Q1 2025 Levi Strauss & Co Earnings Call

Speaker Change: Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co. first quarter fiscal 2025 earnings conference call for the period ending March 2nd, 2025. All parties will be in a listen only mode until the question and answer session.

Speaker Change: At which time instructions will follow, this conference call is being recorded and may not be reproduced in whole or in part without written permission from the company.

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

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

Speaker Change: Thank you for joining us on the call today to discuss the results for our first quarter fiscal 2025. Joining me on today's call are Michelle Gass, our President and CEO of Harmit Singh, Archie Financial and Growth Officer.

Speaker Change: We've posted complete Q1 financial results in our earnings release on the IR section of our website, investors.levesstrauss.com. The link to the webcast of today's concept golf can also be found on our site.

Speaker Change: We'd like to remind you that we will be making forward-looking statements on this call which involves risks and uncertainties, actual results could differ materially from those contemplatives by our forward-looking statements.

Speaker Change: Please review our filings of the SEC in particular the risk factor section of our Form 10K for the fiscal year ended December 1, 2024, and the NDNA section of our recently filed Form 10Q for the factor check that caused our results to differ.

Speaker Change: Also note that the four booking statements on this caller are based on information available to us as of today and we assume no obligation to have any of these statements.

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

Speaker Change: 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 effective foreign currency fluctuations taxes.

Speaker Change: Newly imposed U.S. tariffs on any additional responses non-US tariffs or additional U.S. tariffs in any future restructuring, restructuring related, severance, and any other charges.

Speaker Change: The co-being webcast on our IR web site and replay of this call will be available on the web site shortly.

Speaker Change: Please note that Michelle and Harmit will be referencing organic net revenues for constant currency numbers, unless otherwise noted, and information provided is based on continuing operations, which excludes $76 million of net revenues related to doctors.

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 over the call to Michelle. Thank you.

Michelle Gass: Thank you and welcome everyone to today's call. I'm pleased to share that 2025 is lost to a strong start and our shift to becoming a DTC first company is driving both strategic and financial value.

Michelle Gass: We again achieve high single-digit organic net revenue growth up 9%. Directed consumer continues to be the primary growth driver of 12%, fueled by positive concrete growth, successful new openings, and strong e-commerce performance.

Michelle Gass: Our hotel business delivered another quarter of positive growth of 5%.

Michelle Gass: Our U.S. business further accelerated up 8% while international was strong as well up 9% and they extended our market leadership with share games across those women's and men.

Michelle Gass: I am proud we are able to deliver these strong results while fundamentally changing the way we work as part of our hard pivot toward becoming a best in class on the Channel Nutella.

Michelle Gass: Given last week's tariff announcement, we're dealing with a dynamic macro-environment. However, a confident in our ability to navigate is rapidly evolving time.

Michelle Gass: As an iconic brand with more than 170 years of history, we've weathered challenging times before. We have a playbook that begins with leveraging the strengths of our brand and our deep connection with consumers.

Michelle Gass: We know, especially during times like these, people turn to the brands they know and trust, and prioritize value and quality, and that's what Levi has always stood for.

Michelle Gass: Today, almost 60% of our revenue is generated outside the U.S.

Michelle Gass: We have scale with an agile global supply chain, deep vendor relationship, and a strong balance sheet, all of which position us well to navigate this time of uncertainty.

Speaker Change: I'll now walk you through highlights from the quarter in the context of our strategy. Note that all numbers that Harmit and I will reference are on an organic basis and exclude docker, which as you saw in our release has been moved to discontinued operations as we explore a fail of the grand.

Speaker Change: Let's start with our first strategy, being brand-led. The Levi's brand was up 8% for the quarter and continues to reach new levels of strength all over the world.

Speaker Change: While many brands aspire to be at the center of culture, we are firmly there. You can see that through our partnership with the most influential artists of our generation, Beyonce.

Speaker Change: Since launching reimagined in September of 2024, the campaign has generated more than 4.3 billion impressions, and more than $65 million in estimated earned media values, continuing to help us drive equity gains with men and women across our market.

Speaker Change: As another proof point in our on-going efforts to drive Grand T, this last quarter, the Levi's Grand was featured in a complete unknown, a highly celebrated biopic of

Speaker Change: Bob Dylan, known for his love of Levi, has shaped and defines culture across many decades.

Speaker Change: To commemorate the film's release, we launched a limited edition collection featuring some of Bob Dylan's wardrobe staples.

Speaker Change: This example, I found lean into our legacy to spark inspiration for the future. It's further proof that we're not a heritage brand but instead a brand with heritage.

Speaker Change: We are also partnering with Authentic, locally influential icons to drive brand-heat and anchor the brand at the center of culture across the globe.

Speaker Change: Earlier this month, we expanded our partnership in India with Pujabi Superstar, Bill Geep Dothan, and launch a new campaign in Germany with Stephanie Geichenger, strengthening our appeal with consumers in both of these important markets.

