Q3 2024 Levi Strauss & Co Earnings Call

Good day ladies and gentlemen and welcome to the Levi Strauss & Company, third quarter, fiscal 2024, earnings conference call for the period ending August 25th, 2024.

Operator: fiscal 2024 earnings conference call for the period ending August 25th, 2024. All parties will be in a listen-only mode and to the question-and-answer session, at which time instructions will follow.

Speaker Change: All parties will be in a listen-only mode and to the question in answer session, at which time instructions will follow. This conference call is being recorded and may not be reproduced in a whole or in part without written permission from the company.

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.

Aida Orphan: 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, livistrauss.com. I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at livistrauss in company.

Aida Orphan: I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Co. Thank you for joining us on the call today to discuss the results for our third quarter fiscal 2024. Joining me on today's call are Michelle Gass, our President and CEO, and Harmeetsing, our Chief Financial and Growth Officer. We've posted complete Q3 financial results in our earnings release on the IR section of our website, investors.leavesbystrauss.com. The link to the webcast of today's conference call will be found on our site.

Aida Orphan: Thank you for joining us on the call today to discuss the results for our third quarter, fiscal 2024.

Speaker Change: Joining me on today's call, our Michelle Gass, our President and CEO and Harmit Singh, our Chief Financial and Growth Officer. We've posted complete Q3 Financial results in our earnings release on the IR section of our website, investors.leavextrails.com.

Aida Orphan: We'd like to remind you that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Please review our filings with the SEC, in particular the risk factors section of our Form 10-K for the year ended November 26, 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: The link to the webcast of today's conference call will 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 factor section of our form 10K for the year and did November 26, 2023, for the factors that could cause a result to differ.

Speaker Change: 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.

Aida Orphan: During this call, we will discuss certain non-GAAP financial measures. These non-gap measures are not intended to be a substitute for our gap results. Reconciliation of our non-gap measures to their most comparable gap measure are included in today's press release. Reconciliation of non-GAAP forward-looking information to the corresponding GAAP measures, however, 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, with structuring-related severance and other charges.

Speaker Change: During this call, we will discuss certain non-gap financial measures. These non-gap measures are not intended to be a substitute for our gap results. Reconciliation of our non-gap measures to their most comparable gap measure are included in today's press release.

Speaker Change: Reconciliation of non-gaps forward-looking information to the corresponding gap measures, however cannot be provided without unreasonable efforts.

Speaker Change: Due to the challenge and quantifying various items, including but not limited to the sex 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 replay of this call will be available on the website shortly.

Aida Orphan: 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 her meet will be referencing constant currency revenue numbers unless otherwise noted.

Speaker Change: Please note that Michelle and Harmit will be referencing constant currency, revenue numbers and less otherwise noted.

Operator: Today's call was scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed.

Speaker Change: Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now I'd like to turn the call over to Michelle.

Michelle Gass: And now I'd like to turn the call over to Michelle. Thank you and welcome everyone to today's call. In Q3, net revenues increased 2% in constant currency and 3% when adjusting to the exit of the Denizen business. While we had higher expectations to the quarter, we saw acceleration versus H1 driven by the Levi's brand, which grew 5% globally in Q3, marking the best quarterly growth for Levi's in two years. We are pleased that the underlying fundamentals of our business are getting stronger and our key strategies continue to gain traction, including DTC up 12%. The US continuing to be positive and Europe returning to growth.

Michelle: Thank you, and welcome everyone to today's call. In Q3, net revenues increase 2% in constant currency and 3% when adjusting for the exit of the Denizm business.

Speaker Change: While we had higher expectations for the quarter, we saw acceleration versus H1 driven by the Levi's brand, which grew 5% globally in Q3, marking the best quarterly growth for Levi's into years.

Speaker Change: We are pleased that the underlying fundamentals of our business are getting stronger, and our key strategies continue to gain traction, including DTC at 12% The U.S. continuing to be positive, and you're up returning to growth.

Michelle Gass: Profitability continues to improve as evidenced by record Q3 gross margins of 60%. Enabling us to deliver 250 basis points of adjusted EBIT margin expansion and double-digit adjusted diluted EPS growth.

Speaker Change: Profitability continues to improve as evidenced by record Q3 gross margins of 60%. Enabling us to deliver 250 basis points of adjusted EBIT margin expansion and double digit adjusted-deluted EPS growth.

Michelle Gass: There are three areas that did not meet our expectations this quarter. Dockers, China, and Mexico, and we're implementing plans to address these headwinds while making strategic adjustments to position the company for the long term. First, through our transformational pivot to operating as a DTC-first company, we are narrowing our focus to realize the full potential of the Levi's brand, as well as accelerate beyond yoga. Accordingly, we are undertaking an evaluation of strategic alternatives for the global Dockers business, including a sale or other strategic transaction. Dockers is a high quality business with significant future opportunity. It continues to be a global leader in the khaki category with strong, well-established American heritage.

Speaker Change: There are three areas that did not meet our expectations this quarter. Doctors, China and Mexico, and we're implementing plans to address these headwind while making strategic adjustments to position the company for the long term.

Speaker Change: First, through our transformational pivot to operating as a DTC First Company, we are narrowing our focus to realize the full potential of the Levi's brand, as well as accelerate beyond yoga.

Speaker Change: Accordingly, we are undertaking an evaluation of strategic alternatives to the global doctor's business, including a sale or other strategic transaction.

Speaker Change: Doctors is a high-quality business with significant future opportunity. It continues to be a global leader in the Kaki category with strong, well-established American heritage.

Michelle Gass: We are committed to identifying the right path forward that enables both Alice and Co. and Dockers to reach their maximum potential and value. Second, while China only comprises approximately 2% of our overall business today, we continue to see significant long-term potential of this important market. While the work we've done to improve our business is showing green shoots, we are not satisfied with our overall performance, and the macro backdrop has further exacerbated these challenges. We are focused on the controllables and are taking decisive action to reset our business and improve our execution in this market. We've replaced our China Managing Director and have appointed a 15-year veteran of the company with a strong track record of performance in Asia as the interim leader.

Speaker Change: We are committed to identifying the right pass forward that enables both Alice and Coe and Dockers to reach their maximum potential and value.

Speaker Change: Seconds, while China only comprises approximately 2% of our overall business today, we continue to see significant long-term potential of this important market.

Speaker Change: While the work we've done to improve our business is showing green shoes, we are not satisfied with our overall performance and the macro backdrop has further exacerbated these challenges.

Speaker Change: We are focused on the controllables and are taking decisive action to reset our business and improve our execution in this market.

Speaker Change: We've replaced our China Managing Director and have appointed a 15-year veteran of the company with a strong track record of performance in Asia as the interim leader.

Michelle Gass: We have a strong tenured team in China who will continue to support this transition.

Speaker Change: We have a strong, tenured team in China who will continue to support this transition.

Michelle Gass: Third, while Latin America grew low single digits in the quarter, including double-digit growth in Mexico DTC, Mexico wholesale underperformed. Performance with our key customers has been mixed, some for reasons within our control and others external, including a cybersecurity breach at one key customer that has impacted shipping. We are working closely with our wholesale partners to stabilize this business and have recently made changes aimed at improving our performance in this channel. Before I turn to the details of the quarter, I want to underscore that we have the expertise in place to address these issues and make swift progress.

Speaker Change: And third, while Latin America grew low single digits in the quarter, including double-digit growth in Mexico DTC, Mexico wholesale underperformed.

Speaker Change: Performance with our key customers has been mixed, some for reasons within our control, and others external, including a cyber security breach at one key customer that is impacted shipping.

Speaker Change: We're working closely with our wholesale partners to stabilize this business and have recently made changes aimed at improving our performance in this channel.

Speaker Change: Before I turn to the details of the quarter, I want to underscore that we have the expertise in place to address these issues and make swift progress.

Michelle Gass: In July, Jean-Luca Flourie joined the company as Chief Commercial Officer for the Levi's brand. With 20 plus years of retail experience in the fashion sector, most recently as Chief Commercial Officer of Burberry, Jean-Luca brings a wealth of knowledge and expertise, including deep experience with the China market. I am thrilled to welcome them to the team.

Speaker Change: In July, John Luca Flore joined the company's Chief Commercial Officer for the Levi's Brand.

Speaker Change: With 20 plus years of retail experience in the fashion sector, most recently as Chief Commercial Officer of Burberry, John Luca brings a wealth of knowledge and expertise, including deep experience with the China market. I am thrilled to welcome him to the team.

Michelle Gass: I will now talk through the quarter in the context of our strategies, starting with leading with our brand. Levi's continues to boost its global cultural relevance and brand heat, with the brand growing 5% in the third quarter. Our growth is reflected in continued market share gains, as we solidified our position as the number one women's denim brand in the US, while maintaining our leadership in the men's US jeans category, in which we hold twice as much market share as our closest competitor. We also continue to gain share among high-income consumers, supported by our efforts to elevate the brand.

Speaker Change: I will now talk through the quarter in the context of our strategies, starting with leading with our brand.

Speaker Change: Levi's continues to boost its global cultural relevance and brand heat, with the brand growing 5% in the third quarter.

Speaker Change: Our growth is reflected in continued market share gains as we solidified our position as the number one women's denim brand in the U.S. while maintaining our leadership in the men's U.S. jeans category, in which we hold twice as much market share as our closest competitor.

Speaker Change: We also continue to gain share among high income consumers supported by our efforts to elevate the brand.

Michelle Gass: Our Levi's women's business remains robust, growing 11%, reflecting double-digit growth in both bottoms and tops. Earlier this week, we took another significant step in reaffirming Levi's place at the center of culture through an unprecedented partnership with global icon Beyoncé. The fully integrated global campaign titled Reimagined is on a scale unlike anything in our recent history. The first chapter of the campaign debuted on Monday, with subsequent chapters that will run through 2025. The campaign features core products like 50190's original truckers and essential tees and pays homage to classic Levi's ads through a modern reinterpretation focused on women and icons.

Speaker Change: Our Levi's Women's Business remains robust, growing 11% reflecting double-digit growth in both bottoms and tops.

Speaker Change: Earlier this week, we took another significant step in reaffirming Levi's place at the center of culture through an unprecedented partnership with Global Icon, Beyonce.

Speaker Change: The fully integrated global campaign titled Reimagined is on a scale unlike anything in our recent history.

Speaker Change: The first chapter of the campaign debuted on Monday with subsequent chapters that will run through 2025.

Speaker Change: The campaign features core products like 5019E's original truckers and essential teas and pays homage to classic Levi's ad through a modern reinterpretation focused on women and icons.

Michelle Gass: We'll be activating the campaign across more than 3,000 direct to consumer touch points and throughout our e-commerce channels around the world. We're proud to see the celebration of two global icons come to life and look forward to connecting in new ways with our fans globally.

