Levi's brand continues to gain momentum, up 2% on an adjusted basis.

Michelle D. Gass: Our global Levi's women's business is accelerating and delivered 22% growth in DTC in Q2. Levi's now ranks number one in women's denim bottoms in the U.S.

Michelle D. Gass: Our largest market, the U.S., once again delivered positive growth for a third consecutive quarter on an adjusted basis.

Michelle D. Gass: Global Wholesale sequentially improved, down 4% on an adjusted basis due to an improvement in sellout. While we are driving this growth, we are also improving our profitability, as evidenced by record gross margins of 60.5%, enabling us to deliver a higher-than-expected Adjusted Diluted EPS of 16%. As I've shared previously, we are currently undergoing a significant transformational pivot to become a best-in-class direct-to-consumer retailer. While this evolution will span multiple years, our efforts are already positively impacting our quarterly results. I will now talk you through the details of the quarter in the context of our strategic priorities, leading with our brand. Operating as a direct-to-consumer-first business.

Michelle D. Gass: Global wholesale sequentially improved, down 4% on an adjusted basis due to an improvement in sellout trends.

Michelle D. Gass: While we are driving this growth, we are also improving our profitability, as evidenced by record gross margins of 60.5%, enabling us to deliver a higher than expected adjusted diluted EPS of $0.16.

Michelle D. Gass: As I've shared previously, we are currently undergoing a significant transformational pivot to become a best-in-class direct-to-consumer retailer. While this evolution will span multiple years, our efforts are already positively impacting our quarterly results.

Michelle D. Gass: I will now talk you through the details of the quarter in the context of our strategic priorities. Leading with our brand, operating as a direct-to-consumer-first business, empowering our portfolio. Starting with leading with the Levi's brand.

Michelle D. Gass: Empowering our portfolio. Starting with and leading with the Levi's brand, a key indicator of brand health, we continue to make meaningful market share gains in the U.S., driving growth with women and our key youth target group of 18 to 30-year-olds, while maintaining our dominant leadership position in men. Importantly, we have maintained our leadership position across consumers of all ages, and our unaided brand awareness remains well above our competition across most markets globally. We continue to drive brand heat and impactful storytelling by showing up at the center of culture across music, art, and design, fashion, and sports. We were thrilled and honored to have Beyonce name a song after us on her newest album.

Michelle D. Gass: A key indicator of brand health, we continue to make meaningful market share gains in the U.S., driving growth with women and our key youth target group of 18 to 30 year olds, while maintaining our dominant leadership position in men.

Michelle D. Gass: Importantly, we have maintained our leadership position across consumers of all ages, and our unaided brand awareness remains well above our competition across most markets globally.

Michelle D. Gass: We continue to drive brand heat and impactful storytelling by showing up at the center of culture across music, art and design, fashion, and sports. We were thrilled and honored to have Beyonce name a song after us on her newest album.

Michelle D. Gass: And as an example of our agility, we responded to the speed of culture, not only demonstrating our understanding of engaging social communities in an authentic way but also generating more than 3 billion impressions and a ton of buzz for the brand that remains today. We activated in a big way at Coachella and Stagecoach Music Festival and launched collaborations with ERL, STUCI, and Starter. As we look to the second half of the year, we have a number of impactful partnerships planned across the globe, including a Paris-themed collaboration with renowned label Pagodas.

Michelle D. Gass: We activated in a big way at Coachella and Stagecoach music festivals and launched collaborations with ERL, Stussy, and Starter.

Michelle D. Gass: As we look to the second half of the year, we have a number of impactful partnerships planned across the globe, including a Paris-themed collaboration with renowned label Pagal.

Michelle D. Gass: This is also in support of our key city strategy, amplifying our efforts in Paris through initiatives like the opening of our iconic Champs-Élysées store in the second quarter and our fifth House of Strauss. Moving to product, we saw strong performance in our core offerings, while also introducing newness and innovation in denim and beyond, as we expand our total addressable market. We continue to lead the global trend for straight, loose, and wide-legged bodies.

Michelle D. Gass: Moving to product, we saw strong performance in our core offerings while also introducing newness and innovation in Denim and beyond as we expand our total addressable market.

Michelle D. Gass: Now comprising more than 50% of our overall bottoms assortment, loose fits grew 21% across channels in Q2. We are continuing to lean into the trend this summer with the launch of a new baggy fit for women, the XL, which will be available globally and across channels, along with a new relaxed fit for men, the 555.

Michelle D. Gass: We continue to lead the global trend around straight, loose, and wide-legged bottoms.

Michelle D. Gass: Now comprising more than 50% of our overall bottoms assortment, loose fits grew 21% across channels in Q2.

Michelle D. Gass: We are continuing to lean into the trend this summer with the launch of a new baggy fit for women, the XL, which will be available globally and across channels, along with a new relaxed fit for men, the 555.

Michelle D. Gass: The core of our business remains very healthy. Our original icon, the 501, continues to deliver impressive growth, up 16% in DTC and Q2. Our strategic focus around denim dressing continues to gain traction, is becoming a more meaningful part of our portfolio, and is expanding our total addressable market opportunity. Denim dressing continues to perform very well, with denim dresses, skirts, and jumpsuits again up triple digits in the quarter.

Michelle D. Gass: The core of our business remains very healthy. Our original icon, the 501, continues to deliver impressive growth, up 16% in DTC and Q2.

Michelle Gass: Two. Our strategic focus around denim dressing continues to gain traction, is becoming a more meaningful part of our portfolio, and is expanding our total addressable market opportunity. denim dressing continues to perform very well with denim dresses, skirts, and jumpsuits, again up triple digits in the quarter. We're also seeing success in toss and on denim categories, evidence that tops reset and increased focus on denim lifestyle are working. Talks are up 20% in our DTC channel for Q2, with even stronger growth in women's tops driven by our elevated essential offerings in woven tops and non-graphic teeth. The growing popularity of Westernware is at an all-time high, and our fans continue to choose from our collection of timeless, yet fresh, western and inspired pieces.

Michelle D. Gass: Our strategic focus around denim dressing continues to gain traction, is becoming a more meaningful part of our portfolio, and is expanding our total addressable market opportunity.

Michelle D. Gass: Denim dressing continues to perform very well, with denim dresses, skirts, and jumpsuits again up triple digits in the quarter.

Michelle D. Gass: We're also seeing success in tops and non-denim categories, evidence that our tops reset and increased focus on the denim lifestyle are working. Tops were up 20% in our DTC channel for Q2, with even stronger growth in women's tops, driven by our elevated essential offerings in woven tops and non-graphic tees. The growing popularity of Westernware is at an all-time high, and our fans continue to choose from our collection of timeless, yet fresh, Western-inspired pieces. This includes our iconic Western shirts, which are seeing particularly strong sales in women's, up 40%. Relative to non-denim bottoms, our recently introduced Tech Pant in the 5'11 Fit for Men is delivering strong results.

Michelle D. Gass: We're also seeing success in tops and non-denim categories, evidence that our tops reset and increased focus on denim lifestyle are working.

Michelle D. Gass: Tops were up 20% in our DTC channel for Q2, with even stronger growth in women's tops driven by our elevated essential offerings in woven tops and non-graphic teats.

Michelle D. Gass: The growing popularity of Western wear is at an all-time high, and our fans continue to choose from our collection of timeless, yet fresh, Western-inspired pieces. This includes our iconic Western shirts, which are seeing particularly strong sales in women's, up 40%.

Michelle D. Gass: This includes our iconic Western shirts, which are seeing particularly strong sales, and women's up 40%. Relative to non-d denim bottoms, are recently introduced tech-pant and the 511 fit for men is delivering strong results. We see this as a new and expanding innovation platform, driving incremental wear occasions for our consumers.

Michelle D. Gass: Relative to non-denim bottoms, our recently introduced Tech Pant in the 5'11 Fit for Men is delivering strong results.

Michelle D. Gass: We see this as a new and expanding innovation platform driving incremental wear occasions for our consumers. Given our early success, we'll be introducing a range of new products over the coming year, with the next introduction being the XX Chino, available worldwide and across both our wholesale and DTC channels. Looking to the second half of 2024, we will continue to deliver newness and drive innovation. For women, we have a strong lineup that supports our denim dressing and denim lifestyle strategy, including skirts, dresses, and jackets.

Michelle D. Gass: We see this as a new and expanding innovation platform driving incremental wear occasions for our consumers.

Michelle Gass: Given our early success, we'll be introducing a range of new products over the coming year, with the next introduction being the XXX Chino, available worldwide and across both our wholesale and DTC channels. Looking to the second half of 2024, we will continue to deliver newness and drive innovation. For women, we have a strong line up that supports our denim dressing and denim lifestyle strategy, including skirts, dresses, and jackets. We are also expanding in DTC categories like outerwear and sweaters to drive the head-to-toe offering. And following the success of our performance cool product, which we broadly rolled out globally earlier this year.

Michelle D. Gass: Given our early success, we will be introducing a range of new products over the coming year, with the next introduction being the XX Chino, available worldwide and across both our wholesale and DTC channels.

Michelle D. Gass: Looking to the second half of 2024, we will continue to deliver newness and drive innovation. For women, we have a strong lineup that supports our denim dressing and denim lifestyle strategy, including skirts, dresses, and jackets.

Michelle D. Gass: We are also expanding into key categories like outerwear and sweaters to drive the head-to-toe offer. And following the success of our Performance Cool product, which we broadly rolled out globally earlier this year, this fall, we are set to expand the innovative platform with the launch of Performance Warm, made with a soft interior that is designed for warmth and cooler weather. Looking ahead, we are making great progress on our efforts to streamline our go-to-market calendar by reducing SKUs by at least 15% and addressing complexity in our process, which will start benefiting us in H125. The team is already using some of the learnings to create more agility in our process, such as chasing into top sellers this season.

Michelle D. Gass: We are also expanding into key categories like outerwear and sweaters to drive the head-to-toe offering.

Michelle D. Gass: And following the success of our Performance Cool product, which we broadly rolled out globally earlier this year, this fall we are set to expand the innovative platform with the launch of Performance Warm, made with a soft interior that is designed for warmth in cooler weather.

Michelle Gass: This fall, we are set to expand the innovative platform with the launch of performance warm, made with a soft interior that is designed for warmth and cooler weather.

Michelle Gass: Looking ahead, we are making great progress on our efforts to streamline our go-to-market calendar by reducing skews by at least 15% in addressing complexity in our process, which will start benefiting us in H-125. The team is already using some of the learning to create more agility in our process, such as chasing into top sellers this season. As we shorten our timelines and operate with a tighter assortment, we will see a number of benefits, including responding faster to consumer trends and enhancing our overall efficiency as a DTC-driven organization.

Michelle D. Gass: Looking ahead, we are making great progress on our efforts to streamline our go-to-market calendar by reducing SKUs by at least 15% and addressing complexity in our process, which will start benefiting us in H125.

Michelle D. Gass: The team is already using some of the learnings to create more agility in our process, such as chasing into top sellers this season.

Michelle D. Gass: As we shorten our timelines and operate with a tighter assortment, we will see a number of benefits, including responding faster to consumer trends and enhancing our overall efficiency as a DTC-driven organization. Now, let's shift to direct-to-consumer, our next strategic priority and one of the biggest unlocks as we pivot to become a best-in-class omni-channel retailer. DTC continued to grow rapidly, up 11% on top of 14% growth in the prior year.

Michelle Gass: Now, let's shift to direct to consumer, our next strategic priority, and one of the biggest unlocks as we pivot to become a best-in-class on-new channel retailer. DTC continued to grow rapidly, up 11% on top of 14% growth in the prior year. We achieved these strong results by delivering high single-digit positive comp growth. As I shared on our last call, we've been laser-focused on driving profitability and productivity in our stores. This quarter, we saw an improvement across all store KPIs led by higher UPD and better conversion driven by our new product introduction and improvement in our in-stock position, and a continued focus on best-in-class engagement with fans in our store.

Michelle D. Gass: Now, let's shift to direct-to-consumer, our next strategic priority, and one of the biggest unlocks as we pivot to become a best-in-class omni-channel retailer.

Michelle D. Gass: DTC continued to grow rapidly, up 11% on top of 14% growth in the prior year. We achieved these strong results by delivering high single-digit positive comp growth.

Michelle D. Gass: We achieve these strong results by delivering high single-digit positive comp growth. As I shared on our last call, we've been laser focused on driving profitability and productivity in our stores. This quarter, we saw an improvement across all store KPIs, led by higher UPT and better conversion driven by our new product introductions, an improvement in our in-stock position, and a continued focus on best-in-class engagement with fans in our stores. U.S. DTC was up 12%, led by our mainline store.

Michelle D. Gass: As I shared on our last call, we've been laser focused on driving profitability and productivity in our stores.

Michelle D. Gass: This quarter we saw an improvement across all store KPIs, led by higher UPT and better conversion driven by our new product introductions, an improvement in our in-stock position, and a continued focus on best-in-class engagement with bands in our stores.

Michelle Gass: USDDC with up 12% led by our mainline stores. AURs and mainline were up low single digits as consumers gravitate toward our full-priced premium products. Globally, we continue to execute our retail expansion plans and are on track to open 100 net new doors this year. In Q2, we opened our largest store in Thailand at the Central World Mall in Bangkok. The store is a pilot where we're implementing learning from consumer research to improve the in-store consumer journey. By applying changes like displaying our denim lifestyle categories more visibly throughout the store and elevating our premium collections, we drove revenue growth in both tots and bottom.

Michelle D. Gass: AURs and Mainline were up low single digits as consumers gravitated toward our full-price premium product. Globally, we continue to execute our retail expansion plans and are on track to open 100 net new doors this year. In Q2, we opened our largest store in Thailand at the Central World Mall in Bangkok.

Michelle D. Gass: U.S. DTC was up 12% led by our mainline stores. AURs and mainline were up low single digits as consumers gravitate toward our full price premium products.

Michelle D. Gass: Globally, we continue to execute our retail expansion plans and are on track to open 100 net new doors this year.

Michelle D. Gass: In Q2, we opened our largest store in Thailand at the Central World Mall in Bangkok. This store is a pilot where we're implementing learnings from consumer research to improve the in-store consumer journey.