Speaker Change: And as a testament to the strength of the Levi's brand, we change market share in men and women in the corner. Further solidifying, our number one position in demand across both categories. And as a testament, we change market share in men and women in the corner.

Speaker Change: And consistent with our strategy to recruit younger fans to the brand, we also grew share with our 18-30-year-old target consumer demographic. These consumers transacted a higher AUR and purchased more frequently in our average consumer.

Speaker Change: Moving to product, while our history is built on genes, our future will be built around lifestyle, always rooted in denim.

Speaker Change: For most of our history, we've been known as a men's genes business, but to achieve our bold aspirations we need to be more. Over the last couple of years, we have significantly expanded our head to toe offering, especially with women while maintaining our dominance with men.

Speaker Change: It enables us to further expand our already large total addressable market. And as a result, women continue to accelerate growing double digits over the last few quarters and now represent 38% of net revenues.

Speaker Change: Top's represents more than 20% of our business, which has more than doubled over the last 10 years.

Speaker Change: Inspired by Dana Lejuez's style, newer categories such as dresses, skirts, and outerwear, continue to grow a basket case for the rest of the business.

Speaker Change: And while we're the leader in James, our portfolio beyond denim bottoms now comprises 35% of our total sales.

Speaker Change: As we diversify our product portfolio, we also remain laser focused on our core Levi's bottom's business, and into one, bottoms were up 9%, driven by strength in both men and women. The continued success we've achieved in bottoms is attributable to our fifth diversification strategy. We have a style for everyone, for every occasion, and for any time of year.

Speaker Change: Loosen Baggy Fits, which make up roughly 15% of our total bottoms portfolio, continue to be a significant growth driver.

Speaker Change: And with men, we've been focused on expanding this trend for new debt launches like the 568 new straight and the 578 tagging.

Speaker Change: While there's so much buzz around a loose and baggy trend, slim and skinny styles remaining in a wardrobe stable in comprised more than 20% of both our women's and men's fathers' businesses.

Speaker Change: We continue to use innovation and newness entity style with a robust pipeline of new fits, finishes, and fabrics.

Speaker Change: Our men's classic 5-11 slim fit is a great example, now offered across the range of fabric, washes and colors, as well as part of our new tech theory, earning us more space in his closet.

Speaker Change: As part of our denim lifestyle strategy, tops remain a key growth category for us, and in the quarter tops grew 7%.

Speaker Change: We're seeing stronger growth in our direct-to-consumer channel at low-level visits where we offer our broadest assortment. There is a long runway for growth in our top business, and the strong demand we're seeing in our GTC channels give us great confidence that this will scale to be a meaningful part of our business over time.

Speaker Change: Our pipeline of news and innovation remains robust and unconfident, this will continue to drive impacts and resonate with our fans.

Speaker Change: We continue to see an opportunity to further pre-nameize the brand with the global launch of the Levi's Blue Tab collection. Introduced in Asia earlier this year, Blue Tab paired our iconic Levi's aesthetic with the quality and sensibility of Japanese craftsmanship.

Speaker Change: Our month's elevated expression of denim leadership to date, the collection features iconic denim staples along with new tops, skirts and addolaires.

Speaker Change: And building on the success of our lightweight denim collection, we're excited to introduce our new innovation, linen and denim, combining the authentic feel of blue jeans with stock, light linen.

Now shifting to our strategy to be DTC first.

Speaker Change: Our Global Directive Consumer Business delivered another quarter of double-digit growth, up 12 percent, and posting its 12 consecutive quarter of positive comments.

Speaker Change: AURs on the channel were up mid-single visits as customers were gravitating to more premium products, as well as an intentional reduction in promotion in our stores.

Speaker Change: DGC productivity actions, including improving the front-of-house consumer experience and back-of-house efficiency, are driving growth across team metrics, including strong conversion and traffic trends, dealing significant margin expansion in this channel.

Speaker Change: I see firsthand how strategies and actions are driving these results when I walk our sword and get feedback from our team.

Speaker Change: Our stores today were fleshing more robust, head-to-tail offering compared to when we were mainly a men's denim bottom destination. And we're now showcasing a broader denim lifestyle torment through top stretches out of our skirts and both denim and non-denon bottom.

Speaker Change: Our inventory levels are healthier, with better in stock availability, and we're flipping our styles with enhanced product knowledge and improved spelling techniques.

Speaker Change: The results of all of this work are more productive and profitable doors, increasing art convictions that we can build several hundred more stores in the future.

Speaker Change: And we're on that path today. Into one, we continued executing our retail expansion plans. Notable openings include Rome, on Via Cola di Ranzo, one of the most renowned shopping streets in Italy, and continued expansion across Mexico and India, as we grow our retail footprint in these important markets.

Speaker Change: We have a abundant opportunity to increase our GQC presence in major markets all around the world, including here in the US.

Speaker Change: Our efforts to accelerate our performance in our e-commerce business are working with a channel of 16% in Q1 on top of 13% in the prior year.