Speaker Change: will be activating the campaign across more than 3,000 direct to consumer touchpoints, and throughout our e-commerce channels around the world.

Speaker Change: We're proud to see the celebration of two global icons come to life and look forward to connecting in new ways with our fans globally.

Michelle Gass: Moving to product where our pipeline is strong and improving, let's start with our core bottoms business. Overall, Levi's bottoms grew 5% and 12% in DTC. As a denim leader, we continue to drive the category forward by leaning into our core while consistently delivering product newness. There's no better bellwether for the strength of our brand than the health of our iconic 501, which was up 11% in the quarter, with growth in both men and women. Loosen baggie denim continues to become a larger part of our bottoms portfolio. We remain at the forefront of this trend with loose fits of 15% in the quarter, reflecting strength across genders and channels.

Speaker Change: Moving to product where a pipeline is strong and improving, let's start with our Corbano's business.

Speaker Change: Overall, Levi's bottoms through 5% and 12% in DTC.

Speaker Change: As a denim leader, we continue to drive the category forward by leaning into our core while consistently delivering product units.

Speaker Change: There's no better bell weather for the strength of our brand than the health of our iconic 501, which was up 11% in the quarter, with growth in both men's and women's.

Speaker Change: Loosen baggy denim continues to become a larger part of our bottoms portfolio.

Speaker Change: We remain at the forefront of this trend with loose fits of 15% in the quarter, reflecting strength across genders and channels.

Michelle Gass: And through the launch of the 555 for him and the XL for her, we continue to inject newness into the looser fit trend. Our overarching strategy is to expand from being a denim bottoms brand to becoming a head-to-toe denim lifestyle brand that starts with owning denim dressing, which includes denim skirts, denim dresses, western tops, denim jumpsuits, and more. For the third consecutive quarter, we saw triple-digit growth in dresses and skirts, the vast majority of which was denim. We're pleased with the ongoing traction in our Levi's tops business, as revenue increased 8% for the quarter and 15% in DTC.

Speaker Change: and through the lawn to the 555 for him and the Excel for her, we continue to inject newness into the Luther Fit trend.

Speaker Change: Our overarching strategy is to expand from being a denim bottoms brand to becoming a head to toe denim lifestyle brand. That starts with owning denim dressing, which includes denim skirts, denim dresses, western tops, denim jumpsuits, and more.

Speaker Change: For the third consecutive quarter, we saw triple digit growth in dresses and skirts. The vast majority of which was denim.

Speaker Change: We're pleased with the ongoing traction in our Levi's top business, as revenue increased 8% for the quarter and 15% in DTC.

Michelle Gass: Women's tops performed exceptionally well, up 12% and 21% in DTC driven by positive performance and truckers, woven and non-graphic tease. All these contributed to women's being up 11% overall and women's DTC up 18%. Levi's men's tops were up 5%, fueled by DTC up 12% with strength in woven and outerwear, in addition to newness and pullers and sweaters. The Levi's men's business grew low single digits overall and 9% in DTC this quarter as we continue to respond to shifting preferences towards more comfort and versatility in his closet. We are focused on delivering innovative fabrics and fits through innovations like performance cool, which was up quadruple digits in the quarter.

Speaker Change: Women's Tots performed exceptionally well, up 12% and 21% in DTC, driven by positive performance in truckers, woven and non-graphic teas.

Speaker Change: All these contributed to women's being up 11% overall and women's DTCF 18%.

Speaker Change: Levi's men's tops were up 5%, fueled by DTC up 12%, with strength and wovens and outerwear in addition to

Speaker Change: The Levi's men's business grew low single digits overall, and 9% in DGC this quarter. As we continue to respond to shifting preferences towards more comfort and versatility in his closet.

Speaker Change: We are focused on delivering innovative fabrics and fits through innovations like performance cool, which was up quadruple digits in the quarter.

Michelle Gass: In our recently launched non-denim performance tech series, reflects the range we're able to offer our consumer, helping to drive 29% growth in Levi's men's non-denim bottoms for the quarter. Looking forward to the holiday season, we're doubling down on our winning strategies, including denim dressing, fashion fits like loose and baggy for men and women, and our top expansion including a denim-inspired outerwear collection in time for cooler weather. We're excited to deliver a robust pipeline of newness to our fans as we enter the holiday season and into 2025.

Speaker Change: And our recently launched Non-Denom Performance Tech series reflects the range we're able to offer our consumer, helping to drive 29% growth in Levi's men's non-denom bottoms for the quarter.

Speaker Change: Looking forward to the holiday season, we're doubling down on our winning strategies, including denim dressing, fashion fits like loose and baggy for men and women, and our top six pants and including a denim inspired out-of-wear collection in time for cooler weather.

Speaker Change: We're excited to deliver a robust pipeline of newness to our fans as we enter the holiday season and into 2025.

Michelle Gass: Now shifting to DTC first, our global direct to consumer business delivered another strong quarter of performance, up 12% on top of 13% growth in the prior year, driven by positive comp sales for the 10th consecutive quarter. Our growth was led by US BTC, which was up 12%, again driven by strong performance in brick-and-mortar retail. AURs in our US mainline business were up high single digits as consumers continued to gravitate toward our full-price premium products. We continue to raise the bar on running high performing stores and are encouraged by the strong store KPIs across our portfolio, including increased traffic, higher conversion, and improved AURs.

Speaker Change: Now is sifting to DTC first.

Speaker Change: Our global, direct-consumer business delivered another strong quarter of performance, up 12% on top of 13% grows in the prior year, driven by positive concepts for the tenth consecutive quarter.

Speaker Change: Our growth was led by USBTC, which was up 12%, again driven by strong performance in brick and mortar retail.

Speaker Change: AURs in our US mainland business were up high single digits as consumers continue to gravitate toward our full price premium products.

Speaker Change: We continue to raise the bar on running high-performing stores and are encouraged by the strong-store KPIs across our portfolio, including increased traffic, higher conversion, and improved AUR.

Michelle Gass: These healthy metrics reflect consumers' positive response to both our product innovation and newness, as well as improved in-stocks. E-commerce continues to outperform, up 18%, reflecting strength across all segments supported by increases in traffic, UPT, and AUR. On going initiatives to elevate our site and deliver a more premium and expanded online assortment are enhancing the consumer experience. We're seeing encouraging trends in consumer engagement with our global loyalty program, acquiring nearly two million new members in Q3, bringing our total member base to 37 million globally.

Speaker Change: These healthy metrics reflect consumer's positive response to both our product innovation and as well as improved in stocks.

Speaker Change: E-commerce continues to outperform up 18%, reflecting strength across all segments supported by increases in traffic, UPT and AUR.

Speaker Change: On going initiatives to elevate our site and deliver a more premium expanded online apartment are enhancing the consumer experience.

Speaker Change: We're seeing encouraging trends in consumer engagement with our Global Loyalty Programme acquiring nearly 2 million new members in Q3, bringing our total member base to 37 million globally.

Michelle Gass: Shifting to global wholesale, while this channel is seeing sequential improvement from down 6% in H1 to down 3% in Q3, excluding Denizen, it continued to be a headwind to our overall revenue growth. We are focused on ensuring this is a healthy, profitable business, and this strategic focus is evident in the channels' growth margin increasing more than 500 basis points over prior year. In U.S. wholesale, the Levi's brand was down 2%. Levi's women was again a bright spot, up low single digits in the quarter, including 4% growth in tops. We are encouraged by the return of Europe wholesale to growth, up 4%, driven by strong demand for newness, and our forward wholesale order book in Europe continues to be positive in Q4.

Speaker Change: Shifting to global wholesale, while this channel is seeing sequential improvement from down 6% in H1 to down 3% in Q3 excluding down as in, it continues to be ahead when to our overall revenue growth.

Speaker Change: We are focused on ensuring this is a healthy, profitable business and this strategic focus is evident in the channel's gross margin increasing more than 500 basis points over prior year.

Speaker Change: In US wholesale, the Levi's brand was down 2%.

Speaker Change: Levi's Women's was again a bright spot up low single digits in the quarter, including 4% growth and tops. We are encouraged by the return of Europe wholesale to growth, up 4% driven by strong demand for newness, and our forward wholesale order booking Europe continues to be positive in Q4.

Michelle Gass: We continue to feel good about the trends we're seeing in our global wholesale business overall. Sellout trends are improving, including in the US and Europe, and customers are excited about our expanded assortment.

Speaker Change: We continue to feel good about the trans we're seeing in our global wholesale business overall. Sellout trends are improving, including in the US and Europe, and customers are excited about our expanded assortments.

Michelle Gass: Turning now to our third strategy, powering the portfolio. Growing our business outside the US remains one of our largest opportunities, and our international business grew 5% in the quarter. Importantly, Europe inflected to growth up 7%, including mid single-digit growth in wholesale and 10% growth in DTC. Beyond Yoga was up 19%, and acceleration from Q2, driven by strength and wholesale and e-commerce. Under Nancy Green's leadership, we have reset the Beyond Yoga strategy to drive more disciplined growth and profitability. Despite the impairment charge we took, which Harmit will share more about, we are confident in this brand based on the strategic direction Nancy and her team have laid out and remain committed to fulfilling its long-term potential.

Speaker Change: Turning now to our third strategy, Powering the Portfolio.

Speaker Change: Growing our business outside the U.S. remains one of our largest opportunities and our international business grew 5% in the quarter. Importantly, Europe inflicted to growth up 7% including mid-Single-Didget Growth in wholesale and 10% growth in DDC.

Speaker Change: Bionnyogo was up to 19% and acceleration from Q2 driven by strength and wholesale and e-commerce.

Nancy Green: Under Nancy Green's leadership, we have reset the beyond yoga strategy to drive more discipline, growth and profitability.

Harmit: Despite the impairment charge we took, which Harmit will share more about, we are confident in this brand based on the strategic direction Nancy and her team have laid out, and remain committed to fulfilling its long-term potential.

Michelle Gass: In closing, if you walk away from today's call with one thought, let it be that we're confident that we have the right strategies to fuel long-term, profitable growth. The core of our business, the Levi's brand, remains strong, and we are accelerating growth across categories, channels, and the globe. Finally, I'd like to thank our incredibly talented and passionate team around the world that is delivering outstanding service.

Speaker Change: In closing, if you walk away from today's call with one thought, let it be that we're confident that we have the right strategies to fuel long-term profitable growth.

Speaker Change: The core of our business, the Levi's brand, remains strong and we are accelerating growth across categories, channels and the globe.

Speaker Change: Finally, I'd like to thank our incredible talented and passionate team around the world that is delivering outstanding service to our fans every day.