Michelle D. Gass: This store is a pilot where we're implementing learnings from consumer research to improve the in-store consumer journey. By applying changes like displaying our denim lifestyle categories more prominently throughout the store and elevating our premium collections, we drove revenue growth in both tops and bottoms. Results are encouraging, and this is just one example of the great potential we have in improving store productivity. E-commerce continues to be a big opportunity for us, up 19% this quarter, led by double-digit growth in the US, where we are seeing strong full price sell through and strength in women's, now comprising more than 50% of the business in this channel.

Michelle D. Gass: By applying changes like displaying our denim lifestyle categories more visibly throughout the store and elevating our premium collections, we drove revenue growth in both tops and bottoms. Results are encouraging, and this is just one example of the great potential we have in improving store productivity.

Michelle Gass: Results are encouraging, and this is just one example of the great potential we have in improving store productivity. Ecommerce continues to be a big opportunity for us, up 19% this quarter, led by double-digit growth in the US, where we are seeing strong full-priced elsewhere in strength, and women's now comprising more than 50% of the business in this channel. I'm doing initiatives to elevate our site and enhance the consumer experience, as well as deliver a more premium and expanded assortment. Continue to drive our momentum across all of our markets. We also drove meaningful growth in our loyalty program, acquiring almost 2 million members in Q2, with 36 million members globally.

Michelle D. Gass: E-commerce continues to be a big opportunity for us, up 19% this quarter, led by double-digit growth in the U.S., where we are seeing strong full-price sell-through and strength in women, now comprising more than 50% of the business in this channel.

Michelle D. Gass: Ongoing initiatives to elevate our site and enhance the consumer experience, as well as deliver a more premium and expanded assortment, continue to drive our momentum across all of our markets. We also drove meaningful growth in our loyalty program, acquiring almost 2 million members in Q2, with 36 million members globally.

Michelle D. Gass: We also drove meaningful growth in our loyalty program, acquiring almost 2 million members in Q2, with 36 million members globally.

Michelle D. Gass: As we make our pivot to be a DTC First company, we also remain committed to Holtz. On an adjusted basis, our global wholesale business is down 4%, in line with our expectations and a sequential improvement over Q1. We feel good about the trends we're seeing in our global wholesale business overall. The actions we've taken to stabilize this business are working. Sellout trends are improving, including in the U.S. and Europe, and customers are excited about our expanded assortment.

Michelle Gass: As we make our pivot to be a DTC-first company, we also remain committed to wholesale. On an adjusted basis, our global wholesale businesses down 4% in line with our expectations and its sequential improvement to Q1. We feel good about the trends we're seeing in our global wholesale business overall. The actions we've taken to stabilize this business are working. Sellout trends are improving, including in the US and Europe, and customers are excited about our expanded assortment. Importantly, this channel is significantly more profitable than last year, amplified by our healthier inventory levels in the improvement and our supply chain operations.

Michelle D. Gass: As we make our pivot to be a DTC First company, we also remain committed to wholesale.

Michelle D. Gass: On an adjusted basis, our global wholesale business is down 4%, in line with our expectations and a sequential improvement to Q1.

Michelle D. Gass: We feel good about the trends we're seeing in our global wholesale business overall. The actions we've taken to stabilize this business are working. Sellout trends are improving, including in the U.S. and Europe , and customers are excited about our expanded assortments.

Michelle D. Gass: Importantly, this channel is significantly more profitable than last year, amplified by our healthier inventory levels and the improvement in our supply chain operations. Turning now to our third strategy, Powering the Portfolio. Our international business is becoming a more meaningful contributor to our business and grew low single digits in the quarter. This reflects 6% growth in Asia, on top of 27% growth in the prior year, bolstered by strength in Japan, India, and Turkey.

Michelle D. Gass: Importantly, this channel is significantly more profitable than last year, amplified by our healthier inventory levels and the improvement in our supply chain operations.

Michelle Gass: Turning now to our third strategy, powering the portfolio, our international business is becoming a more meaningful contributor to our business and through low single digits in the quarter. This reflects 6% growth in Asia on top of 27% growth in the prior year, bolstered by strength in Japan, India, and Turkey. And our Europe business sequentially improved down low single digits in the quarter, with certain key markets, including Italy and Spain, positive in the quarter, as well as an improvement in performance across both wholesale and DTC. Doctors was down 1% on an adjusted basis, coming in below our expectations.

Michelle D. Gass: Turning now to our third strategy, Powering the Portfolio.

Michelle D. Gass: Our international business is becoming a more meaningful contributor to our business and grew low single digits in the quarter.

Michelle D. Gass: This reflects 6% growth in Asia, on top of 27% growth in the prior year, bolstered by strength in Japan, India, and Turkey.

Michelle D. Gass: And our European business sequentially improved, down low single digits in the quarter, with certain key markets, including Italy and Spain, positive in the quarter, as well as an improvement in performance across both wholesale and DTC. However, Dockers was down 1% on an adjusted basis, coming in below our expectations.

Michelle D. Gass: And our Europe business sequentially improved, down low single digits in the quarter, with certain key markets, including Italy and Spain, positive in the quarter, as well as an improvement in performance across both wholesale and DTC.

Michelle D. Gass: Dockers was down 1% on an adjusted basis, coming in below our expectations.

Michelle D. Gass: Profit exceeded the prior year, led by gross margin expansion and disciplined expense management, and inventories are significantly below the prior year, down 16 percent. Going forward, we'll be leaning into innovation with an expanded, head-to-toe collection of the performance-based Dockers Go series, which has exceeded expectations since its launch. Beyond Yoga was up 13% in acceleration to Q1, driven by strength in wholesale and e-commerce. In the quarter, we continue to see success in our much-loved core space-dyed business, as well as wins in new lifestyle categories like wider leg pants and dresses.

Michelle Gass: Profit exceeded prior year, led by Gross Margin expansion and disciplined expense management, and inventories are significantly below prior year, down 16%. Going forward, we'll be leaning into innovation with an expanded head-to-toe collection of the performance-based doctors' go-series, which has exceeded expectations since its launch. Beyond Yoga with up 13% in acceleration to Q1, driven by strength and wholesale and e-commerce. In the quarter, we continue to see success in our much loved course-based business, as well as wins in new lifestyle categories, like wider leg, pants, and dress.

Michelle D. Gass: Profit exceeded prior year, led by gross margin expansion and disciplined expense management, and inventories are significantly below prior year, down 16%.

Michelle D. Gass: Going forward, we'll be leaning into innovation with an expanded, head-to-toe collection of the performance-based Dockers Go series, which has exceeded expectations since its launch.

Michelle D. Gass: Beyond Yoga was up 13% in acceleration to Q1, driven by strength in wholesale and e-commerce. In the quarter, we continued to see success in our much-loved core space-dyed business, as well as wins in new lifestyle categories like wider leg pants and dresses.

Michelle Gass: Joseph. Our new CEO of Beyond Yoga, Nancy Green, has moved quickly to bring in seasoned industry leaders in product development, sourcing, retail, e-commerce, and marketing to build the capabilities to rapidly scale this business and achieve the long-term potential of the brand.

Michelle D. Gass: Our new CEO of Beyond Yoga, Nancy Green, has moved quickly to bring in seasoned industry leaders in product development, sourcing, retail, e-commerce, and marketing to build the capabilities to rapidly scale this business and achieve the long-term potential of the brand.

Michelle D. Gass: To conclude, we are pleased with our performance through the first half of 2024, which underscores that we have the right strategies in place to drive long-term sustainable and profitable growth. The Levi's brand has never been stronger. We continue to gain market share, and our amplified focus on women and younger consumers is working. We have momentum across the world, including in the U.S., where we have delivered three consecutive quarters of positive performance. We are seeing a strong response to our innovation and product launches centered around the ownership of the denim lifestyle and have a robust pipeline for the remainder of the year.

Michelle Gass: To conclude, we are pleased with our performance through the first half of 2024, which underscores that we have the right strategies in place to drive long-term sustainable and profitable growth. The Levi's brand has never been stronger. We continue to gain market share, and our amplified focus with women and younger consumers is working. We have momentum across the world, including the US, where we have delivered three consecutive quarters of positive performance. We are seeing a strong response to our innovation and product launches centered around owning denim lifestyle, and have a robust pipeline for the remainder of the year.

Speaker Change: The Levi's brand has never been stronger, we continue to gain market share, and our amplified focus with women and younger consumers is working.

Speaker Change: We have momentum across the world, including the U.S., where we have delivered three consecutive quarters of positive performance.

Speaker Change: We are seeing a strong response to our innovation and product launches centered around owning denim lifestyle and have a robust pipeline for the remainder of the year.

Michelle D. Gass: Our transformational pivot to operating as a DTC-first company is reaching a tipping point with accelerating sales momentum and an improvement in margins. And we have an incredible, talented, and passionate team around the world that is driving this transformation and delivering outstanding service to our consumers every day. All of this gives me great confidence for the rest of the year and beyond. And with that, I'll now turn it over to Harmit to cover the financials. Thanks, Michelle.

Michelle Gass: Our transformational pivot to operating as a DTC first company is reaching a tipping point, with accelerating sales momentum and an improvement in margins. And we have an incredible, talented, and passionate team around the world that is driving this transformation and delivering outstanding service with our consumers every day. All of this gives me great confidence for the rest of the year and beyond.

Speaker Change: Our transformational pivot to operating as a DTC-first company is reaching a tipping point with accelerating sales momentum and an improvement in margins.

Speaker Change: And we have an incredible, talented, and passionate team around the world that is driving this transformation and delivering outstanding service with our consumers every day.

Harmit J. Singh: And with that, I'll now turn it over to Hermit to cover the financials. Thanks, Michelle. We are pleased to have delivered earnings that significantly exceeded expectations, despite stronger than expected headwinds from FX and a higher tax rate versus the prior year. Gross profit dollars grew twice as fast as S.G.N.A. dollars, reflecting both revenue and gross margin growth, but also a relatively expensive discipline driving higher operating margins.

Speaker Change: All of this gives me great confidence for the rest of the year and beyond.

Speaker Change: And with that, I'll now turn it over to Harmit to cover the financials.

Harmit J. Singh: We are pleased to have delivered earnings that significantly exceeded expectations despite stronger than expected headwinds from FX and a higher tax rate versus the prior year. Gross profit dollars grew twice as fast as SG&A dollars, reflecting both revenue and gross margin growth but also relative expense discipline driving higher operating margins. Going forward, this is a key metric we are focused on to enable us to achieve a longer-term goal of 15% high-quality margin.

Harmit J. Singh: Thanks, Michelle. We are pleased to have delivered earnings that significantly exceeded expectations, despite stronger-than-expected headwinds from FX and a higher tax rate versus the prior year.

Harmit J. Singh: Gross profit dollars grew twice as fast as SG&A dollars, reflecting both revenue and gross margin growth, but also a relative expense discipline driving higher operating margins.

Harmit Singh: Going forward, this is a key metric we have focused on to enable us to achieve a longer term goal of 15% high quality margins. Our DTC business continues to not only be a fastest growing business, but has also seen real improvements in profitability. We are operating margins increasing more than 300 basis points during the quarter. This includes a significant improvement in e-commerce profitability, with EBIT margins now double digits on a fully allocated basis. The improvement in profitability in our DTC business surpassed our own expectations. And we believe we will continue to grow profitability in this channel as we pivot to a DTC-first company.

Harmit J. Singh: Going forward, this is a key metric we are focused on to enable us to achieve a longer-term goal of 15% high-quality margins.

Harmit J. Singh: Our DDC business continues to not only be our fastest growing business but is also seeing real improvements in profitability, with operating margins increasing more than 300 basis points during the quarter. This includes a significant improvement in e-commerce profitability, with EBIT margins now double digits on a fully allocated basis. The improvement in profitability in our DDC business surpassed our own expectations, and we believe we will continue to grow profitability in this channel as we pivot to a DDC-first company.

Harmit J. Singh: Our DDC business continues to not only be our fastest growing business, but is also seeing real improvements in profitability, with operating margins increasing more than 300 basis points during the quarter.

Harmit J. Singh: This includes a significant improvement in e-commerce profitability with EBIT margins now double digits on a fully allocated basis.

Harmit J. Singh: The improvement in profitability in our DDC business surpassed our own expectations, and we believe we will continue to grow profitability in this channel as we pivot to a DDC-first company.

Harmit J. Singh: And as our wholesale business becomes a smaller piece of our overall business, as Michelle mentioned, it is more profitable as inventory levels have normalized and gross margins across the business have increased, which we are focused on sustaining. The benefits of Project FUEL are progressing as planned, and we believe our strategies related to this initiative are working. We remain on track to deliver $100 million in savings this year through a workforce reduction that has largely been implemented.

Harmit Singh: As our wholesale business becomes a smaller piece of our overall business, as Michelle mentioned, it is more profitable as inventory levels have normalized and gross margins across the business have increased, which we are focused on sustaining. The benefits from project fuel are progressing as planned, and we believe our strategies related to this initiative are working. We remain on track to deliver $100 million in savings this year through a workforce reduction that has largely been implemented, savings from indirect procurement that are in progress, and higher productivity from our DDC business, which is evident from our recent results.

Michelle D. Gass: And as our wholesale business becomes a smaller piece of our overall business, as Michelle mentioned, it is more profitable as inventory levels have normalized and gross margins across the business have increased, which we are focused on sustaining.

Michelle D. Gass: The benefits from Project FUEL are progressing as planned, and we believe our strategies related to this initiative are working.

Michelle D. Gass: We remain on track to deliver $100 million in savings this year through a workforce reduction that has largely been implemented.

Harmit J. Singh: Savings from indirect procurement that are in progress and higher productivity from our DDC business, which is evident from our recent results. We also believe there will be additional savings in 2025, which we intend to quantify when we guide next year. In the quarter, we continue to make improvements in reducing our inventory position, and along with working capital management, we have generated positive pre-cash flow of $223 million in the second quarter and $437 million year-to-date. Shareholder returns in the quarter were up 36% as we bought back shares and paid dividends.

Michelle D. Gass: Savings from indirect procurement that are in progress and higher productivity from our DDC business, which is evident from our recent results.