Speaker Change: Over the last couple of years, the team has been focused on three core areas to fuel momentum in our econ channel, including fixing the fundamentals, evolving the assortment, and elevating consumer experience, creating a much more premium and engaging destination for the full Levi's experience.

Speaker Change: We have upgraded the content on our side with higher quality imagery that focuses on our lifestyle

Speaker Change: We're featuring more uses videos on our product detail pages which allow our consumers to see our product in motion.

Speaker Change: And we're seeing a strong response from our consumers with customer satisfaction scores for the U.S. e-con business rising to its highest level ever. Today's comprising just 12% of our total company net revenues, we believe that e-commerce represents another significant engine for growth.

Speaker Change: DTC ended the quarter at 52% of total global net revenues, up two points the last year, accounting for over half of our total revenue, a milestone as we transformed into a DTC first company.

Speaker Change: We are also encouraged by the performance in our Global Holesdale channel, up 5% driven by strong brothers in the US.

Speaker Change: US wholesale exceeded our expectations in the quarter up 90% in part driven by door expansion and more space with our broadened lifestyle assortment. Our Levi's women's business was a particular bright spot of 17%

Speaker Change: Consistent with our strategy to diversify our channels of business, US department stores now represented 7%, which is less than half of what it was 10 years ago.

Speaker Change: Signature, our value grant also grew this quarter up 19% driven by strength in our seasonal

Speaker Change: And as we look to the balance of the year, we remain creating as respect global wholesale. We continue to expect the channel to be flat for the full year on an organic basis, and this continues to be an important, probable channel for us.

Now, turning to our third strategy, Powering the Portfolio.

Speaker Change: Our international business represents close to 60% of our total business today. Up 9% into 1, driven by growth in Mexico, the UK, France and Germany.

Speaker Change: International growth remains an important opportunity for us long-term and we continue to believe that we are under penetrated.

Speaker Change: Beyond yoga was up 10% in Q1. We are continuing to focus on brand-building initiatives to drive awareness and possible growth.

Speaker Change: Customers are responding to our blooded assortment of color weight and style, as well as new products like our Lutzleeve collection, expanded outerwear assortment, and our lifestyle status

Speaker Change: and Tom Stales and our small but growing network of stories were positive for the quarter.

Speaker Change: In closing, we are pleased with our strong start to the year. We've recognized that the environment around us continues to have uncertainty and we're focused on the things we can control.

Speaker Change: Our first quarter performance demonstrates how our transformation into a best-in-class lifestyle retailer is accelerating both the top line and the bottom line.

Speaker Change: Our key strategies of being brand-led, DGC first, empowering our portfolio along with our efforts to rewire our company to be faster and more consumers best are working and are gaining momentum.

Speaker Change: Our team is focused on executing with excellence and I'm grateful to our employees around the globe for their commitment to the change underway and for their unwavering dedication to consistently deliver for our fans.

Speaker Change: I am confident we have the right foundation to capture the opportunity ahead and deliver profitable, long-term growth for all of our shareholders.

Speaker Change: And with that, I'll turn it over to Harmiti to provide a financial overview of the quarter and our expectations for the year. Harmiti?

harmeet: Thank you, Michelle. We started the year with momentum, a financial result for better than expected, and a transformation to a DDC first lifestyle business is making real progress. As you saw in this morning especially,

harmeet: As you will notice while doctors who are a positive contributor to sales, are gross and are pretty much in structure is higher, including doctors, thereby improving the structure economic and profitability of our remaining business.

harmeet: A focus on structural economics is reflected in the facts that net revenues, margins, expenses and EPS were all better than expected

harmeet: While global wholesale net revenues were up for the second consecutive quarter,

harmeet: Our Director Consumer Business continues to lead our growth with net revenues of 12% as we consistently execute the three things that matter most in this channel, what I call a

Ozil of Concels, opening high-performing stores & growing e-commerce proctor believe.

harmeet: Besides the double-digit top-line growth, our direct-to-consumer, if it margins, group 500 basis points in the corner, contributing to the company's overall margin expansion.

This is helping drive sustainable sequential progression across our P&M.

harmeet: Q1-25 organic net revenues accelerated to 9% versus flat in Q1-23 and 24.

harmeet: Rose Margin was a record at 62.1 this quarter versus 58.2 in Q124 and 56.5 in Q123.

harmeet: Given our expense discipline in Q1, we were also able to leverage adjusted S&M margin by 70 basis points.

harmeet: All of which drove 400 basis points of adjusted EBIT margin expansion through 13.4% versus 9.4% in Q124 and 11.5% in Q123.

harmeet: Now, turning to a brief review of our results, 9% top-line growth was driven by better than expected performance in both the rectical zoom on and wholesale channels.

harmeet: Two third of the growth was driven by units and a third by higher AURs.

harmeet: Turning to margins, we continue to see expansions in both our gross and operating margins.

harmeet: Gross Margin, with a Q1, was 62.1% of net revenues, a new record.

harmeet: Adjusted S&A expenses in the corridor were up 2% versus prior to 744 million from higher distribution expenses driven by a transition to a hybrid 3PL structure.

harmeet: We were pleased to see our adjusted ACNA rate of 48.7% improve after last quarter's elevated level.