Harmit Singh: And with that, I will now turn it over to Harmit to provide more color on our financial performance and outlook. Thank you, Michelle. I want to start by emphasizing the confidence I have in our improved profitability and cash flows. Cash flow through the first nine months of 2024. While the top line came in on the low end of a guidance, we encouraged by the acceleration of the Levi's brand globally, contributing to our ability to exceed our profitability targets. Other key factors driving our profitability improvement include the increase in America's profitability driven by strength in gross margin.

Speaker Change: And with that, I will now turn it over to Harmit to provide more color on our financial performance and outlook.

Harmit: Thank you, Michelle. I want to start by emphasizing the confidence I have in our improved profitability and cash flows.

Harmit: In quarter three, we delivered significant margin expansion with adjusted EBIT dollars, increasing 27% and adjusted EBIT margins leveraging 250 basis points.

Harmit: This improvement drove double digit adjusted diluted EPS growth despite a 5 cent headwind from tax while maintaining expense and inventory discipline and generating much higher cash flow through the first 9 months of 2024.

Harmit: While the top-line came in on the low end of a guidance, we encouraged by the acceleration of the Levi's brand globally, contributing to our ability to exceed our profitability targets.

Harmit: Other key factors driving our profitability improvement include the increase in America's profitability driven by strength in gross margin. Our business in Europe, I highest margin market return to growth.

Harmit Singh: Our business in Europe, our highest margin market, return to growth and continued improvement in the profitability of our direct to consumer channel, where we generated more than 350 basis points of operating margin expansion this quarter. On a year-to-date basis, this improved the DDC margins by 270 basis points versus last year. This combined with our continued focus on keeping inventory is clean and maintaining discipline and promotion levels allowed us to grow gross profit dollars approximately two times faster than adjusted S&A dollars in quarter three. Resulting in higher flow through of every incremental dollar of revenue. We expect this trend to further improve in quarter four.

Harmit: and continued improvement in the profitability of our direct to consumer channel, where we generated more than 350 basis points of operating margin expansion discordor.

Harmit: On a year-to-date basis, this improved the DDC margins by 270 basis points versus last year.

Harmit: This command with our continued focus on keeping inventory clean.

Harmit: and maintaining discipline and promotion levels.

Harmit: Allow us to grow gross profit dollars approximately 2 times faster than adjusted S.E.N.A. dollars in quarter 3 resulting in higher flow through of every incremental dollar of revenue.

Harmit Singh: Also, as we announced today, we are reviewing strategic alternatives for Docker. This decision highlights a capital allocation discipline and will help us continue to become a more focused, faster growing, higher margin business with a portfolio of brands that have a long runway of profitable growth. We are working with external advisors to identify the right path forward that we believe will enable Alison Cole and Dawkers to reach their maximum potential and value as independent businesses. And as we look into the fourth quarter, we expect the continuation of sequential revenue and profitability growth we have experienced this year.

Harmit: We expect this trend to further improve in quarter form.

Harmit: Also, as we announced today, we are reviewing strategic alternatives for doctors.

Harmit: This decision highlights our capital allocation discipline, and will help us continue to become a more focused, faster growing, higher margin business, with a portfolio of brands that have a long runway or profitable growth.

Harmit: We are working with external advisors to identify the right path forward that we believe will enable Alison Cole and Dawkers to reach the maximum potential and value as independent businesses.

Harmit: And as we look into the fourth quarter, we expect the continuation of sequential revenue and profitability growth, we have experienced this year.

Harmit Singh: In quarter three versus H124, revenues accelerated two percentage points, and adjusted EBIT margin expanded four percentage points. As we head into Q4, top line growth progression will be fueled by strong momentum of the Levi's brand as well as DDC, wholesale, and Europe. Profit growth progression will be driven by the acceleration of revenue and project fuel saving. I will share more when I cover the outlook.

Harmit: In quarter three, verses H1 to N4, revenues accelerated 2 percentage points and adjusted even margin expanded for percentage points.

Harmit: As we head into Q4, top line growth progression will be fueled by strong momentum of the Levi's brand as well as DDC, wholesale and Europe.

Harmit: Profit growth progression will be driven by the acceleration of revenue and project fuel saving.

Harmit Singh: And with that, I will turn to our results. Quarter three net revenues were 1.5 billion, up 3% excluding Denizen. The drivers of the revenue growth will leave Eyes and Beyond Yoga, contributing approximately five percentage points of growth, partially offset by approximately two percentage points of decline from Signature and Dawkers. While signature decline in the quarter, it was largely a timing issue and we expected to return to growth in quarter four. Gross profit for the third quarter was 911 million or 60% of net revenues. Are record quarter three gross margin. A gross margin increased 440 basis points relative to last year, driven primarily by lower product costs, the continued shift to DDC, and higher full price sales.

Harmit: I will share more when I cover the outlook.

Harmit: and with that, I will turn to our results.

Harmit: Court of 3 net revenues were 1.5 billion up, 3% excluding Denison.

Harmit: The drivers of the revenue growth were Levi's and beyond yoga, contributing approximately 5 percentage points of growth, partially offset by approximately 2 percentage points of decline from signature and doctors.

Harmit: While signature declined in the quarter, it was largely a timing issue and we expected to return to growth in quarter four.

Harmit: Gross profit for the third quarter was 911 million or 60% of net revenues are record quarter 3 gross margin.

Harmit: A gross margin increased 440 basis points relative to last year driven primarily by lower product cost, the continued shift to DDC and higher full price sales.

Harmit Singh: These factors offset approximately 60 basis points of FX headwinds and higher freight as we chase into new products to meet demand. Adjusted SNA expenses in the quarter increased 5% to 735 million, and as a percentage of net revenues, adjusted SNA was 48.5, up 210 basis points from last year. The increase in adjusted SNA dollars was primarily related to higher DDC expenses and advertising versus last year, as well as an increase in distribution expenses related to the short-term process of running of parallel distribution center in the US. We have contracted with Months in the US and GXO in Europe as third party logistic providers, and the process of transfer and the change from own to third party is progressing well.

Harmit: These factors offset approximately 60 basis points of FX headwinds and higher A-fred as we days into new products to meet demand.

Harmit: Adjusted SNA expenses in the quarter increased 5% to 735 million and has a percentage of net revenues adjusted SNA was 48.5 up 210 basis points from last year.

Harmit: The increase in adjusted SNA dollars was primarily related to higher DDC expenses and advertising versus last year.

Harmit: As well as an increase in distribution expenses related to the short-term process of running a parallel distribution center in the U.S.

Harmit: We have contracted with MERS in the US and GXO in Europe as third party logistics providers and the process of transfer and the change from own to third party is progressing well.

Harmit Singh: Gross profit dollars increased by 8% and grew at approximately twice the pace of adjusted SNA dollars, leading to EBIT leverage, with adjusted EBIT margin increasing 250 basis points to 11.6%. Adjusted eBay dollars also grew significantly, up 27% versus last year. Our efficiency efforts as part of Project Few played a key role in this outcome, resulting in savings throughout our PNF. Approximately 30 million in savings this quarter helped to offset continued investments in our DDC expansion and incremental A&P to continue to fuel our growth. We are well positioned to deliver a 100 million savings target in 24 with line of sight to even more opportunity beyond that.

Harmit: Gross profit dollars increased by 8% and grew at approximately twice the pace of adjusted as she and her dollars, leaving to EBIT leverage with adjusted EBIT margin increasing 250 basis points to 11.6%.

Harmit: Adjusted EV Dollars also grew significantly up 27% versus last year.

Harmit: Our efficiency efforts as part of Project Few played a key role in this outcome resulting in savings throughout our PNL.

Harmit: Approximately 30 million in saving this quarter, helped to offset continued investments in our DDC expansion and incremental NPE to continue to fuel our growth.

Harmit: We are well positioned to deliver a hundred million savings target in 24 with line of side to even more opportunity beyond that.

Harmit Singh: Adjusted diluted EPS was 33 cents, up 18% to prior, despite a higher tax rate. Our adjusted diluted EPF exclude the 111 million non-catch charge related to the impairment of the Beyond Yoga goodwill and intangible assets in conjunction with our annual testing. The impairment was due to investing in the branch new strategic plan for growth and expansion. The business continues to perform well, up 19% in quarter three and 14% year to date. Reported inventory dollars were down 7%. The composition of our inventory is healthy, and we expect to end the year with inventory lower than prior year.

Harmit: Adjusted the diluting EPS was 33 cents up 18% to prior despite a higher tax rate.

Harmit: are adjusted diluted EPS, excludes 111 million non-cast charge related to the impairment of the beyond yoga goodwill and intangible assets in conjunction with our annual testing.

Harmit: The impairment was due to investing in the branch news strategic plan for growth and expansion. The business continues to perform well up 19% in quarter three and 14% year to date.

Harmit: reported inventory dollars were down 7%.

Harmit: The composition of our inventory is healthy and we expect to end the year with inventory lower than prior year.

Harmit Singh: Turning to dividend and share reperchances in the quarter, we return 69 million to shareholders, which includes 52 million dividends and 18 million in share reperchances. Since we restarted share reperchances in Q1, we have returned 37% more capital to shareholder versus prior year, and for quarter 424, we have declared a dividend of 13 cents per share in line with quarter three.

Harmit: Turning to dividend and share repurchases. In the corridor we return 69 million to share holders, which includes 52 million in dividends and 18 million in share repurchases.

Harmit: Since we reached out to share repurchases in Q1, we have returned 37% more capital to shareholder vs. prior year.

Speaker Change: And for Codafo 24th 24th we have declared a dividend of 13 cents per share in line with Codafo 3.

Harmit Singh: Now let's review the key highlights by segment. The Americas were up 2%, adjusting for the exit of the Denizen business. Direct to consumer revenues were up 16%, driven by double digit growth in brick and mortar and e-commerce. Gross margin outperformed due to favorable product costs and mix. Higher full prices also contributed to the strong operating margin of 23%, up 530 basis points to prior year. Europe returned to growth this quarter, up 7%, reflecting growth across both channels. We saw an acceleration in DDC growth from quarter two, up 10%. Most notably in e-commerce, increasing 30%. Whole sale returned to grow this quarter up 4%.

Speaker Change: Now, let's review the key highlights by segment. The Americas were up 2% adjusting for the exit of the Denizan business.

Speaker Change: Direct to consumer revenues were up 16% driven by double-digit growth in brick and motor and e-commerce.

Speaker Change: Gross margin out performed due to favorable product costs and mix.

Speaker Change: High of full price is also contributed to the strong operating margin of 20-3% up 530 basis points to

Speaker Change: Europe returned to growth this quarter up 7% reflecting growth across both channels.

Speaker Change: We saw an acceleration in DDC growth from quarter two, up 10%, most notably in e-commerce increasing 30%.