Harmit Singh: We also believe there will be additional savings in 2025, which we intend to quantify when we guide next year. In the quarter, we continue to make improvements in reducing our inventory position and, along with working capital management, we have generated positive pre-catch flow of 223 million in the second quarter, and $437 million year to date. Shareholder returns in the quarter over up 36% as we bought batches and paid dividends.

Michelle D. Gass: We also believe there will be additional savings in 2025, which we intend to quantify when we guide next year.

Michelle D. Gass: In the quarter, we continue to make improvements in reducing our inventory position.

Michelle D. Gass: And along with working capital management, we have generated positive pre-cash flow of $223 million in the second quarter and $437 million year-to-date.

Michelle D. Gass: Shareholder returns in the quarter were up 36% as we bought back shares and paid dividends.

Harmit J. Singh: Reflecting our confidence in our cash flow position, we are increasing the quarterly dividend by 8% to $0.13 in Q3, making this the first increase in dividends since July of 2022. And with that, I will turn to our results. Q2 net revenues were $1.4 billion, reflecting continued momentum in our global direct-to-consumer channel, which grew 11% and up 26% on a two-year stack. Along with our franchise partners, we opened 30 net new doors in H1, excluding the Columbia Take Back.

Harmit Singh: Reflecting our confidence in our cash flow position, we are increasing the quarterly dividend by 8% to 13 cents in quarter 3, making this the first increase in dividends since July of 2022.

Michelle D. Gass: Reflecting our confidence in our cash flow position, we are increasing the quarterly dividend by 8% to $0.13 in Q3, making this the first increase in dividends since July of 2022.

Harmit Singh: And with that, I will turn to our results. Q2 net revenues were $1.4 billion, reflecting continued momentum in our global direct to consumer channel, which grew 11% and up 26% on a 2 year stack. Along with our franchise partners, we have opened 30 net new doors in H1, excluding the Columbia take back. Together, our DDC and franchise business comprise 54% of total net revenues. We remain on track to open a net of 70 stores in H2, ending the year with the system-wide stock count of more than 2600. Groups margin of 60.5% was a record high and improved 180 basis points year over year.

Michelle D. Gass: And with that, I will turn to our results.

Speaker Change: Q2 net revenues were $1.4 billion, reflecting continued momentum in our global direct-to-consumer channel, which grew 11% and up, 26% on a two-year stack.

Speaker Change: Along with our franchise partners, we have opened 30 net new doors in H1, excluding the Columbia take-back. Together, our DDC and franchise business comprise 54% of total net revenues.

Harmit J. Singh: Together, our DDC and franchise business comprise 54% of total net revenues. We remain on track to open a net of 70 stores in H2, ending the year with a system-wide store count of more than 2,600. Gross margin of 60.5% was a record high and improved by 180 basis points year over year. Expansion was primarily driven by lower product costs, the structural shift to DDC, and faster growth from our women's business, all coming in higher than our expectations.

Speaker Change: We remain on track to open a net of 70 stores in H2, ending the year with a system-wide store count of more than 2,600.

Speaker Change: Gross margin of 60.5% was a record high and improved 180 basis points year-over-year.

Harmit Singh: Expansion was primarily driven by lower product costs, the structural shift to DDC, and the faster growth from our women's business, all coming in higher than expectations. These factors offset over 100 basis points of FX headwind. Adjusted Sienna expenses in the quarter increased 4.3% to 785 million. And as a percentage of sales, adjusted Sienna was 54.4%, a hundred and 90 basis points lower than last year. The Sienna leverage was slightly better than our expectations as you began to see the benefits of our cost control actions and our global productivity initiative Project Fuel. The increase in Sienna dollars was primarily related to additional incentives accrual in quarter to 24 versus last year.

Speaker Change: Expansion was primarily driven by lower product costs, the structural shift to DDC, and the faster growth from our women's business, all coming in higher than our expectations.

Speaker Change: These factors offset over 100 basis points of FX headwinds.

Harmit J. Singh: These factors offset over 100 basis points of FX headwinds. Adjusted SG&A expenses in the quarter increased 4.3% to $785 million. And as a percentage of sales, adjusted SG&A was 54.4%, 190 basis points lower than last year. However, SG&A leverage was slightly better than our expectations as we began to see the benefits of our cost control actions and our Global Productivity Initiative project fuel. The increase in SG&A dollars was primarily related to additional incentives accrual in Q2'24 versus last year.

Speaker Change: Adjusted SG&A expenses in the quarter increased 4.3% to $785 million, and as a percentage of sales, adjusted SG&A was 54.4%, 190 basis points lower than last year.

Speaker Change: The SG&A leverage was slightly better than our expectations as we began to see the benefits of our cost control actions and our Global Productivity Initiative project fuel.

Speaker Change: The increase in SG&A dollars was primarily related to additional incentives accrual in Q2 2024 vs. last year.

Harmit J. Singh: Gross profit dollars increased by 11% and grew at twice the pace of SG&A dollars, leading to EBIT leverage with adjusted EBIT margin increasing 360 basis points to 6%. Adjusted EBIT also significantly increased versus last year. On an H1 basis, gross profit dollars also grew at a faster pace than SG&A dollars, driving an increase in adjusted EBIT margin of 40 basis points. Adjusted diluted EPS was $0.16, up $0.12 from the prior year, significantly exceeding our expectations. Reported inventory dollars were down 19%, excluding the impact of the modification of terms with the majority of our suppliers.

Harmit Singh: Growth profit dollars increased by 11% and grew at twice the pace of Sienna dollars, leading to EBIT leverage with adjusted EBIT margin increasing 360 basis points to 6%. Adjusted EBIT dollars also significantly increased versus last year. On an H1 basis, gross profit dollars also grew at a faster pace than S&D dollars, driving an increase in adjusted EBIT margin of 40 basis points. Adjusted diluted EPS was 16 cents, up 12 cents from prior, significantly exceeding our expectations. Reported inventory dollars were down 19%, excluding the impact of the modification of terms with the majority of our suppliers.

Speaker Change: Gross profit dollars increased by 11% and grew at twice the pace of SG&A dollars, leading to EBIT leverage with adjusted EBIT margin increasing 360 basis points to 6%.

Speaker Change: Adjusted EBIT dollars also significantly increased versus last year.

Speaker Change: On an H-1 basis, gross profit dollars also grew at a faster pace than S-unit dollars, driving an increase in adjusted EBIT margin of 40 basis points.

Speaker Change: Adjusted diluted EPS was $0.16, up $0.12 from prior year, significantly exceeding our expectations.

Speaker Change: Reported inventory dollars were down 19%, excluding the impact of the modification of terms with the majority of our suppliers.

Harmit Singh: This reduction was better than our plan, and overall inventory is expected to end the year below prior levels as we work to further optimize inventory. As part of Project Fuel, we are focused on getting inventory turns back to three over time as we drive assortment productivity. This will release significant working capital.

Harmit J. Singh: This reduction was better than our plan, and overall, inventory is expected to end the year below prior year levels as we work to further optimize inventory. As part of Project Fuel, we are focused on getting inventory turns back to three over time as we drive assortment productivity. This will release significant working capital.

Speaker Change: This reduction was better than our plan, and overall, inventory is expected to end the year below prior year levels as we work to further optimize inventories.

Speaker Change: As part of Project Fuel, we are focused on getting inventory turns back to three over time as we drive assortment productivity.

Harmit Singh: Let me take a moment to talk to you about the significant changes we are making to our global distribution and logistics strategy. We have made the decision to move from a primarily own and operated distributional logistic network in the US and Europe to one that will be more balanced between our own and leading third-party logistic providers. As we continue our pivot to a DTC first company, our distribution network needs investment, including upgrading existing capacity with omnichannel capabilities. Our new strategy allows us to secure these investments in a capital-efficient manner by leveraging third-party capital while freeing up our own resources to invest in growing the direct-to-consumer channels.

Harmit J. Singh: Let me take a moment to talk to you about the significant changes we're making to our global distribution and logistics strategy. We have made the decision to move from a primarily owned and operated distribution logistics network in the U.S. and Europe to one that will be more balanced between our own and leading third-party logistics providers. As we continue our pivot to a DDC-first company, our distribution network needs investment, including upgrading existing capacity with omni-channel capabilities.

Speaker Change: This will release significant working capital.

Speaker Change: Let me take a moment to talk to you about the significant changes we are making to our global distribution and logistics strategy.

Speaker Change: We have made the decision to move from a primarily owned and operated distribution and logistic network in the U.S. and Europe to one that will be more balanced between our own and leading third-party logistic providers.

Speaker Change: As we continue our pivot toward DDC First Company, our distribution network needs investment, including upgrading existing capacity with omni-channel capabilities.

Harmit J. Singh: Our new strategy allows us to secure these investments in a capital-efficient manner by leveraging third-party capital while freeing up our own resources to invest in growing the direct-to-consumer channel. This will also enable us to reduce our fulfillment costs per unit compared to running the facilities ourselves, while immediately delivering a cash infusion of over $90 million this year, primarily as a reimbursement of the capital spent to build a new distribution center in Germany.

Speaker Change: A new strategy allows us to secure these investments in a capital-efficient manner by leveraging third-party capital while freeing up our own resources to invest in growing the direct-to-consumer channel.

Harmit Singh: This will also enable us to reduce our fulfillment costs per unit compared to running the facilities ourselves, while immediately delivering a cash infusion of over 90 million this year, primarily as a reimbursement of the capital spend to build a new distribution center in Germany. In the new term, the changes require the parallel operation of new and old facilities for the rest of 2024, resulting in a transitory increase in distribution costs with a negative 2 cent impact to EPS in 2024. We expect we will begin to see a favorable 2 cent impact to EPS in 2026, which will progressively increase in 27 and beyond as distribution costs come down and inventory efficiencies improve as the better service our omnichannel needs.

Speaker Change: This will also enable us to reduce our fulfillment costs.

Speaker Change: per unit compared to running the facilities ourselves.

Speaker Change: While immediately delivering a cash infusion of over 90 million this year, primarily as a reimbursement of the capital spent to build our new distribution center in Germany.

Harmit J. Singh: In the near term, the changes require the parallel operation of new and old facilities for the rest of 2024, resulting in a transitory increase in distribution costs with a negative two-cent impact on EPS in 2024. We expect we will begin to see a favorable 2 cent impact on EPS in 2026, which will progressively increase in 27 and beyond as distribution costs come down and inventory efficiencies improve as we better service our omni-channel needs. Now, let's review the key highlights by segment.

Speaker Change: In the near term, the changes require the parallel operation of new and old facilities for the rest of 2024, resulting in a transitory increase in distribution costs with a negative two-cent impact to EPS in 2024.

Speaker Change: We expect...

Speaker Change: We will begin to see a favorable 2-cent impact to EPS in 2026.

Speaker Change: which will progressively increase in 2027 and beyond as distribution costs come down and inventory efficiencies improve as we better service our omni-channel needs.

Harmit J. Singh: Now, let's review the key highlights by segment. In the Americas, DTC revenues were up 16 percent driven by double-digit growth in brick and mortar and e-commerce. While US wholesale was down mid-single digits, the US market grew low single digits entirely as a result of DTC growth on an adjusted basis. We are also seeing meaningful improvements in profitability across both channels. Robus gross margins driven by favorable brand and channel mix and reduced product costs resulted in strong operating margins of 18 percent. Notably, our gross profit dollars grows significantly faster than our S&A expenses. In Europe, DDC revenues increase 7% as sequential improvement to Q1, reflecting growth in mainline outlet and e-commerce.

Harmit J. Singh: In the Americas, DDC revenues were up 16%, driven by double-digit growth in brick and mortar and e-commerce. While U.S. wholesale was down mid-single digits, the U.S. market grew low single digits entirely as a result of DDC growth on an adjusted basis. We are also seeing meaningful improvements in profitability across both channels. Robust gross margins driven by favorable brand and channel mix and reduced product costs resulted in strong operating margins of 18%. Notably, our gross profit dollars grew significantly faster than our SG&A expenses.

Speaker Change: Now let's review the...

Speaker Change: Key highlights by segment. In the Americas, DTC revenues were up 16%, driven by double-digit growth in brick-and-mortar and e-commerce. While U.S. wholesale was down mid-single digits, the U.S. market grew low single digits entirely as a result of DTC growth on an adjusted basis.

Speaker Change: We are also seeing meaningful improvements in profitability across both channels. Robust gross margins, driven by favorable brand and channel mix, and reduced product costs resulted in strong operating margins of 18%.

Speaker Change: Notably, our gross profit dollars grew significantly faster than our SG&A expenses.

Harmit J. Singh: In Europe, DDC revenues increased 7%, a sequential improvement over Q1, reflecting growth in mainline, outlet, and e-commerce. Wholesale, while down 11%, has improved versus last quarter. Given the continued strength in DDC and the sequential improvement in wholesale, we continue to expect Europe to return to growth in H2, with a pre-book in Europe up mid-single digits for the second half. In the quarter, gross margins were up 420 basis points, offset by SGA investments, resulting in a 15% operating margin, which was flat to last year.

Speaker Change: In Europe , DDC revenues increased 7%, a sequential improvement to Q1, reflecting growth in mainline, outlet, and e-commerce.

Harmit Singh: Whole sale, while down 11%, has improved versus last quarter. Given the continued strength in DDC and the sequential improvement in wholesale, we continue to expect Europe to return to growth in H2 with a pre-book in Europe amid single digits for the second half. In the quarter, gross margin were up 420 basis points, offset by S&A investments, resulting in a 15% operating margin, which was flat to last year. Asia net revenues increased 6% compared to the prior year and are up 34% on a two-year stack. DDC revenues increased 6%, driven by strength in e-commerce and company operating stores, and wholesale net revenues were up 5%.

Speaker Change: Wholesale while down 11% has improved versus last quarter.

Speaker Change: Given the continued strength in DDC and the sequential improvement in wholesale, we continue to expect Europe to return to growth in H2, with a pre-book in Europe up mid-single digits for the second half.

Speaker Change: In the quarter, gross margins were up 420 basis points offset by SG&A investments, resulting in a 15% operating margin, which was flat to last year.