Leveraging 70 basis points versus prior yup.

harmeet: Gross profit dollars growth outpace the adjusted S&A dollar increase, delivering a flow through of 84% driving adjusted

A Justin Daniel Delipier, Gaming at 30th Sen.

harmeet: Well-informed expectations, and up 52% to prior.

harmeet: We entered the corner when the poor inventory dollars up 7% to the prior year.

harmeet: We feel comfortable with the level and composition of our inventory and have secured the majority of inventory required to meet U.S. others for quarter two.

harmeet: In the quarter, as planned, we close 21 net stores as a system.

harmeet: However, this consists of 30 new store openings, primarily full price Levi's brand stores and 51 closures, which are mostly under performing franchisey stores in China.

harmeet: Our discipline fleets review process ensures that the doors we are opening are productive and only the most profitable with the highest returns opportunity remain open.

harmeet: In the quarter, we return 81 million to shareholders in the form of dividends and share by bags, which were up 12% to prior year.

harmeet: In order to, we have declared a dividend of 13 cents per share and increase of 8% versus prior year.

harmeet: Now let's review the key highlights by segment. The America's net revenues were up 11 percent

harmeet: In the US, net revenues were up 8% driven by high single-digit growth in both channels.

harmeet: A business in Mexico was up 6% from increased traffic in our stores as well as e-commerce growth.

harmeet: For the segment, strong growth margins and S&L leverage led to operating margin of 21.7% improving

Europe was positive for the third consecutive quarter.

harmeet: Net revenues were up 3% if you want, led by double digit growth in key markets like the UK and Germany.

harmeet: Directed consumers continue to accelerate this quarter up 11%, supported by com stores, e-commerce, and more full-price sales.

harmeet: While wholesale shipping was down in the quarter, given the transition of our distribution center in Germany, we expect wholesale in the segment to return to growth in quarter two and have strong pre-book orders.

Up mid to high single digits for spring & summer. [inaudible]

harmeet: Gross margin expansions drove operating margins to leverage 120 basis points versus prior year to 25.6%.

Asia, net revenues increased 10% compared to prior year.

harmeet: Directed consumer net revenues were up 14% light by double digit growth in key markets like Japan, Korea and Turkey.

harmeet: South Asia, Middle East and Africa Business, which includes India, was also a double-digit disorder, as improved in-store retail experiences, drove higher U.K.T. and better conversion

harmeet: This quarter, our China business was flat to prior year and we continue to have modest expectations in 25 as a work to reset this market is underway.

harmeet: Operating margin of 18.8% was up 200 basis points to last year from stronger growth margin.

harmeet: Now turning to our full year and quarter to guidance, we had a strong first quarter with broad base trends across segments, channels and categories delivering a notable beat for the quarter.

and we saw solid trends continue through much.

harmeet: However, as you all know, the worst changes to the terrorist structure announced a few days ago.

harmeet: Given that the situation is fluid and unprecedented, the impacts are uncertain.

harmeet: We are in the process of scenario planning and determining different mitigation strategies.

harmeet: We recognize this is a quickly evolving macro situation and we have to see where the dust settles to give you the guidance that is going to be as helpful to you as possible.

harmeet: For now, a full-ear outlook remains unchanged and includes no impact from the proposed tariffs.

harmeet: A Q2A look remains consistent with our external plans. The effects of tariffs will have a minimal impact to our margin structure in the quarter as most of the products for spring's early summer

harmeet: As a reminder, Q2 is seasonally a lost quarter for revenue and margins in the year.

harmeet: For quarter two, we expect organic net revenue growth from continued operations of 3.5 to 4.5 percent.

harmeet: This excludes approximately two points of foreign exchange headwinds and one and a half points attributable to the exit of Tennyson and our footwear business.

harmeet: which implies being flat to up 1% for the quarter on a reported basis.

harmeet: Gross Margin is expected to be up between 80 basis points to 100 basis points and adjusted the EBIT margin is expected to be in the range of 5.5% to 6%

harmeet: This translates to an adjusted diluted EPS of approximately 11-13 cents, which includes around 3 cents, headwind from foreign exchange and a higher tax rate versus prior year.

harmeet: With this explication, a profitability assumption will be significantly higher up approximately 20%

harmeet: In closing, I will leave you with three thoughts. First, while the cadets announce last week, for the significant challenge for us and the industry.

harmeet: Our business and our brand have endured for 170 years proving our resilience.

harmeet: Today, the Levi's brand is stronger than ever, with diversified global revenue, solid margin structure.

harmeet: a giant sourcing base with deep vendor relationships and a strong balance sheet. We are very positioned to manage through this uncertain time.

harmeet: Second, we deliver strong first quarter results and we're starting the year with momentum.

harmeet: Our new products are resonating and driving Massage A game. We have a robust product pipeline that will fuel growth in our denim and non-denum business for the rest of 25 and beyond.

harmeet: We are making incredible progress on growing the Directive Consumer Channel to a longer term goal of 55% of our business while also growing wholesale.

harmeet: Third, we are both transforming our business while delivering strong financial results and improving our structural economics as we continue on a path to becoming a 10 billion dollar company

I will now open up the line for Q&A.