Harmit Singh: The women's business was up double digits, with growth in both channels as fashion fits and newness are resonating with the European consumer. In the quarter, strong gross margin expansion resulted in an operating margin of 20.5%, up 280 basis points to prior year. Asia net revenues increased 4% compared to the prior year and were up 22% on a two-year stack. Direct-to-consumer revenues increased 6% driven by strength in both company operators and e-commerce. In addition to wholesale revenues, which were up 1%, while we saw significant strength in many markets, including Turkey and Japan, headwinds persisted in our China and Middle East businesses.

Speaker Change: Hallfield returned to grow this quarter up 4%.

Speaker Change: The women's business was up double digits with growth in both channels as fashion fits and newness are resonating with the European consumer.

Speaker Change: In the quarter, strong gross margin expansion resulted in an operating margin of 20.5% up 280 basis points to prior year.

Speaker Change: Asia, Netravenu's increase, 4% compared to the prior, and we're up to any 2% on a 2-year stack.

Speaker Change: Direct to consumer revenues increase, 6% driven by strength in both company operators' toes and e-commerce. In addition to wholesale revenues which were up 1%.

Speaker Change: While we saw significant strengths in many markets including Turkey and Japan, headwinds persisted in our China and Middle East businesses.

Harmit Singh: Asia delivered operating margin of 12%, which was flat to last year.

Speaker Change: Asia delivered operating margin of 12% which was flat to last year.

Harmit Singh: Now, let's turn to our outlook. We are confident that the acceleration in sales in Q3 will continue into Q4. This will be driven by accelerated growth of the Levi's brand, supported by a new marketing campaign, improving in global wholesale and continued momentum in DDC and Europe, along with the benefit from the 53rd week. However, our prior fully expectations are being offset by headwinds in China, dockers, and Mexico wholesale. As a result of these headwinds, we are expecting mid single-digit revenue growth for the fourth quarter. And for the year, we are adjusting reported revenues from the low end of our 1 to 3% guidance to 1%.

Speaker Change: Now, let's turn to our outlook.

Speaker Change: We are confident that the acceleration in sales in Q3 will continue in Q4.

Speaker Change: This will be driven by accelerated growth of the Levi's brand supported by a new marketing campaign, improvement in global wholesale and continued momentum in DDC and Europe along with the benefit from the 53rd week.

Speaker Change: However, a prior fully expectations are being offset by headwinds in China, dockers and Mexico wholesale.

Speaker Change: As a result of these headwinds, we are expecting mid-Single Digital Revenue Growth for the fourth quarter.

Speaker Change: And for the year we are adjusting reported revenues from the low end of our 1 to 3% guidance to 1%.

Harmit Singh: And constant currency from the high end of our previously guided range to 1.5% to 2%. I'm confident in our plans to address these areas. And while we recognize that the benefits from these actions will take time to fully materialize, we are beginning to see improvements as we step into Q4. As I referenced earlier, we're also confident in our expectation of progressive margin expansion. We are increasing our full year growth margin expectation from 180 basis points to 270 basis points, driven by the quarter 3 beat and a higher contribution from DDC in quarter 4. Full year SNA is expected to be up 4%, compared to prior, with the acceleration in Q4 attributable to the 53rd week and higher advertising expenses.

Speaker Change: and Constant currency from the high end of a previously guided range to 1.5 to 2%.

Speaker Change: I'm confident in our plans to address these areas and while we recognize that the benefits from these actions will take time to fully materialize, we are beginning to see improvements as we step in 2, 4.

Speaker Change: As I referenced earlier, we are also confident in our expectation of progressive margin expansion.

Speaker Change: We are increasing our fully aggross margin expectation from 180 basis points to 270 basis points, driven by the quarter 3 beat and a higher contribution from DDC in quarter 4.

Speaker Change: Fuller Sienna is expected to be up 4% compared to prior with the acceleration and Q4 attributable to the 53rd week and higher advertising expenses.

Harmit Singh: The increase in SNA will be partially mitigated by project fuel savings, which are expected to be around 50 million dollars. Overall, SNA as a percent to revenue has come down as the year has progressed. We expect growth profit dollar flow through to be higher than SNA dollars in quarter 4, driving Q4 EBIT margin to be in the low team. We continue to expect Fulia EBIT margin to be slightly above 10%, leveraging approximately 100 to 130 basis points versus last year. We now expect Fulia interest expense to be around 50 million for the year, with 13 million anticipated for quarter four.

Speaker Change: The increase in Sienne will be partially mitigated by project fuel savings which are expected to be around $50 million.

Speaker Change: Overall, Sieni as a percent-to-revenue has come down as the year has progressed.

Speaker Change: We expect gross profit dollar flow through to be higher than S.H.A. Dollars in Codder 4, driving Q4, EBIT margin to be in the lower teams.

Speaker Change: We continue to expect Fulia Eben margin to be slightly above 10% leveraging approximately 100 to 130 basis points versus last year.

Speaker Change: We now expect fully our interest expense to be around 50 million for the year, with 13 million and anticipated for quarter four.

Harmit Singh: Our Q4 tax rate is projected to be in the mid-team. We now expect Fulia adjusted EPS to be at the mid-point of our $1.17 to $1.27 guidance range. We also remain on track to open 100 net new system doors for the year.

Speaker Change: A Q4 tax rate is projected to be in the mid-team.

Speaker Change: We now expect fuller adjusted EPS to be at the midpoint of a dollar 17 to dollar 27 guidance range.

Speaker Change: We also remain on track to open a hundred net news system doors for the year.

Harmit Singh: In summary, here are the key takeaways from my discussion today. First, we are seeing meaningful positive momentum of the Levi's brand globally, which will accelerate in Q4, fueled by a new Beyonce campaign and product innovation. Second, we are narrowing our focus to Levi's and yoga, which will drive higher growth and margins. This includes the actions we have taken to evaluate strategic alternatives for the Docker's brand, along with our decision to exit Denizen and our footwear business earlier this year. Third, our focus on improving profitability and the structural economics of the business through driving higher growth profit lets S&A positions us well for the long term and furthers us on our part to achieve 15 percent operating margins over the longer term.

Speaker Change: In summary, here are the key takeaways from my discussion today. First, we are seeing meaningful positive momentum of the Levi's brand globally, which will accelerate in Q4, fueled by a new Beyonce campaign and product innovation.

Speaker Change: Second, we are narrowing our focus to Levi's and beyond yoga, which will drive higher growth and margins.

Speaker Change: This includes the actions we have taken to a value of strategic alternatives for the darkest brand along with our decision to exit Denison and our footwear business earlier this year.

Speaker Change: Third, a focus on improving profitability and the structural economics of the business

Speaker Change: Through Driving Higher Gross Profit, let's assume it.

Speaker Change: positions as well for the long term and further thus on our part to achieve 15% operating margins over the longer term.

Harmit Singh: And fourth, we believe we are exiting the year in a much stronger position than at the beginning, as evidenced by the sequential progression in revenue and profitability across both channels and strength across key geographies: the US and Europe.

Speaker Change: and Ford, we believe they're exiting the year in a much stronger position than at the beginning as evidence by the sequential progression in revenue and profitability across both channels and strength across key geographies the US and Europe.

Operator: And with that, let's 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 number is 1-1 on your telephone keypad.

Speaker Change: And with that, let's go ahead and open up the line for Q&A.

Speaker Change: Thank you. The floor is now open for questions.

Speaker Change: If you have a question, please press star, then the number is one one on your telephone keypad.

Operator: Due to time constraints, the company requested you ask only one question. If you have an additional question, please fill up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 1-1 again.

Speaker Change: Due to time constraints, the company requested you ask only one question.

Speaker Change: If you have an additional question, please feel up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star one one again.

Bob Durville: Your first question comes from the line of Bob Durville. Hi. I'm Bob Durville. Hi. I'm Sir. Your line is open. Hi. Good afternoon. Two questions for you. If I could sneak them in, I'd be pleased to forgive me.

Speaker Change: Your first question, come from the line.

Bob Durvill: of Bob Durvill.

Speaker Change: Hi, I'm sorry your line is open. Hi, good afternoon.

Bob Durville: The first one is for Harmeet. Can you talk a bit more just around the drivers of the this quarter's revenue miss and your confidence in the Q4 acceleration? And then for Michelle, can you just expand a bit more just on the rationale, on the doctor's you know evaluation and you know I just the timing of it I guess. If you could just spend the answer, those would be great. Thanks. Thanks, Bob.

Aida Orphan: 2 questions for you, if I could sneak him in, Aida, please forgive me. The first one is...

Bob Durvill: Can you talk a bit more just around?

Speaker Change: The drivers of this quarter's revenue miss and your confidence in the Q4 acceleration.

Speaker Change: And then for Michelle, can you just expand a bit more just on the rationale on the doctors, you know, evaluation and you know, I just at the timing of it, I guess if you can just...

Harmit Singh: Let me take the first. And Michelle can take the docker's piece. Both were expected questions. So thanks for asking. You know, just going back and looking at the quarter, as we said, we did come in the lower number of guidance in terms of revenue, but we did exceed our profitability expectations. What drove the difference between coming in the lower and versus coming at the top end? Basically, for factors, I'd say a fourth of the difference or the miss was driven by foreign exchange, largely Mexico, peso, with the dollar. The remaining three fourths was driven by what Michelle and I referred to in the script, which is lower performance from Mexico, particularly Mexico wholesale, part driven by the cybersecurity breach, which we're working very closely with the largest customer so we can get this shipping back to normal standards.

Speaker Change: Spend, answer those those things.

Grant: Grant Thanks.

Speaker Change: Thanks Bob, let me take the first and Michelle can take the darker species, both were expected questions, so thanks for asking.

Speaker Change: Thanks for watching.

Michelle: Just going back and looking at the court, as we said, we did come in the loan for guidance in terms of revenue.

Speaker Change: But we did exceed profitability expectations. What drove the difference between coming in a low-end versus coming at the top end? Basically four factors, I'd say a fourth.

Speaker Change: of the difference of the myth was driven by foreign exchange, largely Mexico, peso, with the dollar, the remaining 3-4th was driven by...

Speaker Change: One Michelle and I referred to in the script which is Law of Performance from Mexico, particularly Mexico wholesale, part driven by the cybersecurity breach, which we're working very closely with the largest customers.

Harmit Singh: You know, part China, which is a combination of the macro headwind. China, as you all know, is a small piece of our business, but it was impacted, and the other piece was docker's under performing.

Speaker Change: You know, get this shipping back to normal standards, you know, part China, which is a combination of the macro headwind, the China, as you all know, the small piece of our business.

Speaker Change: and but it was impacted and the other piece was dockers under performing.