Harmit J. Singh: Asia net revenues increased 6% compared to the prior year and are up 34% on a two-year stack. DDC revenues increased 6%, driven by strength in e-commerce and company-operated stores, and wholesale net revenues were up 5%. China, while lapping 95% growth in the prior year from the COVID reopening, was down by 10%.

Speaker Change: Asia Net Revenues increased 6% compared to the prior year and are up 34% on a 2-year stack.

Speaker Change: DDC revenues increased 6%, driven by strength in e-commerce and company-operated stores, and wholesale net revenues were up 5%.

Harmit Singh: China, while lapping 95% growth in the prior from the COVID reopening, was down by 10%. We have recently announced our locally relevant product assortments and believe this should help improve the business. Excluding China, Asia was up 9% driven by growth across most markets. Overall, for the quarter, Asia delivered an operating margin of 13%, which is 70 basis points higher than prior, largely driven by gross margin expansion.

Speaker Change: China, while lapping 95% growth in the prior year from the COVID reopening, was down by 10%.

Harmit J. Singh: We have recently enhanced our locally relevant product assortments and believe this should help improve the business. Excluding China, Asia was up 9%, driven by growth across most markets. Overall, for the quarter, Asia delivered an operating margin of 13%, which is 70 basis points higher than the prior year, largely driven by gross margin. Now, let's turn to our fiscal 24 outlook, and I will also give some color on the next two quarters. Sales trends were consistent each month in the quarter, and we saw strength in several key drivers of our business, including the U.S. market, acceleration of our global DDC business from last quarter, However, despite the supported trends, headwinds from foreign exchange have recently increased, especially with the euro and Mexican peso, creating a wider divergence between reported and constant currency performance, with a more meaningful impact in Q3.

Speaker Change: We have recently enhanced our locally relevant product assortments and believe this should help improve the business.

Speaker Change: Excluding China, Asia was up 9% driven by growth across most markets. Overall, for the quarter, Asia delivered an operating margin of 13%, which is 70 basis points higher than prior year, largely driven by gross margin expansion.

Harmit Singh: Now let's turn to our fiscal 24-hour outlook, and I will also shake color on the next two quarters. Sales trends were consistent each month in the quarter, and we saw strength in several key drivers of our business, including the US market, acceleration of our global DDC business from last quarter, and robust growth in women. However, despite the supported trends, headwinds from foreign exchange have recently increased, especially with the euro and Mexican peso creating a wider divergence between reported and constant currency performance, with a more meaningful impact in quarter three. As a result of the ethics impact on our business for the full year, we now expect full year reported revenues to be at the midpoint of our range of 1-3% year-over-year growth, with revenue and constant currency trending closer to the upper end of our range.

Speaker Change: Now let's turn to our fiscal 24 outlook and I will also share color on the next two quarters.

Speaker Change: Sales trends were consistent each month in the quarter, and we saw strength in several key drivers of our business, including the U.S. market, acceleration of our global DDC business from last quarter, and robust growth in women.

Speaker Change: However, despite these supported trends, headwinds from foreign exchange have recently increased.

Speaker Change: Especially with the Euro and Mexican Peso, creating a wider divergence between reported and constant currency performance.

Harmit J. Singh: As a result of the FX impact on our business for the full year, we now expect full year reported revenues to be at the midpoint of our range of 1-3% year-over-year growth, with revenue in constant currency trending closer to the upper end of our range. As regards gross margin, we now expect full year reported revenues to be up 180 basis points to the prior year. 30 basis points higher than a previously guided range despite incremental FX headwinds of approximately 20 basis points for the year.

Speaker Change: with a more meaningful impact in Quarter 3.

Speaker Change: As a result of the FX impact on our business for the full year, we now expect full-year reported revenues to be at the midpoint of our range of 1-3% year-over-year growth, with revenue in constant currency trending closer to the upper end of our range.

Harmit Singh: As respects gross margin, we now expect the full year to be up 180 basis points to prior year. 30 basis points higher than a previously guided range, despite incremental FX headwinds of approximately 20 basis points for the year. This will be offset by an increase in SNA due to the transition in our logistics and distribution network I spoke to earlier, and a slight increase in advertising as we continue to fuel the momentum of our business. Additionally, we re-attrate our expectation for approximately 15 million a quarter in interest and a mid to high teen tax rate.

Speaker Change: As respects gross margin, we now expect the full year to be up 180 basis points to prior year. 30 basis points higher than our previously guided range, despite incremental FX headwinds of approximately 20 basis points for the year.

Harmit J. Singh: This will be offset by an increase in SG&A due to the transition in our logistics and distribution network, which I spoke about earlier, and a slight increase in advertising as we continue to fuel the momentum of our business. Additionally, we reiterate our expectation for approximately 15 million a quarter in interest and a mid to high teens tax. As RespectEarnings, we are making long-term investments in the business with our distribution and logistics transition, as well as our brands, with an increase in market share. We expect these investments will impact Fuller EPS by $0.03.

Speaker Change: This will be offset by an increase in SG&A due to the transition in our logistics and distribution network I spoke to earlier, and a slight increase in advertising as we continue to fuel the momentum of our business.

Speaker Change: Additionally, we reiterate our expectation for approximately $15 million a quarter in interest and a mid to high teens tax rate.

Harmit Singh: As respect earnings, we are making long term investments in the business with our distribution and logistics transition, as well as our brands with an increase in marketing. We expect these investments will impact fully on EPS by three cents. We also expect the impact of FX to be an incremental two cents headwind for the year.

Speaker Change: As RespectEarnings, we are making long-term investments in the business with our distribution and logistics transition, as well as our brands, with an increase in marketing.

Speaker Change: We expect these investments will impact Fuller EPS by $0.03. We also expect the impact of FX to be an incremental $0.02 headwind for the year.

Harmit J. Singh: We also expect the impact of FX to be an incremental $0.02 headwind for the year. Given these factors, despite the beat in Q2, we are maintaining our adjusted diluted EPS estimate of $1.17 to $1.27 for the year at this time.

Harmit Singh: Given these factors, despite the beat in Q2, we are maintaining our adjusted diluted EPS estimate of $1.17 to $1.27 for the year at this time.

Speaker Change: Given these factors, despite the beat in Q2, we are maintaining our adjusted diluted EPS estimate of $1.17 to $1.27 for the year at this time.

Harmit Singh: Let me give you a bit more color on the back half of the year. In Q3, we expect continued sequential improvement in revenues. We reported revenues up low single digits and low to mid single digits on a constant currency basis. This is inclusive of a currency headwind of over a hundred basis points. Revenue growth in quarter form will inflect upward to mid- to high-single digits on both a reported and constant currency basis, including a 60 basis point headwind from FX. The improvement in Q4 versus Q3 is driven by the fact that the majority of store openings are skewed to the fourth quarter, and there is the benefit of the 53rd week.

Harmit J. Singh: In Q3, we expect continued sequential improvement in revenues. We reported revenues up low single digits and low to mid single digits on a constant currency basis. This is inclusive of a currency headwind of over 100 basis points. Revenue growth in Q4 will inflect upward to mid to high single digits on both a reported and constant currency basis, including a 60-basis point headwind from F2. The improvement in Q4 versus Q3 is driven by the fact that the majority of store openings are skewed to the fourth quarter, and there is the benefit of the 53rd week.

Speaker Change: Let me give you a bit more color on the back half of the year. In Q3, we expect continued sequential improvement in revenues. We reported revenues up low single digits and low to mid-single digits on a constant currency basis.

Speaker Change: This is inclusive of a currency headwind of over 100 basis points.

Speaker Change: Revenue growth in Q4 will inflect upward to mid-to-high single digits on both a reported and constant currency basis, including a 60-basis point headwind from FX.

Speaker Change: The improvement in Q4 vs. Q3 is driven by the fact that the majority of store openings are skewed to the fourth quarter and there is the benefit of the 53rd week.

Harmit Singh: In the third quarter, gross margin will accelerate and be up approximately 200 basis points to prior year, as we will have fully anniversary the pricing actions we took last year with the benefits of product costs, higher DDC, and women's continuing. We also expect the mid single digit increase to SNN due to the continued expansion of DDC, higher A&P and incentive funding compared to prior year, as well as the incremental costs related to our distribution transition, partially offset by savings from project fuel.

Harmit J. Singh: In the third quarter, gross margin will accelerate and be up approximately 200 basis points compared to the prior year, as we will have fully anniversaried the pricing actions we took last year with the benefits of product costs, higher DDC, and women's continuity. We also expect a mid-single-digit increase to SG&A due to the continued expansion of DDC, higher ANP, and incentive funding compared to the prior year, as well as incremental costs related to our distribution transition, partially offset by savings from project fuel.

Speaker Change: In the third quarter, gross margin will accelerate and be up approximately 200 basis points to prior year, as we will have fully anniversaried the pricing actions we took last year, with the benefits of product costs, higher DDC, and women's continuing.

Speaker Change: We also expect a mid-single-digit increase to SNA due to the continued expansion of DDC, higher ANP, and incentive funding compared to prior year.

Speaker Change: As well as the incremental costs related to our distribution transition, partially offset by savings from Project Fuel.

Harmit Singh: We are confident that the acceleration in sales and profitability from Q1 to Q2 versus prior will continue into the second half of the year. Our confidence is rooted in several factors. First, we are seeing a strong response to our new product assortment and more exciting launches set for the second half. We also focus on full price sales, particularly in our mainline stores in the US as we continue to introduce new products. Second, we continue to see momentum in our DDC business, and as I mentioned, store openings are skewed to H2, when 70% of our net new doors are slated to open.

Harmit J. Singh: We are confident that the acceleration in sales and profitability from Q1 to Q2 versus prior will continue into the second half of the year. Our confidence is rooted in several factors. First, we are seeing a strong response to our new product assortment and more exciting launches set for the second half. We also focused on full price sales, particularly in our mainline stores in the U.S. as we continue to introduce new products.

Speaker Change: We are confident that the acceleration in sales and profitability from Q1 to Q2 versus prior will continue into the second half of the year.

Speaker Change: Our confidence is rooted in several factors.

Speaker Change: First, we are seeing a strong response to our new product assortment and more exciting launches set for the second half. We also focused on full-price sales, particularly in our mainline stores in the U.S., as we continue to introduce new products.

Harmit J. Singh: Second, we continue to see momentum in our DDC business, and as I mentioned, store openings are skewed to H2, when 70% of our net news doors are slated to open. Third, we are confident in the continued strength of our U.S. business, and Europe overall is poised to return to growth in its mature age, supported by a positive wholesale pre-book and continued strength in DDC. Fourth, as we become a more DDC-focused retailer, we are confident in our plans for back-to-school and our holiday product and marketing campaign. The benefit of the 53rd week contributes approximately 0.2 to H2 and 2 points to C4.

Speaker Change: Second, we continue to see momentum in our DDC business, and as I mentioned, store openings are skewed to H2, when 70% of our net-news doors are slated to open.

Harmit J. Singh: Third, we are confident in the continuous strength of our US business, and Europe overall is forced to return to growth in H2, supported by a positive wholesale pre-book and continued strength in DDC. Fourth, as we become a more DDC-focused retailer, we are confident in our plans for back to school and our holiday product and marketing campaigns. The Benefit of the 53rd Week contributes approximately a point to H2 and 2 points to quarter form. And as we think about the profitability improvements in H2, our gross profit dollars are expected to grow two times the pace of SNA dollar growth.

Speaker Change: Third, we are confident in the continued strength of our U.S. business, and Europe overall is poised to return to growth in age 2, supported by a positive wholesale pre-book and continued strength in DDC.

Speaker Change: Fourth, as we become a more DDC-focused retailer, we are confident in our plans for back-to-school and our holiday product and marketing campaign.

Speaker Change: The benefit of the 53rd week contributes approximately a 0.2 H2 and 2 points to C4.

Harmit J. Singh: And as we think about the profitability improvements in H2, our gross profit dollars are expected to grow two times the pace of SG&A dollar growth, to close. We delivered on our commitments and saw solid results in each. The strategic and financial benefits of our shift to DDC are getting us closer to the consumer and, along with a smaller, yet more profitable wholesale business, is improving the structural economics of the company. We continue to be confident in the acceleration of revenue, profitability, and free cash flow while taking some tough but transformative actions to become a best-in-class, omni-channel, DDC-first retailer.

Speaker Change: And as we think about the profitability improvements in H2, our gross profit dollars are expected to grow two times the pace of SG&A dollar growth.

Harmit J. Singh: To close, we delivered Donna commitments and saw solid results in H1. The strategic and financial benefits of our shift to DDC are getting us closer to the consumer. And along with a smaller, yet more profitable wholesale business, is improving the structural economics of the company. We continue to be confident in the acceleration and revenue profitability and free cash flow while taking some tough but transformative actions to become a best in class on the channel DDC first retailer.

Speaker Change: To close,

Speaker Change: We delivered on our commitments and saw solid results in H1.

Speaker Change: The strategic and financial benefits of our shift to DDC are getting us closer to the consumer, and along with a smaller, yet more profitable wholesale business,

Speaker Change: is improving the structural economics of the company.

Speaker Change: We continue to be confident in the acceleration in revenue, profitability, and free cash flow, while taking some tough but transformative actions to become a best-in-class, omnichannel, DDC-first retailer. And with that, I will go ahead and open up the line for Q&A.

Harmit J. Singh: And with that, I will go ahead and open up the line for Q&A. 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 keypad.

Operator: And with that, I will go ahead and open up the line for Q&A. Thank you.

Operator: Due to time constraints, the company requests that you ask only one question. If you have any additional questions, please queue up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 11 again.

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

Speaker Change: All right.

Speaker Change: 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 keypad.

Speaker Change: Due to time constraints, the company requests that you ask only one question. If you have any additional questions, please queue up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 11 again.

Laurent Andre Vasilescu: Our first question comes from the line of LaRont, Beth, the left you, a B&P part of. Good afternoon. Thank you very much for taking my question. Michelle, let me talk about your confidence in the 2-H acceleration for the top line. I believe you talked about European order books, up-mits, digital digits for 2-H. Especially think about overall wholesale for 2-H. Any further color, Michelle, on Europe, on what you're seeing in terms of the trends so far?