Thank you so much.

Thank you.

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

harmeet: Due to time constraints, the company requests that you ask only one question.

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

Our first question.

harmeet: Come from the line of Lauren Vasilescu, a BNP Paraba. Your line is open, Lauren.

Loren Vasilescu: Good afternoon, Michelle and Harmit. Thanks for taking our question. With terrorist front and center on everyone's mind, can you provide a percentage breakdown of sourcing by key countries for the investors on this call?

Loren Vasilescu: What are your suppliers saying about providing potential concessions? And then on passing some of the tariffs down the value chain, how much and when do you think you can raise pricing? Thank you very much. Thank you very much.

Speaker Change: Yes. Hi, Laurent. Thanks for the question. So let me just take a step back for a minute and you know, obviously the news on tariffs is is very new. It's fluid. You know, this was just a couple of days ago and I think we like the industry or getting our arms around it.

Speaker Change: You know, I would say that as we enter in this period, we are coming from a place of strength. We have momentum on the business. The brands have never been stronger. And we've achieved significant margin expansion. That said, we are, we have a task force assembled. We have a task force assembled. We have a task force assembled. We have a task force assembled.

assessing the various scenarios.

and identifying what levers we have to mitigate.

Speaker Change: And you've named a couple of them, but I'd first start with, you know, the structural changes cost structure that we can make. As part of our transformation initiative, as you know, we've made significant progress. You see it again in Q1 with margin expansion. So we will look there first on how we can accelerate further margin and cost opportunities.

Speaker Change: Point number two is, yes, we will work with all of our stakeholders that include our vendors, include our customers as we assess and look at what opportunities we have.

Speaker Change: You know, as it relates to our vendors, I mean, we've got long, deep relationships with many suppliers around the world. We source from 28 countries.

Speaker Change: 20 of which are countries that we source into the U.S. I'll speak to some of the countries in a moment. So that is definitely an area that we're investigating but we're in the very early days on that Laurent. So I'd say more to follow. And then similarly on pricing, you know, as we look at pricing. [inaudible]

Speaker Change: We do believe that the brand, especially given the health of the brand, that there is pricing power there, but if we do anything, it'll be very surgical. As you saw, even this past quarter, our average unit retail, their AURs were up again, so the consumer is actually increasing price as they, you know, buy up into more premium product. Thanks.

Speaker Change: So, you know, that's an opportunity. We've also been pulling back, especially in our DTC channel and some promotion. We had more full-price selling, so that whole area is an opportunity. So I would just say more to come, but really we're looking at those three areas, the cost structure, you know, kind of the end-to-end stakeholder and supply chain and then surgical pricing. And then specific, you know, to the supply chain, as I said, we have a global global.

Speaker Change: Long-tenured supply chain, we source from over 28 countries and the places that we source from are the places you'd expect from the industry. Some of the key countries for us in no particular order are places like Bangladesh, Cambodia, Egypt, Pakistan, Sri Lanka, Vietnam, you know, those are our top vendors. This is the place where you'd expect from the industry.

Speaker Change: But it's broad and, you know, our, I'd say our supply chain is more agile today than it ever has been. We make pivots all the time. We will continue to do so as we look to address the issues both in the short medium and long term.

Speaker Change: And I think what we've disclosed, Laurent, into the US from China approximately 1% into the US from Mexico, approximately 5% and from Vietnam in the mid to high single digits into the US.

Very helpful. Thank you very much for your thoughts. Thank you.

Speaker Change: Thank you. Next question comes from Dana Telsey, from the Chelsea Advisory Group. Please go ahead Dana.

Dana Chelsea: Hi everyone, nice to see the progress.

Speaker Change: As you think about inventory levels, Harmit, how are you planning inventory levels going forward on wholesale orders? What are you seeing from the accounts?

Speaker Change: and Michelle, given the Beyonce campaign and some of the other activations in collaboration.

Speaker Change: Women's Business, Men's Business, how are you thinking of the denim market growing and what should we be looking at given the linen and denim and new things coming and how you're thinking about pricing? Thank you.

Speaker Change: Dana, a couple of things. Inventory, at the end of Q1 was up seven. The composition of the inventory is healthy. And as I mentioned in the prepared remarks, for the US, we have product for spring and summer.

And so that's why we give...

Speaker Change: Guidance on Corridor to the other thing is our Corridor to include March and the trends in March are stronger than how we exited the you know February so that's perspective. perspective.