Harmit Singh: So those are the factors that drove the miss to a question about why we feel Quarter Four will continue to accelerate. So quarter three has accelerated from H1, both on revenue and profitability. We continue to believe; quarter four continues the acceleration. We think top line grows at about mid-single digit and EBIT margin in the low teams, but the factors that drive, give us confidence about quarter four. First, we are beginning the quarter four much stronger than we exited quarter three, which is a good sign. Second, we're confident about the continuous strength in the US and Europe.

Speaker Change: So those are the factors that drove the...

Speaker Change: The Miss to a question about why we feel called a foe.

Speaker Change: will continue to accelerate. So, Corridor 3 has accelerated from H1, both on revenue and profitability.

Speaker Change: We continue, believe, Codofo continues the acceleration, we think top line.

Speaker Change: and Evid Majin in the low teams. But the fact is that drive...

Speaker Change: A give us confidence about the, about quarter for first we are binging the quarter for much stronger than we agreed it.

Speaker Change: God of three, which is a good sign.

Speaker Change: Second, we're confident about the continuous trend in the U.S. and Europe. Europe closed quarter three slightly stronger than we expected, which was good news.

Harmit Singh: Europe closed quarter three slightly stronger than we expected, which was good news. The second is we do believe the global wholesale, which has sequentially improved. It was still down in quarter three, but as sequentially, better than the first half will continue to improve. And our momentum and our direct to consumer business, which is not only stronger, but also a lot more profitable, continues into quarter four. We are also seeing, you know, there are new product assortments are, you know, being, you know, accepted by the consumer. In fact, we're chasing into some of our products as we get ready for the holiday season and the partnership with Beyonce.

Speaker Change: The second is, you know, we don't believe the global wholesale, which has sequentially improved. It will still down in quarter three, but it's sequentially better than the first half, we'll continue to improve.

Speaker Change: and a momentum in our direct to consumer business which is not only stronger but also a lot more profitable continues into car of fall.

Speaker Change: We are also seeing, you know, the new product of Sartman's.

Speaker Change: are being accepted by the consumer. In fact, we're chasing into some of our products as we get ready for the holidays season and the partnership with Beyonce.

Harmit Singh: I think we'll fuel the momentum, and then there is the 53rd week, which net of denizen is expected to add, you know, one and a half to two percentage points.

Speaker Change: I think we'll fuel the momentum.

Speaker Change: And then there is the 53rd week, which net of den is in respect to add, you know, one and a half to two percent is point. I think the important fact for...

Harmit Singh: I think the important fact for all of you to think through is how we are exiting the year, and our belief is we are exiting the year in a much stronger position both in terms of revenue growth and profitability than we began the year. Structurally, the US Levi's wholesale business is expected to end the year less than 20%. Yeah, you know, let me repeat that: less than 20% of our total business and is down from 30% in 2015. And that, you know, that in combined with the strength of DDC both on the top line and the bottom line.

Speaker Change: for all of you to think through is how are we exiting the urine, our belief is we are exiting the urine in a much stronger position, both in terms of revenue growth and profitably than we began the urine.

Speaker Change: Structurally, the US Levi's wholesale business is expected to end the year less than 20%.

Speaker Change: Yeah, I, you know, let me repeat there, less than 20% of our total business.

Speaker Change: and is down from 30% in 2015.

Speaker Change: and that, you know, that in combined with the strength of DDC, both in the top line and the bottom line. I think structurally allows us to enter 20, 25 in a much stronger position.

Harmit Singh: And I think structurally allows us to enter 25 in a much stronger position.

Harmit Singh: I hope that answers your question.

Michelle Gass: I'll now defer to Michelle on doctors. Yes. Great. Thanks for the question.

Speaker Change: I hope that answers your question, I'll now defer to Michelle and Dawkers Yes, great, thanks for the question

Michelle Gass: You know, in terms of our decision to explore strategic options for doctors, you know, this is all about focus, and our intention going forward is to really amplify our focus on the Levi's brand. And accelerate beyond yoga. You know, in terms of doctors, this business has underperformed for some time. And so, as we announced, we're going to look at alternatives with an intention to sell this business. You know, we have seen us throughout the year take decisive action on a number of fronts. We exited our European footwear business. Exit is a denizen brand. We've evolved their distribution logistics strategy.

Michelle: You know, in terms of our decision to explore our strategic options for dockers, you know, this is all about focus.

Michelle: and our intention going forward is to really amplify our focus on the Levi's brand and accelerate beyond yoga.

Speaker Change: You know, in terms of doctors, this business has underperformed for some time and so as we announced, we're going to look at alternatives with an intention to sell the business. You know, we have seen us throughout the year take decisive action on a number of fronts. We exited our European footwear business, agited the dentisan brand. We've evolved our distribution and logistics strategy. So this is the next and frankly, the biggest decision we've made to really position the business for the long term.

Michelle Gass: So this is the next and, frankly, the biggest decision we've made to really position the business for the long term. You know, we believe it's going to be good for the top line as we accelerate both Levi's Beyond Yoga. It will also be good from a margin standpoint in terms of our overall margin structure. And I would say given that even this quarter, the Levi's brand was up by percent; doctors down, you know, 13%. We also believe going forward is going to create kind of more consistent growth and minimize volatility. You know, we have started the process.

Speaker Change: You know, we believe it's going to be good for the top line as we accelerate both Levi's Beyond and Yoga. It will also be good from a margin standpoint in terms of our overall margin structure You know, and I would say given that even this quarter of Levi's brand was up 5% Doctors down, you know, 13% we also believe going forward is going to create kind of more consistent growth and minimize volatility.

Michelle Gass: We've engaged Bank of America, and your question on timing, you can just look forward to getting more updates as we have.

Speaker Change: You know, we have started the process, we've engaged Bank of America and your question on timing, you can just look forward to getting more updates as we have them.

Bob Durville: Thank you very much. Thanks, bud. Thank you.

Speaker Change: Great, thank you very much. Thanks Bob.

Matthew Boss: On the next question, come from Matthew Boss. I'll take you, Morgan. Great thanks.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: On next question, come from Matthew Bough of JP Morgan.

Matthew Boss: So, Michelle, could you elaborate on the 5% global growth for the Levi's brand? Maybe how that compares to the overall denim category and market share trends that you're seeing by region?

Matthew Bough: So Michelle, could you elaborate on the 5% global growth of the Levi's brand? Maybe help that compares to the overall denim category and market share trends that you're seeing by region. And then Hartmeet multi-year, any change to the 30 to 40 basis points of annual gross margin expansion as an algorithm.

Michelle Gass: And then Harmit, multi-year, any change to the 30 to 40 basis points of annual gross margin expansion as an algorithm? Thanks, Matt. I'll take it off in terms of the 5% growth and that what that means in the context of the consumer and category. So, in terms of the 5% growth for Levi's, clearly that's being driven by the strength of direct to consumer, which was 12% globally, 12% here in the US. And we're seeing that, you know, as it relates to direct to consumer, we're seeing that in our stores. Now, I think 10 quarters of consecutive gross, new store openings are on track, 100 new stores of the year, and then our e-commerce business is also accelerating up almost 20%.

Michelle: Thanks, Matt, I'll kick it off in terms of the 5% growth in what that means in the context of the consumer and category.

Speaker Change: So, in terms of the 5% growth for Levi's.

Speaker Change: Clearly, that's being driven by the strength of direct to consumer, which was up 12% globally, 12% here in the US. And you know, we're seeing that, you know, that relates to direct to consumer, we're seeing that in our stores. Now, I think 10 quarters of consecutive growth.

Speaker Change: New Store openings are on track 100 new stores for the year and then our e-commerce business is also accelerating up almost 20%. So that's really fueling the growth in terms of wholesale which continues to be an important part of our business.

Michelle Gass: So, that's really fueling the growth. In terms of wholesale, which continues to be an important part of our business, while still a headwind and still negative, it was down 3% globally. We are seeing that sequentially improve, and we expect collectively the Levi's brand and the business to sequentially improve into the fourth quarter. Harmit spoke to that just now. We've got a lot of levers that are going to drive that growth. I think when you also look kind of inside the makeup of the business, we continue to be really pleased with the acceleration of our women's business.

Speaker Change: Wiles still a headwind and still negative. It was down 3% globally. We are seeing that to eventually improve. And we expect, you know, collectively, this, you know, the Levi's brand and the business to so, so, to eventually improve into the fourth quarter, her meat spoke to that, just now we've got a lot of levers that are going to drive that growth.

Speaker Change: I think when you also look kind of inside the makeup of the business, we continue to be really pleased with the acceleration of our women's business.

Michelle Gass: Our women's business both outperformed in DTC and in wholesale, and we expect that to continue. We're seeing growth in the bottoms business for women. We're seeing growth. And frankly, men's overall for Levi's was also positive, so strength in bottoms and also strengths in the tops business. I mean, tops was up 8% for the quarter across both channels, up even higher in DTC. So when we talk about the pivot to really become a head-to-toe lifestyle apparel company, we're seeing those proof points, which also over time expands our addressable market. So those are highlights around the strengths of the Levi's brand and business, and as Harmit just said, and I'll echo, we expect this to continue in the fourth quarter, and the quarter has started off strong in September.

Speaker Change: Our Women's Business both outperformed in DTC.

Speaker Change: and in wholesale and we expect that to continue. We're seeing growth.

Speaker Change: in the bottom business for women.

Speaker Change: We're seeing growth and frankly, you know, men's overall for Levi's was also positive, so strength, and bottoms, and also strength in the top spinnets. I mean, tops was up 8% for the quarter across both channels, up even higher in DTC. So when we talk about the pivot,

Speaker Change: She really become a head-to-to-life-style apparel company, we're seeing those proof points.

Speaker Change: which also over time expands our dressable market. So those are highlights around the strength of the Levi's brand and business.

Harmit: and as Harmit just said and I'll echo, you know, we expect this to continue in the fourth quarter and the quarter has started off strong in September. So we feel good about that but we don't want to get ahead of ourselves and you know.

Michelle Gass: So we feel good about that, but we don't want to get ahead of ourselves, and the guide, as it is. I say from a consumer standpoint, generally, we're feeling good about the consumer, but we also recognize that we continue to operate in an uncertain environment. We're optimistic on the category long term. You asked about the geographies; the momentum in the US continues, another quarter of positive growth. Europe inflected to growth, up 7%, and of course Asia as a whole was up 4%. In terms of the US, that consumer is proving to be resilient, and you see that in our DTC numbers, up 12% as I was just talking about.

Harmit: The Guide As it Is.

Speaker Change: Yeah, I'd say from a consumer standpoint, generally we're feeling good about the consumer, but we also recognize that we continue to operate in an uncertain environment. We're optimistic on the category long term. You asked about the geographies, the momentum in the U.S. continues another quarter of positive growth, Europe, inflected to growth up 7% and of course Asia as a whole was up 4%.