Laurent Andre Vasilescu: Our first question comes from the line of Laurent Vasilescu of BNP Paribas. Oh, good afternoon. Thank you very much for taking my question. Michelle, Harmit, can you talk about your confidence in the 2H acceleration for the top line? I believe you talked about European order books up to mid-single digits for 2H. How should we think about overall wholesale for 2H? And any further color, Michelle, on Europe, on what you're seeing in terms of the trends so far? So, Laurent, let me take the confidence second half and acceleration, and then I'll pass on the wholesale, including yours, to Michelle.

Speaker Change: OK.

Speaker Change: Our first question...

Speaker Change: comes from the line of Laurent Vasilescu of BNP Paribas.

Laurent Andre Vasilescu: Good afternoon. Thank you very much for taking my question. Michelle, Harmit, can you talk about your confidence in the 2H acceleration for the top line? I believe you talked about European order books up mid-single digits for 2H.

Speaker Change: How should we think about overall wholesale for 2H, and any further color, Michelle, on Europe , on what you're seeing in terms of the trends so far?

Michelle Gass: LaRont, let me take the confidence second half in the acceleration. And then I'll pass on the wholesale, including you as to Michelle. But, as you probably heard, we are confident about the acceleration both top line and bottom line in the second half. So if you think about it simply, the trends that we've seen, the sequential improvement we have seen in the first half, continue into the second half and get better. Get better driven by the following. One Michelle talked about the wonderful products line-up that we have in the exciting launches in the second half. You know, we have launched a lot of these products in the US.

Speaker Change: Laurent, let me take the confidence second half in the acceleration and then I'll pass on the wholesale, including yours, to Michelle. But, you know, as you probably heard, we are confident about the acceleration, both top line and bottom line.

Harmit J. Singh: But, you know, as you probably heard, we are confident about the acceleration, both top line and bottom line, in the second half. So to think about it simply, the trends that we've seen, the sequential improvement we have seen in the first half will continue into the second half and get better. Get better driven by the following.

Speaker Change: in the second half. So, to think about it simply, the trends that we've seen, the sequential improvement we've seen in the first half,

Speaker Change: Continue into the second half and get better.

Harmit J. Singh: One, you know, Michelle talked about the wonderful product lineup that we have and the exciting launches in the second half. You know, we have launched a lot of these products in the US. We're going to scale them and start with DDC, scaling it into wholesale, and scaling it globally. And that's why we're really confident about the back-to-school and holiday product launches we have. DDC is really strong.

Speaker Change: The Get Better are driven by the following.

Speaker Change: One, you know, Michelle talked about the wonderful product lineup that we have and the exciting launches in the second half. You know, we have launched a lot of these products in the U.S., we're going to scale it and started with DDC, scaling it into wholesale and scaling it globally.

Michelle Gass: We're going to scale it and start with DDC, scaling it into wholesale and scaling it globally. And that's why we're really confident about the back-to-school and the holiday product launches we have. DDC is really strong; productivity and profitability in DDC is really improving. And then we've got these extra stores that we're building in the second half. So that really would help our DDC business. The US business has had three consecutive quarters of growth that we expect to continue into the second half. Europe is sequentially improving, but we feel really good about Europe returning to growth.

Speaker Change: And that's why we're really confident about the back-to-school.

Harmit J. Singh: Productivity and profitability in DDC are really improving, and then we've got these extra stores that we're building in the second half. So that really would help our DDC business. The US business has had three consecutive quarters of growth that we expect to continue into the second half. Europe is sequentially improving, but we feel really good about Europe returning to growth in the second half. The pre-book is up mid-signal digit, and DDC will continue at the strength that we're seeing. There is the benefit of the 53rd week, both in H2 and in quarter four.

Speaker Change: and the holiday product launches we have.

Speaker Change: DDC is really strong. Productivity and profitability in DDC is really improving. And then we've got these extra stores that we're building in the second half. So that really would help our DDC business.

Speaker Change: The U.S. business has had three consecutive quarters of growth that we expect to continue into the second half.

Speaker Change: Europe is sequentially improving, but we feel really good about

Michelle Gass: In the second half, the pre-book is up mid-signal; DDC will continue in the strength that we're seeing. There is the benefit of the 53rd week, both in H2 and Q4. And then on profitability, you know, is really driven by broad lead, three factors. The first is, as revenue accelerates, we'll flow through because really focus on growth profit dollars, driving, you know, being hired the next year and dollars driving, EBITDA leverage. Fuel savings just begun in Q2. I think we have fuel savings of, you know, profit property, 20 million; the rest of that coming in the second half through the initiatives that we talked about.

Speaker Change: Europe returning to growth in the second half. The pre-book is up mid-signal digit.

Speaker Change: DDC will continue, you know, in the strength that we've seen.

Harmit J. Singh: And then on profitability, you know, it's really driven by broadly three factors. The first is as revenue accelerates, we'll flow through that because we really focus on gross profit dollars driving, you know, being higher than SG&E dollars driving EBIT leverage. Fuel savings just began in Q2. I think we have fuel savings of, you know, approximately 20 million.

Speaker Change: There is the benefit of the 53rd week, both in H2 and Q4.

Speaker Change: And then on profitability, you know, it's really driven by broadly three factors.

Speaker Change: The first is, as revenue accelerates, we'll flow through that, because we really focus on gross profit dollars being higher than SG&E dollars, driving EBIT leverage.

Speaker Change: Fuel savings just begun in Q2. I think we have

Harmit J. Singh: The rest of that coming in the second half through the initiatives that we talked about, and then continued progression on the gross margin expansion that we talked about. So, you know, that's what really drives profitability on wholesale. Over to you, Michele.

Speaker Change: fuel savings of approximately $20 million. The rest of that coming in the second half through the initiatives that we talked about. And then continued progression on the gross margin expansion that we talked about. So, you know, that's what really drives.

Michelle Gass: And then continued progression on the growth margin, expansion that we talked about.

Michelle Gass: So, you know, that's what really drives profitability on wholesale over to you.

Michelle Gass: Yeah, not a whole lot to add, but just to chime in on your question around the hotel channel for global wholesale. You know, we're pleased, and we're seeing sequential improvement in our hotel business globally, of course, in particular, our two biggest wholesale businesses in the U.S. and in Europe. You know, we were down 4% which was up versus Q1. And we're expecting that progressive improvement to continue into the back house. It's really all the strategies that we've put in place over the last year that are gaining traction. It starts with product. Hermit just mentioned that.

Michelle D. Gass: Yeah, not a whole lot to add, but just to chime in on your question around the wholesale channel. So global wholesale, you know, we're pleased, and we're seeing sequential improvement in our wholesale business globally. Of course, in particular, our two biggest wholesale businesses in the US and Europe, you know, we're down four percent, which was up versus Q1. And we're expecting that progressive improvement to continue into the back half. It's really all the strategies that we've put in place over the last year that are gaining traction. It starts with product. Harmeet just mentioned that.

Speaker Change: Profitability

Michelle D. Gass: on Wholesale over to you, Michelle. Yeah, not a whole lot to add. But just to chime in on your question around the Wholesale Channel, so global wholesale, you know, we're pleased. And we're seeing sequential improvement in our wholesale business globally, of course, in particular in our two biggest wholesale businesses in the U.S. and in Europe .

Michelle D. Gass: We were down 4%, which was up versus Q1, and we're expecting that progressive improvement to continue into the back half.

Michelle D. Gass: It's really all the strategies that we've put in place over the last year that are gaining traction. It starts with product. Harmit just mentioned that. But we really are leading the trend with product, and that's fueling our DTC business, but it's also fueling our wholesale business.

Michelle D. Gass: But we really are leading the trend with product. And that's fueling our DTC business, but it's also fueling our wholesale business. So it starts with denim bottoms and denim authority around, you know, this whole trend of baggy, loose, wide leg. That's responding.

Michelle Gass: But we really are leading the trend with product, and that's fueling our DDC business, but it's also fueling our wholesale business. So, it starts with denim bottoms and denim authority around, you know, this whole trend on saggy, loose, wide leg. That's resonating. Our key customers are excited. They're ordering it. And consumers are responding. And our sellout trends are improving across our wholesale channel. So, that's a leading indicator. So, we're Denim lifestyle. And in particular, with women. We're seeing outside growth there. So, tops, bottoms, denim dresses, denim skirts, working in DDC, also working in wholesale. And then I would add, as it relates to our supply chain, which was a challenge for us, as you know, last year in the U.S.

Harmit J. Singh: So, it starts with Denim Bottoms and Denim Authority around, you know, this whole trend on baggy, loose, wide leg. That's resonating. Our key customers are excited, they're ordering it, and consumers are responding. And our sellout trends are improving across our wholesale channel. So, that's a leading indicator. So, we're really encouraged by that.

Michelle D. Gass: Our key customers are excited. They're already ordering it. And consumers are responding, and our sellout trends are improving across our wholesale channel. So that's a leading indicator. So we're really encouraged by that. Second, I would say our strategy around the denim lifestyle and, in particular, with women. We're seeing outsized growth there. So tops, bottoms, you know, denim dresses, denim skirts, working in DTC, also working in wholesale.

Harmit J. Singh: Second, I would say our strategy around denim lifestyle, and in particular with women, we're seeing outsized growth there. So tops,

Harmit J. Singh: bottoms, you know, denim dresses, denim skirts.

Harmit J. Singh: working in DDC, also working in wholesale, and then I would add, as it relates to our supply chain, which was a challenge for us, as you know, last year in the U.S., that's all behind us.

Michelle Gass: That's all behind us.

Michelle D. Gass: And then I would add, as it relates to our supply chain, which was a challenge for us, as you know, last year in the US, that's all behind us. So when you take all those factors, we are in a completely different and better place than we were a year ago as it relates to global wholesale, both in Europe and the US. And then, you know, as it relates to your question about Europe.

Michelle Gass: So, when you take all those factors, we're in a completely different and better place than we were a year ago, as it relates to global wholesale, both the Europe and the U.S. And then, you know, as it relates to your question on Europe. You know, just to take that question home, we saw a big improvement from Q1 and Q2, so we were down to DTC up 7%, and we are fully expecting to see Europe grow in the back half of the year, with DTC continuing to accelerate, already positive, continue positive and seeing significant gains in wholesale as well, with the indicator being that the pre-books are up.

Harmit J. Singh: So, when you take all those factors, we are in a completely different and better place than we were a year ago as it relates to global wholesale, both Europe and the US. And then, you know, as it relates to your question on Europe ,

Michelle D. Gass: You know, just to take that question home, we saw a big improvement from Q1 into Q2, so we were down to DTC up 7%. And we are fully expecting to see Europe grow in the back half of the year, with DTC continuing to accelerate, already positive, and continue to be positive, and seeing significant gains in wholesale as well, with the indicator being that pre-books are up. So all in all, on both fronts, both wholesale and Europe, we're optimistic in the back half, and that's all baked into the acceleration we have planned in H2. Very helpful. Thank you very much for all the color.

Harmit J. Singh: You know, just to take that question home, we saw a big improvement from Q1 into Q2, so we were down to DTC up 7%, and we are fully expecting

Harmit J. Singh: to see Europe grow in the back half of the year, with DTC continuing to accelerate.

Harmit J. Singh: already positive, continue positive, and seeing significant gains in wholesale as well, with the indicator being that the pre-books are up. So, all in all, on both fronts, both wholesale and Europe , we're optimistic in the back half, and that's all baked into the acceleration we have planned in H2.

Laurent Vasilescu: So all in all, on both fronts, both wholesale and Europe, we're optimistic in the back half, and that's all baked into the acceleration we have planned in H2. Very helpful. Thanks a lot for all the color. Thank you.

Speaker Change: Very helpful. Thank you very much for all the color.

Operator: Thank you. Thank you. Our next question comes from the line of Bob Durgle of Guggenheim. Hi, good afternoon.

Bob Durbul: Our next question comes from the line of Bob Durple of Guggenheim. Hi. Good afternoon.

Speaker Change: Thank you. Thanks, Laurent.

Speaker Change: Thank you. Our next question comes from the line of Bob Drbul of Guggenheim.

Operator: Just two questions, you know, I think a little bit of a follow-up, but just in terms of the U.S. business, can you talk a little more about what you're seeing from the consumer, you know, both your male and female consumers? And ultimately, when you look at some of the trends within the denim businesses, Michelle, do you see momentum continuing with some of the bigger drivers in product? Yes, thanks, Bob, for the question. There are a few questions within that. First of all, as it relates to our U.S. business, we're very pleased. We're feeling really good.

Michelle Gass: Just two questions. You know, I think a little bit of a follow-up, but just in terms of the US business, can you talk a little more around, you know, what you're seeing from the consumer, you know, both your male and female consumers? And ultimately, when you look at some of the trends within the denim businesses, Michelle, you see momentum continuing with some of the bigger drivers in product? Yes.

Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host

Speaker Change: Can you talk a little more around what you're seeing from the consumer, both your male and female consumers, and ultimately, when you look at some of the trends within the denim businesses, Michelle, do you see momentum continuing with some of the bigger drivers in product?

Michelle Gass: Thanks, Bob, for the question. So a few questions within that. First of all, as it relates to our US business, we're very pleased. We're feeling really good. Third quarter of positive growth. I mean, we really think about, and Harmie mentioned this in his remarks, but we really think about the US as a total marketplace. Our DTC business is growing tremendously. It was up 12% in the quarter, and that was driven off of tier question on trends. That was largely driven off of women. Men still healthy in the mid single digits, but women's was up over 20% across both bottom and top.

Speaker Change: Yes.

Speaker Change: Thanks Bob for the question. A few questions within that. First of all,

Michelle D. Gass: Third quarter of positive growth. I mean, we really think about, and Harmit mentioned this in his remarks, but we really think about the U.S. as a total marketplace. Our DTC business is growing tremendously. It was up 12% in the quarter, and that was driven off of, to your question on trends, that was largely driven off of women. Men are still healthy in the mid-single digits, but women's were up over 20% across both bottoms and tops.

Speaker Change: As it relates to our U.S. business, we're very pleased. We're feeling really good.

Hermit: Third quarter of positive growth. I mean, we really think about, and Harmit mentioned this in his remarks, but we really think about the U.S.

Speaker Change: as a total marketplace. Our DTC business is growing tremendously. It was up 12% in the quarter and that was driven off of, to your question on trends, that was largely driven off of women's. Men's still healthy in the mid single digits but women's was up over 20% across both bottoms and tops.