Speaker Change: on that business. We've been prudent in inventory planning, as we think about the year.

Speaker Change: You know as you think about inventory the three things and now the fourth to be keeping in mind there was getting products in for spring and summer.

Speaker Change: largely because the tariff clouds were, you know, there was an overhang even-

A couple of months ago. [inaudible]

The second for Europe is Red Seed Distruption.

Speaker Change: And the third was generally thinking about the year. So being very prudent.

Speaker Change: As a reminder for everybody, we sell a lot of coal, right? So a lot of our product is season less.

Speaker Change: and we can carry it through seasons and our balance sheet is fairly strong.

Speaker Change: We talked about the cash position at the end of the quarter and the access to liquidity.

Speaker Change: So we are in a good spot in a lot of ways but we've been prudent to your question about wholesale orders.

Speaker Change: Global wholesale was up 5% US wholesale was up 9 organically. This was the second quarter where you've seen.

Moog Lobo-Holster & U.S. Holster Up.

Speaker Change: As we are understanding right now, there's been no change to orders in from wholesale customers.

Speaker Change: In Mentory, a trade in Mentory is very similar to 2019 levels.

Speaker Change: Just now, let me share a little bit of a perspective on wholesale in Europe , wholesale in Europe was down in quarter one, essentially as I said.

Speaker Change: Because we are ramping up our distribution center. We expect wholesale to return to growth in quarter two. The best indication of wholesale demand in Europe is pre-book, which for spring and summer is positive and for fall is positive right now.

Speaker Change: And I think the second question, Michelle, as she asked you about the denim category? Yes, so Dana, thanks for the question and...

Speaker Change: I think to echo what we said in our remarks, we're really pleased with the start of the year and the Levi's brand has never been stronger. So the Levi's brand was about 8% in the quarter. And I think your question we're seeing gains in both men and women, both in market share and in equity. So specific to the Beyonce campaign.

Speaker Change: 4.3 billion press impressions, more than 65 million in media value alone, but I think importantly, it's creating a nice tailwind to everything else that we're doing. Specific to, as we think about our transformation, we must preserve and drive the leadership position and men.

Speaker Change: But our intention has been to accelerate with women because we're undershared there. Women's is now 38% of our business.

Speaker Change: Q-1 with our fourth consecutive quarter of double-digit growth. Like I said, we are now in firmly the number one position market share in the US and we're growing that which is really exciting.

Speaker Change: Women's was at 12% overall across all channels in geography, and then, you know, if you look at DTC, which is really the leading indicator, up 16%.

Speaker Change: in the quarter and really delivering on that head-to-toe lifestyle. So as we pivot from genes to becoming DTC, becoming head-to-toe, you know, we're seeing that in our DTC results up 12 and we're seeing that in women's and in lifestyle. So like I said, women's up 16 in both bottoms and tops growing. The team is really nailing it in terms of driving trends and fashion fit.

Speaker Change: You know, diversifying the fit, the fit, opportunities to strengthen losing value continues, but our core remains strong, Western where it continues to trend, the list goes on. But, you know, even in in times like these when it's turbulent, we're going to lean in and, you know, please our fans with delivering the highest quality product. It's a great value and deliver that innovation. Thank you very much.

Thank you.

Thanks, Dana.

Speaker Change: Thank you. Our next question comes from Matthew Boss of J.P. Morgan. Please go ahead, Matthew.

Speaker Change: Great, thanks and congrats on the nice quarter. Thanks, Matt. Thank you. So, Michelle, could you elaborate on key drivers of the 9% organic growth, maybe consumer demand and market share trends that you're seeing in the Americas? And Harmit, if you could maybe speak to the cadence of Gross Margin in the second quarter relative to the back half.

Speaker Change: Sure. Great, so I can start. I mean, one of the things Matt that we're really proud of, the team's effort, this quarter is really across the board. We saw strength.

Speaker Change: So if you take our geographies as an example, so our total organic revenue is up 9%. We saw strength in the Americas, in Europe , and in Asia, and beyond yoga, I would say as well as that carries forward another quarter of double digit growth.

on the channel.

Speaker Change: Both channels were positive, DGC up 12th quarter of positive growth. I can speak to that in a moment as well as our wholesale business up 5% and I'd say it's particular strength in US wholesale. Now,

Speaker Change: And then if I, if I really double click under DTC because that, you know,

Speaker Change: The 9% clearly, the 12% is what's fueling the majority of that. It's now 52% of our business. As you know, our long-term goal that we've put out there is to be at least 55% so we're making great progress.

Speaker Change: But if you think about DTC and look at some of that, the KPIs, the key metrics there, as it relates to our owned and operated stores, positive concels, we saw positive traffic.

Speaker Change: We saw positive conversions, and we saw positive AURs. E-commerce, up 16%, again positive traffic, conversion and AURs. And so when you think about this, the growth...