Speaker Change: and in terms of the U.S., that consumer is proving to be resilience.

Michelle Gass: As it relates to market share, again, I'd say we're pleased. Women's has been a focus, just sharing the numbers overall, and women's continues to gain market share, and is now solidly in the number one position, which hasn't been the case historically. We've shared over the last year; we've continued to gain market share, and now, like I said, we are very solidly in that number one position, which complement meant being the number one market share leader, and we are 2X versus the next closest competitor. So we feel very good about what's happening in the business and how we're driving share.

Speaker Change: and you see that in our DTC numbers up 12% as I was just talking about.

Speaker Change: You know, as it relates to market share, again, I'd say we're pleased. Women has been a focus, you know, just sharing the numbers overall, and women's continues to gain market share, and is now solidly in the number one position, which hasn't been the case historically. We've shared over the last year, we've continued to gain market share, and now, like I said, we are very solidly in that number one position, which compliments met and met and met the number one market share leader, and we are, you know, two acts versus the next closest competitor.

Speaker Change: So we feel very good about what's happening in the business and how we're driving share.

Harmit Singh: On your second question, Matt, going back to the growth algorithm, let me start by just reinforcing something that you've heard me say for a couple of quarters because there's a laser focus on growing growth profit dollars faster than S&A. And what it really does is increases the flow through for every incremental dollar revenue that we add to our business. We've seen the progress across the board, and I think that is the one metric that will really help us get to the 15% operating margin that we are talking about. Your specific question about growth margin. I think structurally what we have said, which is a 30 to 40 basis points of growth margin that we'll add every year.

Speaker Change: On your second question, Matt, going back to the growth algorithm, let me start by.

Speaker Change: by just reinforcing, you know, something that you've heard me not say for a couple of quarters.

Speaker Change: because there's laser focus on growing growth profit dollars faster than Siennay. And what it really does is increase the flow through for every incremental dollar revenue that, you know, we add, you know, to our business.

Speaker Change: We've seen the progress.

Speaker Change: Across the board, and I think that is the one metric that will really help us.

Speaker Change: You know, get to the 15% operating margins that we are talking about. You're a specific question about Gross margin. I think, structurally, you know, what we have said, which is a 30 to 40 basis points of Gross margin.

Harmit Singh: I think that doesn't change, and I would say that's power for the course where we really focused to try and accelerate that. Isn't a couple of things. As we drive a higher direct to consumer business, that could be a little better. The other thing is we are focused on driving higher full price sales, especially in our direct to consumer business, and that's going to really be driven by the innovation that's happening on a product pipeline. That's hitting home; we're chasing into product, and we believe that continues, so that makes a big difference. And then, as we simplify our go to market calendar, we're really looking at how do we get more agile in how we actually source product, and that should have some benefit in cost of good sales over time.

Speaker Change: that we'll add every year. I think that doesn't change. I would say that's part for the course.

Speaker Change: Where we really focused to try and accelerate that, is a couple of things. As we drive a higher direct to consumer business, that could be a little better.

Speaker Change: The other thing is we are focused on driving higher full price sales.

Speaker Change: Especially in our Director-Consumer business.

Speaker Change: and that's going to really be driven by the innovation that's happening on a product pipeline. That's hitting home, we're chasing into product and we believe that continues. So that makes a big difference. And then as we simplify our go-to market calendar.

Speaker Change: You know, we're really looking at how do we get more agile.

Speaker Change: and how we actually saw this product and that should have some benefit in cost of goods sales over time.

Harmit Singh: We'll talk more about this as we guide 25 and beyond. But I'd say you take the 30 to 40 basis points right now, and then more to come. Stay tuned for further exploration in the next couple of quarters.

Speaker Change: We'll talk more about this as we guide 25 and beyond, but I tell you take the 30 to 40 basis points right now and then more to come stay tuned for further exploration in the next couple of quarters.

Oliver Chen: Thank you. Our next question comes from the line of Oliver Chen of TD Cohen. Hi, thanks to Shell and Harmeet. DTC and women were impressive.

Speaker Change: Thank you.

Speaker Change: And its question comes from the line of Oliver Chen of TD Cohen.

Oliver Chen: I thank Michelle and Harmit, DTC and women were impressive.

Michelle Gass: What's happening with men and also as you think about your longer term revenue growth algorithm of plus six to eight? What are the building blocks getting there more sustainably? It sounds like there could be an innovation opportunity in men's, and then wholesale is obviously not growing as fast as DTC. The other opportunity slash question is like faster inventory turns on your direct to consumer and ways to enhance that over time, perhaps using the cost method of accounting. An East Coast port is on people's minds as well. Yes, great. Hi, Oliver. Thanks for the question. So yes, I mean happy about our DTC business.

Oliver Chen: What's happening with men and also, as you think about your longer term, revenue growth algorithm of plus six to eight.

Oliver Chen: and what are the building blocks getting there more sustainably?

Speaker Change: It sounds like there could be an innovation opportunity in men's and men.

Speaker Change: Hall-Sale is obviously not growing as fast as DTC. The other opportunity slash question is like faster inventory turns on your direct to consumer and ways to enhance that over time perhaps using the cost method of accounting.

Speaker Change: and I'm an East Coast port, I'm the one on people's minds as well. Thanks.

Speaker Change: Yes.

Speaker Change: Great, high all of our things for the question.

Michelle Gass: Clearly, women's accelerating, but to your point, men's is a critical part of a business and very important. We have a lot of focus. I mean, you know, why we've continued to talk about our win with women's strategy is that, you know, we are underdeveloped in that business, right? And that business over time should be at least half in. You know, we're about 35% or so today. So we have a lot of upside, but with men, we must retain our top position and continue to grow there. So for the quarter, just to add a little bit more color in the men's business, men did accelerate from the first half.

Speaker Change: So, yes, I mean, happy about our DTC business, clearly women's accelerating, but, to your point, men's as a critical part of a business and very important. We have a lot of focus, I mean, you know, why we've continued to talk about our women's strategy is that, you know, we are underdeveloped in that business.

Speaker Change: Right, and that business over time should be at least half and, you know, we're about 35% or so today. So we have a lot of upside but with men, we must retain our top position and continue to grow there.

Speaker Change: So for the quarter, just to add a little bit more color and immense business, men did accelerate from the first half. Men's was positive for Levi's up 2% up high-single digits.

Michelle Gass: Men's was positive for Levi's, up 2%, up high single digits in DTC, but we see more opportunity. We're not, we're not satisfied there. We do want to accelerate growth. And so we are focused both on energizing the core of our business. You know, 501 continues to perform. What more can we do there? And importantly, on the call, it evolution of fits for men, baggy and loose is now really taking hold, and we've been chasing those fits for men. And we are going to be in a better in-stock position in the fourth quarter given the moves that our merchandising planning team did, you know, versus Q3.

Michelle Gass: I think I think there were, you know, some of this opportunity on the baggy and loose say for men in the third quarter, but we've got that covered for the fourth quarter. And then over time for men, it kind of goes back to what we're talking about earlier on this head-to-toe denim lifestyle, both in terms of when you think about bottoms. Yes, it's denim, but also non-denim and non-denim bottoms for us now make up about 40% of our business. We're seeing traction in products like the XX Chino, which continues to perform. We just introduced this year, as you're aware, the tech pant, which is more of a performance oriented but still very Levi's.

Speaker Change: Versus Q3, I think I think there were some missed opportunity on the bagging lose say for men in the third quarter, but we've got that covered for the fourth quarter and then over time for man. It it kind of goes back to what we're talking about earlier on this head to toe denim lifestyle. Both in terms of when you think about bottoms, yes denim, but.

Speaker Change: Also non denim and non denim bottoms for us now make up about 40% of our business.

Speaker Change: We're seeing traction in products like the Xx Chino, which continues to perform we just introduced this year as you're aware that tech pant, which is more of a performance oriented but still very levi's.

Michelle Gass: And then innovation and fabrics performance cool, a warm, comfortable, stretchy and, you know, and again on the loose trend, the 555 introducing as we speak. The top's opportunity continues like it is for women continues to be an opportunity for men. And we're also seeing traction there. I mean, combined men's and women's for top. We were at 8% in total globally, all channels. And then, and then even greater for DTC. And to your point, this is a focus for us both for our director consumer, but also for wholesale. You know, it's DTC first as it relates to the overall strategy.

Speaker Change: And then innovation in fabrics performance cool or warm comfortable stretchy in and again on the lease trend the 555, introducing as we speak the tops opportunity.

Speaker Change: Continues like it is for women continues to be an opportunity for men and we're also seeing traction there I mean combined men's and women's for tops, we were up 8% in total globally on all channels and then and there.

Speaker Change: And even greater for DTC and to your point. This is a focus for us both for our direct to consumer but also for wholesale.

Speaker Change: DTC first as it relates to the overall strategy, that's where a lot of our future growth is going to come but also ensuring that our wholesale channel remains healthy and we are seeing sequential improvement there and as you know the men's business, particularly penetrates in that wholesale channel. So you know.

Michelle Gass: That's where a lot of our future growth is going to come. But also ensuring that our wholesale channel remains healthy and we are seeing sequential improvement there. And as you know, you know, the men's business particularly penetrates in that wholesale channel. So, you know, again, we talked about, as we head into Q4, we're expecting acceleration overall. And that would that would carry for both the men's and women's business.

Speaker Change: Again, we've talked about as we head into Q4, we're expecting acceleration.

Speaker Change: Overall in that would that would carry for both the men's and women's business to your other two questions Oliver inventory I'll do a speed answer onboard inventory turns about too.

Harmit Singh: To your other two questions, Oliver, inventory, I'll do a speed answer in both inventory turns about two. Our long term goal is three. We're committed to it and lock substantial amount of working capital and cash. The, you know, the tailwinds that we're working on, or the area we're working on a faster go to market calendar. We're reducing our skews, and dockers exit should actually help because dockers, you know, inventory turn is lower. I think the one thing that we just have to, you know, that we need. And I think everybody needs; all retailers need is a little bit more consistency in some of the supply chain issues we've had.

Speaker Change: Long term goal is three we're committed to it and look <unk>.

Speaker Change: Substantial amount of working capital and cash.

Speaker Change: No the tailwind.

Speaker Change: That we're working on.

Speaker Change: Or the area that we're working on a faster go to market calendar, we are reducing our skus.

Speaker Change: And dockers exits should actually help because dockers.

Speaker Change:

Speaker Change: Inventory turn is lower I think the one thing that we just have to.

Speaker Change: You know that we need.

Speaker Change: I think everybody needs all retailers need is a little bit more consistency in and some of the supply chain.