Michelle D. Gass: And in fact, as it relates to the U.S. market, market share, which is really a powerful indicator, we, I mentioned earlier in the call, but I'll say it again, are the number one market share leader in women's denim bottoms. And we have now created great separation in that position. So I'm feeling great about that.

Michelle D. Gass: And in fact, as it relates to the US market, market share, which is really a powerful indicator. We, I mentioned earlier in the call, but I'll say it again: number one market share leader in women's denim bottoms. And we have now created great separation in that position. So feeling great about that. Men's continues to hold the number one position, gaining market share as well with that younger consumer. Some really encouraging reading indicators as it relates to the US market. So feel good about that. And as I just mentioned, you know, DTC is our primary growth driver, but we are feeling very good about the trends we're seeing in the US wholesale business as well.

Speaker Change: And, in fact, as it relates to the U.S. market, market share, which is really a powerful indicator

Speaker Change: We, I mentioned earlier in the call, but I'll say it again, number one market share leader in women's dedum bottoms. And we have now created great separation in that position. So feeling great about that. Men's continues to hold the number one position, gaining market share as well with that younger consumer. So really encouraging leading indicators as it relates to the US market. So feel good about that. And as I just mentioned, you know, DTC is our primary growth driver, but we are feeling very good about the trends we're seeing in the US wholesale business as well.

Michelle D. Gass: Men's continues to hold the number one position, gaining market share as well as with that younger consumer. So really encouraging leading indicators as it relates to the U.S. market. So feel good about that.

Michelle D. Gass: And as I just mentioned, you know, DTC is our primary growth driver, but we are feeling very good about the trends we're seeing in the U.S. wholesale business as well. And then to your question on the state of the consumer, based on our business, we're feeling good. I mean, our consumers are proving to be resilient. They're coming into our stores. They're shopping online.

Michelle D. Gass: So our indications, I mean, we control what we control. And certainly, there's some level of uncertainty as we look into the back half of the year and beyond. But we're always certain about that uncertainty.

Michelle Gass: And then to your question on, you know, state of the consumer based on our business, we're feeling good. I mean, our consumer is proving to be resilient. They're coming into our stores. They're shopping online. So our indications. I mean, we control what we control. And certainly there's some level of uncertainty as we look into the back half of the year and beyond. We're always certain about that uncertainty. But we control we can control, and our responsibility as the denim category leader is to drive that innovation, drive that freshness in units. We're doing that in bottoms with these trends.

Speaker Change: And then to your question on, you know, state of the consumer and based on our business, we're feeling good. I mean, our consumer is proving to be resilient, they're coming into our stores, they're shopping online. So, our indications, I mean, we control what we control and certainly there's some level of uncertainty as we look into the back half of the year and beyond. We're always certain about that uncertainty, but we control what we can control and our responsibility as the denim category leader is to drive that innovation, drive that freshness and newness. We're doing that in bottoms with these trends I was speaking to, the looser, baggier trends, but we're also now doing it on head to toe denim lifestyle, which is a newer strategy for us.

Michelle D. Gass: But we control what we can control, and our responsibility as the denim category leader is to drive that innovation, drive that freshness, and newness. We're doing that in bottoms with these trends I was speaking about, the looser, baggier trends, but we're also now doing it head to toe in denim lifestyle, which is a newer strategy for us. And it's working. I mean, denim products beyond bottoms are selling like crazy. I mean, Western shirts, and I know Western's trending as well as it relates to trends in the denim market are up 40 percent.

Michelle Gass: I was speaking to the loser bag year trends, but we're also now doing it on head-to-toe denim lifestyle, which is a newer strategy for us. And it's working. I mean, denim product beyond bottom is selling like crazy. I mean, western shirts. And I know Western trending as well as it relates to trends in the denim market up 40%. denim skirts and dresses. You know, those were up triple digits. And I would say on all of this, Bob. We're just getting started. So we will continue to fuel excitement in the category for kind of months and years to come.

Speaker Change: King.

Robert Scott Drbul: I mean denim product beyond bottoms is selling like crazy. I mean Western shirts and I know Western's trending as well as it relates to trends in the denim market up 40%. Denim skirts and dresses you know those were up triple digits and I would say on all of this Bob we're just getting started. So we will continue to fuel excitement in the category for kind of months and years to come.

Michelle D. Gass: Denim skirts and dresses, you know, those were up triple digits. And I would say on all of this, Bob, we're just getting started. So we will continue to fuel excitement in the category for months and years to come. Thank you.

Michelle Gass: Thank you. Thanks, Bob. Thank you.

Operator: Thank you. Our next question comes from the line of Matthew Boss of J.P. Morgan. Great, thanks.

Speaker Change: Thank you.

Speaker Change: Thanks, Bob.

Speaker Change: Thank you. Our next question comes from the line of Matthew Boss of J.P. Morgan.

Operator: Michelle, on the total addressable market, which you touched on and prepared, could you elaborate on the assortment changes that you've made so far that support an expanded TAM for the Levi brand, opportunities you're excited about to drive a greater share of wallet, and could you just maybe break down gross margin puts and takes that we should consider for the back half of the year relative to distribution and logistics? Sure, sure. Thanks, Matt.

Matthew Robert Boss: Great, thanks. Michelle, on the total addressable market, which you touched on in prepared remarks, could you elaborate on assortment changes that you've made so far that support an expanded TAM for the Levi brand?

Speaker Change: Opportunities you're excited about to drive greater share of wallet? And then Harmit, could you just maybe break down gross margin puts and takes that we should consider for the back half of the year relative to the distribution and logistics headwind?

Michelle D. Gass: Yeah, great question and one that we're quite bullish on, actually. So, as I did mention, we are expanding our total addressable market in a couple ways. First, to build on the last question, is really this whole head-to-toe denim dressing and then the denim lifestyle.

Michelle D. Gass: Thanks, Matt. Yeah, great question and one that we're quite bullish on, actually. So, as I did mention, we are expanding our total addressable market, and I'd say in a couple ways.

Speaker Change: First, kind of build on the last question, is really this whole head-to-toe denim dressing, and then denim lifestyle. So, all things denim. I mean, believe it or not, historically, we've been a small player in even things like denim skirts,

Michelle D. Gass: So, all things denim. I mean, believe it or not, historically, we've been a small player in things like denim skirts, denim tops, denim jackets, denim dresses, and the like. But early indications are super positive. I mean, we have a big opportunity there, and I'm really excited about what's in the pipeline. So that'd be point number one. And then point number two is non-denim.

Speaker Change: Denim Tops, Denim Jackets, Denim Dresses, and the like.

Speaker Change: Early indications are super positive. I mean we have we have a big opportunity there and I'm really excited about what's in the pipeline. So that'd be point number one. And then point number two is non-denim.

Michelle D. Gass: When you actually look at our total business, 44% of our direct-to-consumer business is actually now what we'd consider non-denim bottoms. So that does include the kind of skirts and dresses I was mentioning, but it also includes denim on both men and women. And we've driven a lot of newness in those categories as well. So our XX Chino platform, which has done really well over the last couple of years, we're expanding that into performance. So you may recall we launched a new platform, the performance platform, Performance Tech, just recently, last couple months. We started with the 511 Fit for Men.

Speaker Change: When you actually look at our total business...

Speaker Change: 44% of our direct-to-consumer business is actually now what we'd consider non-denim bottoms. So, that does include kind of the skirts and dresses I was mentioning, but it also includes non-denim in both men and women. And we've driven a lot of newness in those categories as well. So, our XXChino platform, which has done really well over the last couple years, we're expanding that into performance. So, you may recall we launched a new platform, the performance platform, Performance Tech.

Michelle D. Gass: We're launching it into XX Chino in the coming year, and that's soon to land in the U.S. across channels. And we're working on a more premium offering that's going to go global. And we're actually looking at expanding the platform from there. So we, you know, Levi's definitely has permission, but it will always stay true to, and I think this is really important, to the true Levi's DNA, the aesthetic of the brand.

Speaker Change: Just recently, last couple months, we started with the 5.11 Fit for Men. We're launching it into XXChino in the coming year. That's soon to land actually in the U.S. across channels. And we're working on a more premium offering that's going to go global. And we're actually looking at expanding the platform from there. So we, you know, Levi's definitely has permission. But we'll always stay true to, and I think this is really important, to the true Levi's DNA, the aesthetic.

Michelle D. Gass: But the consumer is saying, both men and women, they want more Levi's in their closet. So whether, again, that's more denim lifestyle, head-to-toe, or more of this non-denim, it's working. And we're seeing it in the numbers. So we're seeing it in terms of gaining share in women, a significant share, and with men holding our share, but we're also gaining share in non-denim casual pants and men. So all good indicators. We're excited, and that gives us a much bigger playing field. And Matt, on the question of gross margin. So let's talk about quarter two first, and I'll just give you the second half of the year.

Speaker Change: of the brand. But the consumer is saying, both men and women, they want more Levi's in their closet. So whether, again, that's more

Speaker Change: Denim Lifestyle, Head to Toe, or more of this non-denim. It's working, and we're seeing it in the numbers.

Speaker Change: So, we're seeing it in terms of gaining share in women, significant share, and with men holding our share, but we're also gaining share in non-denim casual pants in men. So, all good indicators. We're excited, and that gives us a much bigger playing field.

Speaker Change: [inaudible]

Speaker Change: On the question of gross margin, so let's talk quarter two first, and I'll just give you the second half of the year. And I'll talk about this new focus on gross profit dollars, less SG&A. But basically, in quarter two, the big buckets, the tailwinds, were really product costs.

Harmit J. Singh: And I'll talk about this new focus on gross profit dollars less SG&A. But basically, in quarter two, the big buckets, the tailwinds were really product costs, really driven by commodities. That was approximately 250 basis points higher than a year ago. And the mix in areas that we are driving growth in. So think GDC, think women's, and think international.

Speaker Change: really driven by commodities. There was approximately 250 basis points.

Speaker Change: higher than a year ago.

Speaker Change: And the mix on areas that we are driving growth in, so think DDC, think women.

Harmit J. Singh: So that's about 50 basis points. But it was offset by over 100 basis points, as I said in the remarks on FX. And then about 20 basis points on AFRAID.

Speaker Change: Think International. So that's about 50 basis points. It was offset by over 100 basis points as I said in the remarks on FX.

Harmit J. Singh: Given some of the Red Sea issues that we're seeing and the fact that we are actually chasing after product, and believe it or not, some of the product offers are selling so quickly that we're chasing after them. So we are AFRAIDing a little bit more. So that's really quarter two. As you think about the second half of the year, and quarter three is a little different than quarter four. And I'll explain to you in a minute why.

Speaker Change: and then about 20 basis points in AFRAID.

Speaker Change: Given some of the Red Sea issues that we're seeing and the fact that we are actually chasing into product and believe it or not, you know, some of the product offers are selling so quickly that we're chasing into it.

Speaker Change: We are air-feeding a little bit more. So that's really the quarter two. As you think about the second half of the year.

Harmit J. Singh: But overall, I think tailwinds will be product costs more in quarter three, starting to lap this late in Q3. So a little bit in Q3 last year, and you saw the benefit in Q4. The mixed benefit continues. And then the FX headwind is not as high as 100 in Q2, but probably 50-odd basis points in Q3, substantially less in Q4. AFRAID as a headwind is probably the same, especially as we'

Speaker Change: And Quarter 3 is a little different than Quarter 4, and I'll explain to you in a minute why.

Speaker Change: But overall, I think tailwinds will be product costs more in Q3, but we started lapping this late in Q3, so a little bit in Q3 last year, and you saw the benefit in Q4.

Harmit Singh: started lapping this in late in Q3, so you a little bit in Q3 last year and you saw the benefit in Q4. The mix benefit continues, and then FX headwind is not as high as 100 in Q2, but probably 50 odd basis points in Q3, substantially less in Q4. Afraid as a headwind, probably the same, especially as we're chasing into stuff. Generally feeling very good about gross margins, and that's where we raise the guidance for the year. You know, if we deliver, we're confident off, we'll be another record on an annual basis from that perspective.

Speaker Change: Benefit continues and then FX headwind is not as high as 100 in Q2, but probably 50 odd basis points in Q3.

Speaker Change: Substantially less in Q4. Afraid as a headwind, probably the same, especially as we're chasing into stuff. So, generally feeling very good about gross margins, and that's where we raise the guidance.

Harmit J. Singh: So, generally, we feel very good about gross margins. And that's why we raised the guidance for the year, which if we deliver, we're confident of, it will be another record on an annual basis from that perspective. But overall, as we get to the operating margin goal of 15%, this is a metric of gross profit dollars, less SG&A, and ensuring that that drives the leverage is important. If you go back to 2021, when operating margins were over 12%, you know, gross profit was growing at a much faster clip than SG&A. And that's the discipline that we as a leadership team want to instill in ourselves. Great color, too.

Speaker Change: you know, for the year, you know, which, you know, if he if he deliver we confident off will be another record on an annual basis from that perspective. But overall, you know, as we get to the operating margin.

Harmit Singh: But overall, you know, as we get to the operating margin, goal of 15%, this is metric of gross profit dollars less, as you may, and ensuring that drives the leverage is important. You go back to 2021 when operating margins were over 12%. You know, gross profit was, you know, growing out of much faster clip than Sienna, and that's the discipline that we as a leadership team want to instill in ourselves.

Speaker Change: Goal of 15%. This is metric of gross profit dollars less SG&A and ensuring that that drives the leverage is important. You go back to 2021 when operating margins were over 12%, you know, gross profit was, you know, growing at a much faster clip than SG&A.

Speaker Change: And that's the discipline that we as a leadership team want to instill in ourselves.

Harmit Singh: Great color. Best of luck. Thank you.

Speaker Change: Great caller. Best of luck. Thank you.

Operator: Best. Thank you. Thank you. Our next question comes from the line of Ike Boruchow of Wells Fargo. Hey, good afternoon, everyone.

Ike Poroshow: Our next question comes from the line of Ike Poroshow of Wells Fargo. Good afternoon, everyone. I guess what I wanted to ask is I'm trying to understand the momentum in the business, and certain parts of the category you guys sell seems pretty apparent. And there's certain parts of the assortment that seem to be doing extraordinarily well.