Speaker Change: is healthy and it's sustainable. We're seeing both it coming through volume and unit.

Speaker Change: with a counter for about two-thirds of the business, and we're also seeing AURs up, which is about up a third. So, you know, this, as we look at the trends, we feel like it's sustainable and it's all coming off of the back of our key strategies when we say, DGC first.

Speaker Change: Denim Lifestyle, Winning with Women, we're seeing that across the board. And then you know, you second part of your question was around market share. [inaudible]

Speaker Change: I know that I think I mentioned even in my earlier remarks.

We're really pleased.

Speaker Change: to see the growth we are seeing there, both men and women's grew market share in the US this past quarter, number one in both positions across both genders, and the other piece that we're seeing nice momentum and growth is growing market share with youth that 18 to 30 year old target customer as well as the premium consumer.

Speaker Change: So there's just a lot to like and a lot of momentum we're seeing across all of our segments of the business.

Speaker Change: And Matthew, a question of gross margin which to me is a great indicator of what the brands doing. Record gross margins in quarter one at 62.1 I think the best way to think about it is half is driven by

Speaker Change: Product Costs which are not truly just straight when the negotiation as part of our transformation efforts we're taking a hard look at.

SKUs, we have to reduce our SKUs

Speaker Change: You know, we're taking a hard look at assortments that are not as productive as productive.

Speaker Change: as well as newer innovations are great margins so that's one piece of it and the other half I would say is a combination of mix, which is higher women, higher DDC, higher international. [inaudible]

Speaker Change: Higher full-price selling that Michelle referred to, there's a real focus given that our products are hitting home. We drive higher full-price selling and we had favorable effects given our, you know, hedging strategy.

Speaker Change: Similar for Q2, so Q2, we reflected margins would be up 80 to 100 basis points again driven by this and a fully a basis 100 basis points your question about cadence first half versus second half

Speaker Change: The first half is really strong. The second half, because our margin structure was very strong a year ago, the second half will be muted still up but much lower than the first half. And...

Speaker Change: You know, obviously we are focused on driving more full price selling. It's something that is difficult to predict. That's why, you know, we continue to beat margins. I mean, and the other reason that's driving higher margin is the wonderful DTC businesses. I gross margin.

Thank you. Bye-bye.

Sweet color, best of luck. Thank you, Matt.

Speaker Change: Thank you. Our next question comes from Jay Sole of UBS. Please go ahead Jay.

Jay Soule: Great. Thank you so much. Maybe just on the guidance for Q2. If you give us a sense of for that organic net revenue growth, how you see that by Regent.

Speaker Change: Yeah, so similar, Jay, I would say, you know, the U.S. Lord of Mid-Single Digit.

as you think about, you know, Q2 Europe .

Probably mid-single leisure with one difference, wholesale should return to growth.

Speaker Change: given what I indicated in Asia, again, mid-single digit. If you think of channels, DDC, I would say high-single digit.

Speaker Change: and Global Wholesale, you know, flat to slightly up, is the general thinking at this stage.

Speaker Change: Alright, great. Thank you so much. Thank you, Jay.

Thank you.

Speaker Change: Next question comes from Ike Boruchow of Wells Fargo. Please go ahead Ike.

Ike Boruchow: Hey, thanks. Good afternoon, everyone. Army, I think two for you. Can you walk us through the expense deliverage that looks to be implied in the 2Q after getting some pretty good leverage in 1Q and then it looks like the back half.

Speaker Change: Should go back to kind of getting nice leverage to flat, which is what exactly are the spending dynamics kind of taking place in the second quarter and then bigger picture for you, it sounds like there's no revenue issues for the business at all right now, but at least over the past couple weeks it might be helpful. Paul Lejuez.

Paul Lejuez: Could you talk about the brand overseas? I think there's some growing narrative about anti-American response to US brands that are a risk to what's going on geopolitically. Would love to hear if you're seeing any of that or if there's any noteworthy developments that you've come across in the past couple weeks. Thank you.

Any impact internationally?

Speaker Change: From our perspective, you know, we've been here for a long, long time, internationally, you know, as a business we've been around for, you know, over 80 years, so we're not seeing it, you know, we're in fence with the local consumers connecting really well and a new product office that Michelle referred to our generally doing well. [inaudible]

to your question about the corner two guidance.

So, according to just as a reminder, you know,

Speaker Change: is largely, you know, is our lowest volume quarter, just from the seasonality.

Speaker Change: First quarter has a December holiday, third quarter has back to school.

Speaker Change: And the fourth quarter has the beginning of all it is the second quarter. So seasonally it's the lowest quarter. In terms of H&A increase, the first quarter was up to, we expect the second quarter to be up three.

Speaker Change: SNA as a rate is in the mid 50s, it was around under 50, we still expect SNA for the year to be around 50% and this is prior to any actions.

Speaker Change: that we take as Michelle referred to, to mitigate actions on tariff, etc.

and the EPS, the client relative to last year.

It's primarily driven by...