Harmit Singh: And I'll talk about the latest one that you refer to, which is, you know, the port issue, but just, you know, getting more consistency clarity. I think we'll really make a big difference because, you know, all of us have a little bit more safety stock right now. And in our case, we're chasing the new stuff. So, you know, we will probably buy more of the new stuff just to make sure that we don't lose sales. But I think, you know, those are the things we're working on.

Speaker Change: Issues, we've had and I'll talk about the latest one.

Speaker Change: Two wishes.

Speaker Change: The port issue, but just getting more consistency clarity I think will really make a big difference because in all of us have a little bit more safety stock right now and in our case, we are choosing the new stuff. So we'll probably buy more of the new stuff just to make sure that we don't lose.

Speaker Change: Sales, but I think those are the things we're working on.

Harmit Singh: On the port strike, you know, it's a developing situation. We are doing everything we can to prepare ourselves as much as we can. We've been working on this, you know, for the last couple of months, but like everyone else, the impact on us will depend on how long it goes on for, knowing that this was on the horizon. We've been proactively working on it through, you know, as early as March, and we've been monitoring the situation closely. We have, for example, proactively shipped routes to the West Coast. We have prioritized certain peos and switch to afraid just to ensure that we have the product for the holiday season, etc., etc.

Speaker Change: On the Port strike.

Speaker Change: It's a developing situation we are doing everything we can to prepare ourselves and as much as we can and we've been working on this.

Speaker Change: For the last couple of months, but like everyone is the impact on us will depend on how long. It goes on for knowing that this was on the horizon, we've been proactively working.

Speaker Change: On it through as early as March and we've been monitoring the situation closely. We are for example correctly proactively shifted routes to the west coast.

Speaker Change: There's certain peers and.

Speaker Change: Switch to air freight just to ensure that we have the product for the for the holiday season, et cetera, et cetera, and so our hope like everyone else is that this gets resolved quickly.

Oliver Chen: And so, our hope, like everyone else, is that this gives us all quick. Thank you. Thanks, Michelle. Thanks, Harmit. Best regards. Happy holidays. Thank you. You too. Thank you.

Speaker Change: Thanks, Michele Thanks, Amit that's regards happy holidays. Thank you you too as well.

Ike Boruchow: Our next question comes from the line of Ike Boruchow of Wells Fargo. Hi. Good afternoon, everyone.

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

Speaker Change: Hi, good afternoon, everyone, maybe harmeet or Michele can you elaborate a little bit more on the U S wholesale.

Ike Boruchow: Maybe Harmit or Michelle, just can you elaborate a little bit more on the US wholesale? The weakness that was in the quarter was that in line with your expectation? What is your expectation based on? What you're seeing so far for the fourth quarter and kind of just trying to get a maybe it's just a state of the union on that channel? How are you thinking about it? You know macro, and your own execution would be great. Thanks.

Speaker Change: Because it was in the quarter was about in line with your expectation what is your expectation based on.

Speaker Change: What youre seeing so far for the fourth quarter.

Speaker Change: Just trying to get a maybe its just the state of the Union on that channel. How are you thinking about macro and then your own execution would be great. Thanks, sure I'm happy to happy to take that I would say for the Levi's brand for U S. Wholesale that largely came in line with our expectations, we've talked about dockers.

Harmit Singh: Sure, I'm happy to take that. I would say for the Levi's brand, Priya's wholesale that largely came in line with our expectations. You know, we've talked about Docker's not needing our expectations, and that was true very much in the wholesale channel. As I spoke to you kind of earlier, global wholesale was down 3% up from the first half. And then in the US also sequentially improved, down 2%.

Speaker Change: Not meeting our expectations and that was true very much in the wholesale channel.

As I start seeing kind of earlier global wholesale was down 3% up from the first half and then in the U S also sequentially improved down 2%.

Harmit Singh: I will add that a bright spot not only for the total company, but also in US wholesale and global wholesale, frankly, was the women's business. So women was up 4%. Globally and up 2% in US wholesale. And that's been driven by, you know, driving the fashion fits, the baggy trend, and also this head-to-toe denim dressing, including tops. We are getting traction and tops with our wholesale business. You know, I would add that, you know, while this continues to be, you know, I had winter sales again DTC up 12, wholesale down 3, US wholesale down 2. We are seeing, like I said, sequential improvement.

I will add that a bright spot not only for the total company, but also in U S wholesale and global wholesale frankly was the women's business. The womens was up 4% globally and up 2% in U S wholesale and that's been driven by on driving.

Speaker Change: Driving the fashion fits the value trend and also this head to toe denim dressing, including tops, we are getting traction in talks with our with our wholesale business.

Speaker Change: I would add that while this continues to be a.

Speaker Change: A headwind to sales again, DTC up 12 wholesale down three U S. Wholesale down to we are seeing like I said, a sequential improvement we expect that sequential improvement to carry into Q4 and beyond.

Harmit Singh: We expect that sequential improvement to carry into Q4 and beyond. I'd also add that the profitability of the channel is improving. You know, we saw 500 basis points of gross margin leverage in this quarter. And part of that candidly has been frankly focused on more full price selling that also impacted the top line a little bit. All was accounted for in US wholesale, but having less off-price sales as an example as we focus on full-price selling.

Speaker Change: Also add that the profitability of the channel is improving we saw 500 basis points of gross margin leverage in this quarter and part of that candidly has been frankly focused on more full price selling and also impacted the top line a little bit always accounted for in U S wholesale, but having less off price sales.

Speaker Change: As an example, as we focus on full price selling so.

Harmit Singh: So, you know, I'll just say important channel. Our key customers are really important to us, you know, and we're important to them. And I think the big unlock for us going forward is really making sure that, you know, we get great adoption of the new products we're offering. You know, sometimes we have a broader, bigger assortment of like fashion fits in DTC, and we see that flow through. So how can we get wholesale to adopt those more quickly. And we are beginning to see the whole head-to-toe lifestyle, including tops, and some of our key customers are really adopting that.

Speaker Change: I'll, just say important channel our key customers are really important to us and we're important to them and I think the big unlock for US going forward is really making sure that we got great adoption of the new products. We're offering some times, we have a broader bigger assortment of like fashion between DTC and we see that flow through.

Speaker Change: So how can we get wholesale to adopt those more quickly and we are beginning to see the whole head to toe lifestyle, including tops and some of our key customers are really adopting that so I think these things carry and to build our momentum into the fourth quarter and beyond.

Harmit Singh: So I think these things carry into build our momentum into the fourth quarter and beyond. Thanks. Thank you.

Speaker Change: Great. Thanks, Okay. Great. Thanks. Thanks. Thank you. Our next question comes from the line of Brooke Roach up Goldman Sachs.

Brooke Roach: Our next question comes from the line of Brooke Roach of Goldman Sachs. Good afternoon. And thank you for taking our question.

Brooke Roach: Good afternoon, and thank you for taking our question Hermes I was hoping you could quantify the drivers of gross margin outperformance in the quarter versus your prior outlook, which I believe is for 200 basis points of expansion and then looking ahead, how should we be thinking about the puts and takes on gross margin what level cost recapture is still on the horizon.

Harmit Singh: Hermit. I was hoping you could quantify the drivers. Thank you very much. of Gross Margin Outperformance in the quarter versus your prior outlook, which I believe was for 200 basis points of expansion. And then looking ahead, how should we be thinking about the puts and takes on gross margin? What level or cost recapture is still on the horizon? How are you thinking about pricing and promotions? And what are the offsets that you're currently embedding in your outlook for freight and supply chain disruption? Thank you.

Speaker Change: How are you thinking about pricing and promotions and what are the offsets that you are currently embedding in your and your outlook for freight and supply chain disruption.

Harmit Singh: Sure, Brooke. So the big bug is, you know, in terms of what drove this. So gross margin higher than we expected clearly by 200 plus basis points, but relative to a year ago, I think if you break up the 440, I would say 270 basis points was product cost that helped 50 basis points for higher full price sales. And you put this, you know, extra effort, especially as, you know, as I mentioned earlier, the products that we are now bringing to market are hitting home and we're chasing into it. And then 190-odd basis points from brand and channel mix.

Speaker Change: You sure.

Brook: Sure Brook.

Speaker Change: So the big buckets.

Speaker Change: Yeah.

Speaker Change: In terms of what drove this so gross margin higher than we expected clearly but.

Speaker Change: About 200, plus basis basis points, but relative to a year ago.

Speaker Change: I think if you break up the 440, I would say 270 basis points was product cost.

Speaker Change: That helped 50 basis points were higher full price sales and you put this.

Speaker Change: No.

Extra effort.

Speaker Change: Especially as I mentioned earlier the products that we're now bringing to market.

Speaker Change: Sure.

Speaker Change: Hitting home in reshaping into it and then 190 odd basis points from brand and channel mix.

Harmit Singh: We had a few offsets, you know, 60 basis points from FX and a freight, and a freight is largely because we're chasing into product. So that is one walk, which is from a year ago relative to, you know, what we thought is really coming: an extra point from channel mix, which is, you know, DDC is strong in Europe, had a strong DDC quarter, about half a point from higher full price sales. It is always difficult to predict the teams on the ground. And I come as folks are doing a great job improving that we have to, you know, we have opportunity.

Speaker Change: We had a few offsets.

Speaker Change: 60 basis points from FX, and airfreight and airfreight is largely because we are choosing into product.

Speaker Change: So that is one walk which is from a year ago relative to.

Speaker Change: What we taught.

Speaker Change: Israeli company, an extra point from channel mix, which as you know DTC is strong.

Speaker Change: In Europe had a strong DTC CT.

Speaker Change: Quarter about half a point from higher full price sales is always difficult to predict the teams on the ground.

Speaker Change: E Commerce folks are doing a great job improving that we are still.

Speaker Change: We have opportunity and so there's more to come in a point.

Harmit Singh: And so there's more to come, and a point, you know, due to lower COGS, sometimes difficult predict. So that's how we are thinking of gross; that's what really drove gross margins for the quarter for I think much of the same. And that's why, as we think about the year, will probably probably end the year 200 plus basis points, you know, no, actually 300, closer to 270 300 basis points better than a year ago. And that's really driven by the same factors, effects ahead when product costs, a tailwind mix, a tailwind, and higher full price sales.

Speaker Change: Due to lower Cogs, sometimes difficult to predict so that's how we are thinking of gross month, that's what really drove gross margins for the quarter for quarter four I think much of the same.

Speaker Change: That's why as we think about the year, we will probably probably in the.

Speaker Change: 200 plus basis points.

Speaker Change: You know.

Speaker Change: No actually 300 closer to 7300 basis points better than a year ago, and that's really driven by the same factors FX headwind protocols, the tailwind mix of tailwind and higher full price sales.