Speaker Change: Thank you. Our next question comes from the line of Ike Boruchow of Wells Fargo.

Operator: I guess what I wanted to ask is, I'm trying to understand the momentum in the business, and certain parts of the categories you guys sell seem pretty obvious. And there are certain parts of the assortment that seem to be doing extraordinarily well. But when you look at the overall revenue of the business, it's still not, it hasn't quite connected with the optimism that you guys have. Now, the direct to consumer business is very strong, but it's also, you know, it was similar last year. So I guess where I'm going with that is, is that a function of there being more to come? The inventories are too tight.

Irwin Bernard Boruchow: Good afternoon, everyone. I guess what I wanted to ask is.

Irwin Bernard Boruchow: I'm trying to understand the momentum in the business and certain parts of the categories you guys sell seems pretty apparent.

Irwin Bernard Boruchow: And there's certain parts of the assortment that seem to be doing extraordinarily well. But when you look at the overall revenue of the business, it's still not, it doesn't quite connect with the optimism that you guys have. Now, the direct-to-consumer business is very strong, but it's also, you know, it was similar last year. So, I guess where I'm going with that is, is that a function of there's more to come, the inventories are too tight, you know, the wholesalers' partners haven't been willing to take product, it takes more time? Because I'm just trying to understand, there seems to be so much buzz that's growing. I just, I would have thought there would be more revenue growth commensurate with that. So, I guess, maybe for Michelle, can you kind of connect those dots for me?

Michelle Gass: But just when you look at the overall revenue of the business, it's still not, it isn't quite connected with the optimism that you guys have. Now, the director consumer business is very strong, but it's also, you know, it was, it was similar last year. So I guess where I'm going with that is, is that a function of there's more to come, the inventories are too tight, you know, the whole partners haven't been willing to take product. It takes more time because I'm just trying to understand that there seems to be so much buzz that's growing.

Michelle D. Gass: You know, the wholesalers, and partners haven't been willing to take product. It takes more time because I'm just trying to understand that there seems to be so much buzz that's growing. I just would have thought there would be more revenue growth commensurate with that. So I guess maybe for Michelle, can you kind of connect those dots for me? Yeah, let me take a stab.

Michelle D. Gass: I would have thought there would be more revenue growth commensurate with that.

Harmit Singh: So I guess maybe for Michelle, can you kind of connect those thoughts for me? Yeah. Let me take a stab. And so sequentially, you know, according to, you know, hopefully the ERP noise is behind us, but, you know, sequentially, according to group 2% constant currency and, and, and, and similarly on Levi's, I just think as, as you think about the quarter, uh, because your question is, is, is a good question. The other quarter, Levi's generally was on expectation. US was stronger, Europe was on plan, Asia's slightly lower largely because China, X, China, Asia was fairly strong.

Harmit J. Singh: And so sequentially, you know, quarter to, hopefully, the ERP noise is behind us. But, you know, sequentially, quarter to group two percent constant currency. And similarly on Levi's, I just think as you think about the quarter, I because your question is a good question. The thing about the quarter, Levi's generally was on our expectation. The U.S. was stronger; Europe was unplanned. Asia slightly lower, largely because of China. China, however, was fairly strong.

Speaker Change: Yeah, let me take a stab and so sequentially, you know, quarter to

Speaker Change: Hopefully the ERP noise is behind us, but, you know, sequentially quarter to group 2% constant currency.

Speaker Change: and similarly on Levi's. I just think, as you think about the quarter...

Speaker Change: Ike, because your question is a good question. I think in the quarter, Levi's generally was on our expectation. U.S. was stronger, Europe was unplanned, Asia slightly lower, largely because of China. China-Asia was fairly strong.

Harmit J. Singh: The thing that, you know, I think the headwinds I talked about a little in this script, but the headwinds were really FX. OK, and Dockers underperformed. So, you know, as you think about because, you know, I think your question is more centered on Levi's. But that's really what happened in the quarter.

Harmit Singh: The, the thing that, you know, I think the headwinds, I talked about a little on this script, but the headwinds were really effects, okay, and doctors underperform. So, you know, as you think about, because, you know, I think your question is more centered on Levi's, but that's really what happened in the, in the quarter. Now, what gives us real confidence in the second half because revenue does accelerate, especially in constant currency. Is the new product law offers, they just, you know, in a global business, you get the best bank for the buck when it's across channels and it's across geographies.

Speaker Change: The thing that, you know, I think the headwinds, I talked about a little on this script, but the headwinds are really FX, okay, and Docker's underperformed. So, you know, as you think about, because, you know, I think your question is more centered around Levi's, but...

Harmit J. Singh: Now, what gives us real confidence in the second half, because revenue does accelerate, especially in constant currency, are the new product offers that just, you know. In a global business, you get the best bang for the buck when it's across channels and it's across geographies. And our product is right now making the transition across geographies and across channels. So that's why you're seeing the sequential or expectation that it will improve sequentially. This takes a little time from that perspective.

Speaker Change: That's really what happened in the quarter. Now, what gives us real confidence in the second half, because revenue does accelerate, especially in constant currency, is the new product offers.

Speaker Change: In a global business, you get the best bang for the buck when it's across channels and it's across geography.

Harmit J. Singh: And our product is, you know, right now making the transition across geographies and across channels. So, that's why you're seeing the sequential or expectation that sequentially, it will business continues to grow. Michelle talked about wholesale; wholesale was down, granted in Q4, but it's less down than Q1 globally. And in our expectation is that that improves as the year progresses. And it's largely driven by two things. Inventory levels generally are, in the trade art are, are getting to a good spot. So, that should open the open to buy. And as they see new product, there is, there are people, you know, customers are gearing to put that on the flow.

Speaker Change: And our product is, you know, right now making the transition across geographies and across channels. So that's why you're seeing the sequential or expectation that sequentially.

Speaker Change: It will improve, just takes a little time from that perspective.

Harmit J. Singh: The DDC business continues to grow. Michelle talked about wholesale. Wholesale was down, granted, in Q4, but it's less down than Q1 globally, and our expectation is that that improves as the year progresses. And it's largely driven by two things.

Speaker Change: The DDC business continues to grow, and Michelle talked about wholesale. Wholesale was down, granted, in Q4, but it's less down than Q1, globally. And our expectation is that that improves as the year progresses. And it's largely driven by two things.

Speaker Change: Inventory levels generally in the trade are getting to a good spot, so that should be open to buy, and as we see new products, customers are gearing to

Harmit J. Singh: Inventory levels in the trade are generally getting to a good spot, so that should open the door to buy. And as they see new products, customers are gearing to put those on the floor. So that's why I think it's a natural progression. And sometimes it just takes a little time.

Harmit Singh: So, that's why I think it is a natural progression, and sometimes it just takes a little time. And that's what we're beginning.

Speaker Change: put that on the floor. So so that's why I think it is a natural progression and sometimes it just takes a little time and that's what we're beginning to see.

Harmit J. Singh: And that's where we're beginning. Yeah, the only thing I would add to that is when you kind of take a step back. I mean, as we look to the back half of the year, we are planning for, and we're guiding for acceleration. So we're expecting the back half of the year to be in the mid single digits in terms of growth, which bakes in the continued double digit performance in DTC, as well as some modest improvement in wholesale.

Michelle D. Gass: The only thing I would add to that is when you kind of take a step back, I mean, as we look to the back half of the year, we are planning for, and we've got it for acceleration. So we're expecting the back half of the year to be in the mid single digits in terms of growth, you know, which breaks in the continued double-digit performance in DTC as well as some modest improvement in wholesale. But, you know, our DTC business now is becoming such a big part of our business. As long as we get, call it stability in the wholesale channel and the kind of growth or stability we're seeing now, the model works.

Speaker Change: Yeah, the only thing I would add to that is when you kind of take a step back, I mean, as we look to the back half of the year, we are planning for and we've guided for acceleration. So we're expecting the back half of the year to be in the mid single digits in terms of growth, you know, which, which bakes in the continued double digit performance in DTC.

Speaker Change: well as some modest improvement in wholesale.

Speaker Change: But, you know, our DTC business now is becoming such a big part of our business, as long as we get, call it stability, in the wholesale channel and the kind of

Harmit J. Singh: But you know, our DTC business now is becoming such a big part of our business. As long as we get call it stability in the wholesale channel and the kind of growth or stability we're seeing now, the model works. And so that's why we're extremely confident in the back half of the year. And I think Harmit did a great job explaining, you know, this current quarter, the FX piece clearly was the biggest impact given that 60% of our business is global. But the Levi's brand and the Levi's business is extremely healthy, as evidenced by the market share gains that we're making in many places around the world, including here in the US. Very helpful, thank you.

Speaker Change: The kind of growth or stability we're seeing now, the model works. And so that's why we're extremely confident in the back half of the year. And I think Harmit did a great job explaining this current quarter. The FX piece clearly was the biggest impact given that 60% of our business is global, but the Levi's brand and the Levi's business is extremely healthy as evidenced by the market share gains that we're making in many places around the world, including here in the U.S.

Michelle Gass: And so, that's why we're extremely confident in the back half of the year, and I think Army did a great job explaining, you know, this current quarter. The FXT is clearly was the biggest impact given that 60% of our business is global, but the Levi's brand and the Levi's business is extremely healthy as evidenced by the market share gains that we're making in many places around the world, including here in the US. That's very helpful, thank you. Thanks, Mike. Thank you.

Operator: Thanks, Ike. Thank you. Our next question comes from the line of Dana Telsey of Telsey Advisory. Hi, good afternoon, everyone.

Speaker Change: That was very helpful, thank you. Thanks, Ike.

Dana Telsey: Our next question comes from the line of Dana tells me of tells the advisory group.

Speaker Change: Thank you. Our next question comes from the line of Dana Telsey of Telsey Advisory Group.

Dana Telsey: Hi, good afternoon, everyone. As you think about top line and then managing it with the better than expected, gross margins and your guide for the SG&A, unpacking the increased marketing spend that's happening in the second half of the year, how much higher is this marketing spend in your original plan and given the positive reception to the trends and that you're the market share leader, how should we think about marketing expense going forward, what do you need in top line sales to leverage some of these expenses in other words? Thank you. Thanks, Dana. You know, I wish we could have floored the EPSB, you know, five cents, which I think a lot of people were expecting. But as we think about this business, you have to think about this business longer term.

Operator: As you think about TopLine and then managing it with the better than expected gross margins and your guide for SG&A, unpacking the increased marketing spend that's happening in the second half of the year, how much higher is this marketing spend than your original plan? And given the positive reception of the trends and that you're the market share leader, how should we think about marketing expense going forward? What do you need in TopLine sales to leverage some of these expenses, in other words?

Dana Lauren Telsey: Hi, good afternoon, everyone.

Dana Lauren Telsey: As you think about top line and then managing it with the better-than-expected gross margins and your guide for the SG&A, unpacking the increased marketing spend that's happening in the second half of the year, how much higher is this marketing spend than your original plan?

Dana Lauren Telsey: And given the positive reception to the trends and that you're the market share leader, how should we think about marketing expense going forward? What do you need in top line sales to leverage some of these expenses, in other words? Thank you.

Harmit J. Singh: Thank you. Thanks, Dana. I wish we could have flowed the EPS beat, you know, five cents, which I think a lot of people were expecting.

Speaker Change: Thanks, Dina.

Speaker Change: I wish we could have floated the EPS beat, you know, five cents, which I think a lot of people were expecting. But as we think about this business, you have to think about this.

Harmit J. Singh: But as we think about this business, you have to think about this business for the long term. You know, so if you think of the five cents, two cents of the five cents is really being spent as we make the pivot to more of a hybrid distribution logistics network. And, you know, we did get the cash infusion of over seventy five million in the quarter by one ninety million in the year. And that's just running two DCs parallelly as they transition.

Harmit Singh: So if you think of the five cents, you know, two cents of the five cents is really being spent as we make the pivot to more of a hybrid distribution logistics network. And, you know, we did get the cash infusion of over 75 million in the quarter, by about 90 in the year. And that's just running to DEC's parallel as their transition, you know, and there's one cent in quarter three and maybe one cent in quarter four. The marketing question, Dana, is the virus sent a higher in H2 and it's just to fuel the, you know, we have we expanding the time as Matt, you asked, we are introducing new products, but consumers need to be more aware of it, so we have to drive awareness.

Speaker Change: Business Longer Term. So if you think of the five cents, two cents of the five cents is really being spent as we make the pivot to more of a hybrid distribution logistic network.

Speaker Change: And, you know, we did get the cash infusion of over $75 million in the quarter, about $1.90 in the year. And that's just running two DCs parallelly as they transition, you know, and that's $0.01 in quarter three and maybe $0.01 in quarter four.

Harmit J. Singh: You know, and that's one cent in quarter three and maybe one cent in quarter four. The marketing question, Dana, is about a cent higher in H2. And it's just to fuel the, you know, we have we are expanding the time, as Matthew asked.

Speaker Change: The marketing question, Dana, is about a cent higher in H2, and it's just to fuel the, you know,

Harmit J. Singh: We are introducing new products. Consumers need to be more aware of them, so we have to drive awareness.

Speaker Change: We are expanding the TAM, as Matthew asked. We are introducing new products. Consumers need to be more aware of it, so we have to drive awareness.

Harmit J. Singh: And, you know, we have wonderful marketing programs that Kenny, I think, talked about in quarter two. And so this just helps fuel the brand momentum. To your question about what's the right spend?

Harmit Singh: And, you know, we have wonderful marketing programs that Kenny, I think, talked about it in quarter two. And so this has fueled the brand momentum. To your question about what's the rights spent, you know, we do ROI analysis. And so, as long as we think it really drives revenue, you know, it's little over the what we thought last time we talked about it. But, you know, we'll probably grow over time, but so will revenue. And so that's really the, you know, the linkage we look at.

Speaker Change: And, you know, we have wonderful marketing programs that Kenny, I think, talked about in quarter two. And so this just helps fuel the brand momentum. To your question about, what's the right spend?