Brooke Roach: Great. Thanks so much.

Speaker Change: Great. Thanks, so much.

Operator: You're welcome. Thank you.

Speaker Change: Welcome.

Speaker Change: Thank you.

Jay Sole: The next question comes from the line of J. Soul of UBS. Great. Thank you.

Speaker Change: Next question comes from the line of Jay sole of UBS.

Great. Thank you Michel if you just take a step back for a second and you think about everything that the company is doing to try to transform into our global DTC business versus what was traditionally a wholesale business how far along is the company in that journey.

Michelle Gass: Michelle, if you just take a step back for a second, you think about everything that companies do to try to transform into a global DTC business versus, you know, what was traditionally a wholesale business. Far along is a company in that journey. I mean, how much more, you know, to be skills is coming up to choir people in talent is a company have to add. What would you say to companies in that journey? Yeah, it's a thanks, Jay, for the question. It's a great question. I mean, I would say, I'd say, first of all, I'd say we're still in the early stages; but that said, we're making rapid progress.

Speaker Change: Much more.

Speaker Change: <unk> skill sets the company up to acquire a people and talent as it does the company have to add.

Speaker Change: Where would you say the company is in that journey.

Speaker Change: Yes.

Thanks, Jay for the question. It's a great question I mean, I would say I'd say first of all I'd say, we're still in the early stages, but that said, we're making rapid progress and I think this year in particular.

Michelle Gass: And I think this year in particular. Where we have, you know, we have an initiative called Project Fuel, which is our global productivity initiative, but it's not just about the bottom line. It's also about the top line. How we accelerate growth and do that more profitably to reach our ambitions about turning this company into a 10 billion more profitable company. We've brought in a number of new leaders who have DTC skills. I mean, Jason Gowans, who came out of Nordstrom. He is deep, deep expertise and e-commerce, and candidly, you're seeing that play out with the acceleration of our e-commerce business and digital overall.

Speaker Change: Where we have.

Speaker Change: We have an initiative called project fuel.

Speaker Change: Which is our global productivity initiatives, but it's not just about the bottom line. It's also about the top line, how we accelerate growth and do that more profitably to reach our ambitions about turning this company into a $10 billion more profitable company.

Speaker Change: We brought in a number of new leaders.

Jason gallons: Who have DTC skills, I mean, Jason gallons, who came out of Nordstrom.

Jason gallons: His deep deep expertise in e-commerce, and candidly youre seeing that play out with the acceleration of our E comm business and digital overall.

Michelle Gass: John Lucca-Floray just joined us, who comes from over 20 years of retail experience.

Speaker Change: John Luca Flora just joined US who comes from over 20 years of deep retail experience and we are very much in the work.

Michelle Gass: And we are very much in the work of, call it rewiring the company, which is harming alluded to it, but our go to market. We now do see how we are going to, you know, take several months out of our process to get down to a 12-month calendar. And in some cases, our speed lanes will be a lot faster. So that is one example. You know, the other piece I would point to is it's no accident that we're seeing DTC overall accelerate and the profitability increase. And we've taken action through this project Fuel to drive productivity.

Speaker Change: Rewiring the company.

harmeet: Which is harmeet alluded to it but our go to market. We now do you see how we are going to take.

harmeet: Take several months out of our process to get down to a 12 month calendar and in some cases, our speed length will be a lot faster.

So that is one example.

Speaker Change: The other piece I would point to is it's no. It's no accident that we're seeing DTC overall accelerate and the profitability increase and we've taken actions through this product project fuel to drive productivity and we're seeing that payout.

Michelle Gass: And we're seeing that payout. We have a 100-plus store in pilot where we're addressing selling skills, driving UPT. All of our metrics, as I remarked earlier, are actually showing positive growth; things like conversion and units per transaction, which is all on the back of like being an expert in retail, coupled with driving more profitability out of the box. And we're seeing that through better labor deployment.

Speaker Change: 100, plus stores in pilot, where we're addressing selling skills driving U P. T. All of our metrics as I remarked earlier.

Speaker Change: Are actually showing positive growth things like conversion.

Speaker Change: And units per transaction, which is all on the back of like being an expert in retail coupled with driving more profitability out of the boxes and we're seeing out through better labor deployment. So there's a lot to talk about here, but I would say you know this will be a multiyear journey. So it's hard to put a percent but I'll.

Michelle Gass: So there's a lot to talk about here, but I would say, you know, this will be a multi-year journey. So it's hard to put a percent, but I'd say we're, you know, we're making great progress. And I think that progress has accelerated in the last 12 months. Thank you so much. Thanks for the question.

Speaker Change: Say, where we're making great progress and I think that progress has accelerated in the last 12 months.

Speaker Change: Got it. Thank you so much thanks for the question.

Operator: Thank you.

Speaker Change: Thank you.

Laurent Vasilescu: Next question comes from the line of Laurent Vasilescu, B&P Pariba. Good afternoon. Thank you very much for taking my question. Michelle, I think you mentioned European to wholesale was up 4%, if I recall. It's, that's the case. Can you maybe talk about what you're seeing for potentially for the fourth quarter? And I recognize you're not going to talk about fiscal year 25, but are there indications that that would potentially continue into spring of next year? And then I think Harmit talked about some timing shifts, whether it was Mexico. I don't know if there's a, if you can quantify how much revenue fell in from 3Q into 4Q as we think about the top line for 3Q.

Speaker Change: Our next question comes from the line of Laura.

Laura Russell: Russell <unk>.

Speaker Change #100: A&P pottery barn.

Laura Russell: Good afternoon, and thank you very much for taking my question Michel I think you mentioned.

Speaker Change #101: European wholesale was up 4% if I recall.

<unk>.

Speaker Change #101: If that's the case can.

Speaker Change #103: Can you maybe talk about what youre seeing for potentially for the fourth quarter and I know I recognize youre not going to talk about.

Speaker Change #103: Fiscal year 'twenty five.

Speaker Change #105: Are there are indications that that would potentially continue.

Speaker Change #105: Into into spring of next year, and then I think Amit you talked about some timing shifts whether it was Mexico I don't know if theres a.

If you can quantify how much revenues falling from <unk> into <unk>.

Amit: As we think about the top line for <unk>.

Michelle Gass: Yeah, so great. Thanks for the question. In terms of Europe, yes, we were very pleased to see Europe and plus to growth. 7% overall strength in both channels. And, as you pointed out, 4% growth in wholesale, 10% in DTC. You know, that's been a lot around the new product innovation we're seeing across both genders; we're especially seeing acceleration with women. A lot of our key customers wholesale in Europe have been quick to adopt this head-to-toe denim lifestyle: more tops, more skirts, more dresses, and they're working. So, you know, we're anticipating that Europe continues to, as a total market, continue to grow. Exactly how that plays out.

Speaker Change #107: So great. Thanks for the question in in terms of Europe, Yes, we were very pleased to see Europe and flat to growth.

Speaker Change #108: 7% overall strength in both channels and as you pointed out 4% growth in wholesale 10% in DTC.

Speaker Change #108: That's been a lot around the new product innovation, we're seeing.

Speaker Change #109: Both genders worse, especially seeing acceleration with women's.

Speaker Change #109: Lot of our key customers wholesale in Europe have been quick to adopt this head to toe denim lifestyle more tops more skirts dresses and they're working.

Speaker Change #109: So where we're anticipating that Europe continues to as a total market continue to grow exactly how that plays out.

Harmit Singh: You know, stay tuned. Everything we know is baked into our guidance. And surely as we look to the next year and beyond, we think this is the start of a really positive trend for Europe. We have a great leadership team there. Our prebook from jazz about wholesale, our prebook does continue to be positive. That was one of the factors that contributed to Q3. So all in all, we feel like we're very well positioned in that market. Yeah. And I want to your question, you know, while, you know, Mexico underperformed because of the one of the reasons with the cybersecurity and, you know, constraint to ship the reason, you know, I, you know, I won't quantify it.

Speaker Change #109: Stay tuned everything we know is baked into our guidance.

Speaker Change #109: Surely as we look to the next year and beyond we think this has started a really positive trend for Europe, we have a great leadership team there our pre book since you asked about wholesale our pre book does continue to be positive that was one of the factors that contributed to Q3.

Speaker Change #109: So all in all we feel like we're very well positioned in that market.

Speaker Change #109: Yes.

Speaker Change #109: Now onto your question.

Speaker Change #109: While.

Speaker Change #110: Mexico underperformed because of the one of the reasons with the cyber security and <unk>.

Speaker Change #111: Constrained to ship.

Speaker Change #110: The reason.

Speaker Change #110: I won't quantify it it is a.

Harmit Singh: It is a little bit the reason I want to quantify is because we're working through that with our largest customer. And, you know, these things because they have technology implications, take a little time where we're working through it. We feel good about the fact that the business generally, the brand and the business is healthy. And it's a matter of timing. So more to come. But, you know, the reason I'm not giving you a, you know, a clear answer is because I just need being just, you know, the core of this to improve and the systems to start working, you know, both sides.

Speaker Change #110: A little bit the reason I won't quantify it because we're working through that with our largest customer.

Speaker Change #110: And and.

Speaker Change #110: We see these things because they have.

Speaker Change #110: Technology implications take a little time, but we're working through it we feel good about the fact that the business generally the brand and the business is healthy and.

Speaker Change #110: And as a matter of timing so more to come.

Speaker Change #110: But the reason I'm not giving you.

Speaker Change #110: A clear answer is because I just need.

Speaker Change #112: The quota for this too.

Peru, and the systems too.

Speaker Change #112: Start working.

Speaker Change #112: Both sides.

Laurent Vasilescu: Thank you very much.

Speaker Change #113: Alright, Thank you very much.

Operator: Thanks. And with that, thanks everyone for joining the call on your questions, and happy holidays.

Speaker Change #114: Thanks, and with that thanks, everyone for joining the call and your questions and happy holidays, and we'll see you at the next call.

Operator: We'll see you at the next call.

Operator: Thank you.

Operator: This concludes today's conference call. Please disconnect your lines. Thanks, guys.

Speaker Change #115: Thank you. This concludes today's conference call. Please disconnect your lines at this time.

Speaker Change #115: Okay.

Speaker Change #115: [music].

Speaker Change #115: Okay.

Speaker Change #115: Okay.

Speaker Change #115: Okay.

Speaker Change #115: Okay.

Speaker Change #115: Yes.

Speaker Change #115: Yes.

Speaker Change #115: Okay.

Speaker Change #115: Okay.

Okay.

Speaker Change #115: [music].

Speaker Change #115: Okay.

Speaker Change #115: Okay.

Speaker Change #115: [music].

Yes.

Speaker Change #115: [music].

Speaker Change #115: So.

Speaker Change #115: Hum.