Harmit J. Singh: You know, we do a ROI analysis. And so as long as we think it really drives revenue, marketing spend will probably end the year around seven percent. It's a little higher than what we thought last time we talked about it. But, you know, it'll probably grow over time, but so will revenue. And so that's really the, you know, the linkage we look at.

Speaker Change: We do a ROI analysis and so as long as we think it really drives revenue, marketing spend will probably end the year around 7%.

Speaker Change: It's a little over than what we thought last time we talked about it, but you know, it'll probably grow over time, but so will revenue. And so that's really the, you know, the linkage we look at.

Speaker Change: Thank you.

Operator: Thank you. You're welcome. Thanks, Janet. Thank you. Our next question comes from the line of Chris Nardone, B of A. Thanks, guys. Good afternoon.

Speaker Change: You're welcome. Thanks, Dana.

Speaker Change: Thank you. Our next question comes from the line of Chris Nardone of B of A.

Operator: Just a couple of follow-ups on the US business. Can you elaborate on the progression of USDTC results through the quarter and comment on whether trends have sustained in June? And then on the US wholesale business, are you committed to growing the US wholesale business in the back half? And curious if you have any comments on how sellout is trending versus maybe last quarter? Yeah.

Speaker Change: Thanks, guys. Good afternoon.

Christopher Michael Nardone: Just a couple follow-ups on the U.S. business, can you elaborate on the progression of U.S. DTC results through the quarter and comment on whether trends have sustained in June ? And then on the U.S. wholesale business,

Christopher Michael Nardone: Are you committed to growing the U.S. wholesale business in the back half and curious if you have any comments on how sellout is trending versus maybe last quarter?

Harmit J. Singh: So to your question about the USDTC, the quarter was fairly even. We saw the USDTC business start really strongly at the beginning of the year, and that's continuing into the quarter. And we feel really good about the continuation into quarter three.

Speaker Change: Yeah, so to your question about the US DTC, it's it's actually the quarter was fairly even it, you know, we saw the

Speaker Change: The U.S. DDC business...

Speaker Change: start really strongly at the beginning of the year that's continuing into the quarter.

Speaker Change: And we feel really good about the continuation into quarter three. The U.S. team is doing a phenomenal job.

Harmit J. Singh: The US team is doing a phenomenal job really making this pivot to DDC and driving productivity. The EBIT margins are off the charts, as an example. We don't talk about it by segment, but we look at America's operating margins, and the last piece of that is driven by our DDC business. To your question about US wholesale, it gets better from the mid single-digit decline that we talked about as the year progresses. It is very difficult to predict whether it turns positive.

Speaker Change: Thank you for making this pivot to DDC.

Speaker Change: and driving productivity. The EBIT margins are off the charts. As an example, we don't talk about it by segment, but we look at the, you know, the America's operating margins, the last piece of that is driven.

Speaker Change: by Adidas Business. To your question about U.S. wholesale, you know, it gets better from the mid-single-digit decline that we talked about as the year progresses.

Harmit J. Singh: The thing that we can say, I think, Michelle, with confidence is that we are seeing sell-throughs actually improve as we exit into the quarter. And so that just bodes well. And inventory levels are relatively lean. So the combination of that, especially as a US consumer, who we think is resilient, I think you can do the math over time. Yeah, maybe the only thing to add on that one, Harmeet, well said, is just to make the point, when we think about the state of the US wholesale business a year ago versus where we are today, it literally is a sea change in what we're seeing in US wholesale. From the operations supply chain, we're back to normal, we're shipping orders, and we had a little bit of a catch up. Now it's kind of business as usual. Product, you know, the center of everything.

Speaker Change: Very difficult to predict whether it turns positive. The thing that we can say, I think, Michelle, with confidence, is we are seeing sell-throughs actually improve as we exit into the quarter.

Speaker Change: And so, you know, that just bodes well. And inventory levels are relatively, you know, lean. So.

Speaker Change: The combination of that, especially as a U.S. consumer...

Speaker Change: you know who we think is resilient, I think you can do the math over time. Yeah, maybe the only thing to add on that one Harmit, while that is...

Speaker Change: That, just to make the point, when we think about the state of the U.S. wholesale business a year ago,

Speaker Change: This is where we are today. It literally is a sea change of what we're seeing in US wholesale. From the operations supply chain, you know, we're back to normal, we're shipping orders, we had a little bit of catch up, now it's kind of business as usual.

Michelle D. Gass: The product is responding, I think, especially with, as we look to our denim lifestyle strategy, women's tops, those are all outperforming. As we talked about, the sellout trends are improving in U.S. wholesale. We're working closely with all of our key customers so that the brand is showing up in a way that's a win-win for us and for them. So, all the really, all the core strategies that we put in place a year ago to turn this business around are working, and we've now seen several quarters of improvement versus where we were a year ago.

Speaker Change: Aida Orphan

Speaker Change: As we talked about, the sellout trends are improving in U.S. wholesale. We're working closely with all of our key customers so that the brand is showing up in a way that's a win-win for us.

Speaker Change: And for them, so all the really all the core strategies that we put in place a year ago to turn turn this business around is working and we've now seen several quarters of improvement versus where we were a year ago.

Harmit J. Singh: Yeah, and I've been reminded to say this as well, which is that our full-year guidance is not contingent on U.S. wholesale growing in the second half. I just want to, you know, make that point, Chris, and you didn't ask this, but U.S. wholesale is a lot more profitable today than it was a year ago. Very clear.

Speaker Change: And I've been reminded to say this as well, which is a full year guidance is not contingent on U.S. wholesale growing in the second half. I just want to, you know, make that point, Chris, and you didn't ask this, but U.S. wholesale is a lot more profitable today than it was a year ago.

Operator: Thank you. Thank you. Thank you. Our next question comes from the line of Oliver Chen of TD Cohen. Oliver, please make sure your line is unmuted and open the speaker phone if you answer. And it may be a logistical issue, Latif. We'll catch up with Oliver later.

Speaker Change: Very clear. Thank you. Thank you.

Speaker Change: Thank you. Our next question comes from the line of Oliver Chen of TD Cohen.

Operator: Oliver, please make sure your line is immediate and you're going to speak on your phone if you answer it. What do you think we can do? It may be a logistics issue that we'll catch up with Oliver later.

Speaker Change: Oliver, please make sure your line is unmuted, and you can let the speaker phone lift your handset.

Speaker Change: It may be a logistic issue, Latif. We'll catch up with Oliver later. Okay, we'll go to the next question.

Operator: Okay, we'll go to the next question, which comes from the line, "A City." Please go ahead, Paul. Thanks, guys. I'm curious if you can talk about the drivers of the DTC increases in each of your regions, not just in terms of square footage increases versus comps, but also in terms of units versus pricing. And then as a follow-up to that, I'm curious if you change your expectations at all for the second half for DTC in any of the regions based on what you saw in 2Q or the first half in general. Yeah, yeah, Paul.

Paul Lejuez: Okay, we'll go to the next question, which comes from the line of apologies of the city.

Speaker Change: which comes from the line of...

Harmit Singh: Please go ahead, Paul. Thanks, guys.

Speaker Change: Paul Lejuez, of Citi. Please go ahead, Paul.

Harmit Singh: I'm curious if you can talk about the drivers of the DTC increases and each of your regions just in terms of square footage increases versus cops, but also units versus pricing. And then, as a follow-up to that, curious if you change your expectations at all for the second half to DTC, many of the regions based on what you saw and to Q or the first half in general. Thanks. Yeah, Paul. I'll be brief; you know, calm sales were a big driver of the DTC piece. Our unit has in terms of new doors. Net new doors was modest in the first half, so that will pick up in the second half.

Paul Lawrence Lejuez: Thanks, guys. I'm curious if you can talk about the drivers.

Paul Lawrence Lejuez: of the DTC increases in each of your regions, just in terms of square footage increases versus comps.

Paul Lawrence Lejuez: But also units versus pricing. And then as a follow up to that, I'm curious if you've changed your expectations at all for the second half for DTC in any of the regions based on what you saw in 2Q or the first half in general. Thanks.

Harmit J. Singh: I'll be brief. You know, comm sales were a big driver of the DDC piece. Our unit, units as in terms of new doors, net new doors was modest in the first half. So that will pick up in the second half. And, you know, while we talk about stores and we talk about comms, our e-commerce business is on fire. You know, the e-commerce team led by Jason, they're doing a phenomenal job. And it's really going back to the basics, driving loyalty, driving, you know, higher conversion, etc., fixing the fundamentals. So I think that's where you and I have never talked about it.

Paul Lawrence Lejuez: Yeah, Paul, I'll be brief. You know, com sales were a big driver of the DDC piece.

Speaker Change: Our unit says, in terms of new doors, net new doors, was modest in the first half.

Harmit Singh: And, you know, while we talk about stores and we talk about comms, our e-commerce business is on fire. You know, the e-commerce team led by Jason, they're doing a formal job and it's really going back to the basics driving loyalty, you know, hiring, you know, higher conversion, et cetera, fixing the fundamentals. So I think that's why you, we never talked about it, but, you know, you as you heard in the call, the e-commerce profitability is up to load double digits, and that's a big thing. To your question about DTC productivity and DTC, e-bit margins, the 300 basis points, I'd say half gross margin, half rails productivity, which is driven by two things: one is better labour management.

Paul Lawrence Lejuez: So that will pick up in the second half.

Paul Lawrence Lejuez: And, you know, while we talk about stores and we talk about comms, our e-commerce business is on fire. You know, the e-commerce team led by Jason, they're doing a phenomenal job. And it's really going back to the basics.

Harmit J. Singh: But yeah, you know, as you heard in the call, e-commerce profitability is up to low double digits. And that's a big thing. To your question about DDC productivity and DDC EBIT margins of 300 basis points, I'd say half gross margin, half real productivity, which is driven by two things. One is better labor management, and better, or revenue leverage.

Paul Lawrence Lejuez: Driving loyalty, driving, you know, higher conversion, etc. Fixing the fundamentals. So I think that's where you, we never talked about it, but you know, as you heard in the call.

Paul Lawrence Lejuez: The e-commerce profitability is up to low double digits and that's a big thing.

Paul Lawrence Lejuez: To your question about DDC productivity and DDC EBIT margins of 300 basis points, I'd say half gross margin, half real productivity, which is driven by two things. One is better labor management and better revenue leverage. Those are the two things.

Harmit J. Singh: Those are the two things. And in both cases, I think we're just getting started. You know, we think there's a lot more opportunity for driving productivity and narrowing the gap between the wholesale EBIT margin and the DDC EBIT margin because that will really help us, you know, get to the 15% operating margin. Harmit, how much was the price of a driver in each region? Yeah, you know, price was modest. I would say Paul, Paul in the US is very modest.

Harmit Singh: And better revenue leverage; those are the two things. And in both cases, I think we're just getting started.

Harmit Singh: You know, we think there's a lot more opportunity on driving productivity and narrowing the gap between the wholesale e-bit margin and the DTC e-bit margin, because that will really help us, you know, get to the 15% operating margin. How much of this pricing driver in each region? Yeah, you know, price was modest, I would say, Paul, in the U.S. is very modest; you know, we took some reductions last year. We have not taken more. A-U-Rs, as it becomes more of a DTC business, A-U-Rs are up largely in our mainline stores. There's a full price for the cross, you know, the three regions.

Paul Lawrence Lejuez: And in both cases, I think we're just getting started. We think there's a lot more opportunity in driving productivity and narrowing the gap between the wholesale EBIT margin and the DDC EBIT margin because that will really help us get to the 15% operating margin.

Army: Harmi, how much was pricing a driver in each region?

Speaker Change: Yeah, you know, price was modest. I would say, Paul, in the U.S. is very modest. You know, we took some reductions last year. We have not taken more.

Speaker Change: AURs, as it becomes more of a DDC business, AURs are up largely in our mainline stores. There are full-price stores across the three regions. A little bit of pricing in Asia.

Harmit J. Singh: You know, we took some reductions last year. We have not taken more. AURs, as it becomes more of a DDC business, are up largely in our mainline stores. There's a full price flow across, you know, the three regions. Little bit of pricing in Asia, very modest. I mean, I think very little pricing in Europe.

Harmit J. Singh: They didn't build up pricing in Asia, very modest. I mean, I think, very little pricing in Europe. No, no, no, it's just still going to harm me and say any, any A-U-R increases that we're seeing is coming off of mixed shifts, you know, as our consumers buy more elevated premium product. I mean, as we bring in a lot of these fashion fit, the looser, the lowways, baggy, we're able to price up. But, I mean, to your point, this volume, the sales, it's generated; it's generated off of all the velocity of our business. Thank you.

Speaker Change: Very modest, I mean, I think, very little pricing in Europe .

Michelle D. Gass: And I would just build on that Harmit and say any AUR increases that we're seeing are coming off of mix shift, you know, as our consumers buy more elevated premium products. I mean, as we bring in a lot of these fashion fits, the looser, the low waist, baggy, we're able to price them up. But I mean, to your point, this volume, the sales it's generated, it's generated off of volume, the velocity of our business.

Speaker Change: I would just build on that, Harmit, and say any AUR increases that we're seeing is coming off of mix shift, as our consumers buy more elevated premium product. As we bring in a lot of these fashion fits, the looser, the low waist, baggy, we're able to price up. But to your point, this volume, the sales, it's generated off of volume, the velocity of our business.

Michelle D. Gass: Yeah, for it. Thank you. Good luck. Thank you. Thank you. At this time, I'd like to turn the floor back over to the company for any closing remarks. Just appreciate everybody joining the call. Thanks for the great engagement and questions. We look forward to connecting with you next quarter. Thank you.

Michelle Gass: At this time, I'd like to turn the floor back over to the company for any closing remarks.

Speaker Change: Thank you. Good luck. Thank you.

Speaker Change: Thank you.

Speaker Change: At this time, I'd like to turn the floor back over to the company for any closing remarks.

Operator: Just appreciate everybody joining the call. Thanks for the great engagement and questions. We look forward to connecting with you next quarter. Thank you.

Speaker Change: Just appreciate everybody joining the call. Thanks for the great engagement and questions. We look forward to connecting with you next quarter.

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

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

Q2 2024 Levi Strauss & Co Earnings Call

Request a DemoDemo

LEVI

Levi Strauss & Co

Earnings