Speaker Change: The foreign exchange and higher tax, even though foreign exchange rates have improved a little from the last quarter, they're very volatile. They go up and down. And so our perspective is effects and higher tax will probably...

Impact, EPS adversely by about three cents. [inaudible]

Speaker Change: But structurally, the business is in good standing, you know, gross margins, you know, we expect to be up and organic rate to be up three and a half, four percent. You know, think of our reported revenue, reported revenue in quarter two, I said it's flat to slightly up. And so that's what the D leverage in terms of EBIT percentage.

Speaker Change: The only thing I would ask to Harmit Singh is just...

You think about the whole year? [inaudible]

You know, we're obviously...

Speaker Change: Think about our strategy. It's to drive the top line. We'll get some leverage there and drive margin expansion both in gross margin over the year and in EBIT margin. And as you know, we saw progress from 2024 over 2023 and we've guided the year to see another level of expansion there as well. Now, let's take a look at how we're going to drive the top line.

Speaker Change: All of this, of course, does not yet reflect his hair. [inaudible]

Got to take a lot.

Thanks, Ike.

Speaker Change: Thank you. Our next question comes from Chris Nardone of B of A. Please go ahead Chris.

Great guys, good afternoon.

Chris Nardone: Just a couple of follow-ups. First on US wholesale, can you just clarify whether your guidance is implying positive or negative growth for the remainder of this year? And then looking out, it sounds like you benefited from expanding into some newer wholesale distribution points in the first quarter. How big is this opportunity over the medium term, and do you need growth in US wholesale to reach your medium term, even margin targets? Yes, it is.

Chris Nardone: So Chris, we've had two great quarters on wholesale, US and the team, Big Shorter to them.

Chris Nardone: They've delivered US wholesale growth in the first two quarters. I indicated, I think, in the earlier question, Q2 globally, we expect wholesale to be flat to slightly up. [inaudible]

Chris Nardone: Our expectation in U.S. wholesale right now we continue to be prudent and so we think a flat number is a good number at this stage.

on the distribution you are right.

You know, our opportunities on distribution.

Chris Nardone: In the U.S. is primarily around the categories we are growing DDC.

Chris Nardone: We think we have an opportunity in women's, we think we have an opportunity in top.

And as you know, [inaudible]

Chris Nardone: After the exit of Denizen and Target, we are working with our customers, in this case Target, to try and grow our Levi's business and that's making a difference.

Chris Nardone: As we think about opportunities of distribution in wholesale, there are opportunities around the company especially as we grow the categories and you know both gender, women and men's as Michelle referred to and the different categories as a pivot to a denim lifestyle company.

Thank you. Our next question.

Speaker Change: Comes from Oliver Chen of TD Cohen. Please go ahead, Oliver

Hi, thanks, Michelle and Harmit, in the past.

Speaker Change: What are your thoughts around frameworks around pricing and also when you look at tariffs from the past?

What percentage did you absorb versus share with? [inaudible]

Speaker Change: with customers in different ways. As we look forward, the pricing has been something that you've adjusted.

Speaker Change: in the past that recently in terms of being prices being too high, so would you take lower margins in terms of offering the consumer a good value? Another is a very dynamic situation here with tariffs and inflation.

Speaker Change: Yes, Oliver, I'll take that thing to the question. I mean, I think the word you just said is very appropriate, which is very dynamic right now. I mean, we're literally this whole situation is just a couple of days old, as you know, and I think it's both Harmit and I mentioned we've got to...

Speaker Change: Really talented team right now who is dissecting the problem and looking at all the levers that we have.

Speaker Change: to address the issue, one of the two of which you just hit on, which is, you know, we will work with our vendors, with our customers to understand the best way forward. And then pricing is a potential lever, I would say, as we think about it, we will very much think about any pricing, if we do take pricing very surgically.

Premium Products.

Speaker Change: So we expect that to continue. There could be more pricing power in our more premium products.

So we'll look at that, Promotions.

Speaker Change: You know, we have been surgically pulling back more in DTC, I would say, on promotions and achieving more full price selling. So that is something that we're going to examine. So that we're going to examine.

Speaker Change: We can test pricing in our DTC channel, that's something that we can more easily do and understand that you ask to city.

Speaker Change: We have recent experience, for example, in Mexico, where we successfully took some price adjustments based on the tariffs there. And then what I would tell you overall is we think about the Levi's brand. We address today a broad range of price points.

Speaker Change: If you start at the core of our products, we're at a very accessible price point in that $40-50 range.

Speaker Change: Then we do compete in the value segment with signature that's largely offered in some of the mass channels. That's doing really well. We were up 19% this quarter and then we go high end. You know, all the way from like I'll call it our Tier 2, which is in our mainline store as you're seeing more and more in that E-Com, that's where we're in the $90, $100 range and then even upwards of 200, 300 with Tier 1 and our new Blue tab.

Speaker Change: So I share that in the spirit of, you know, we have a lot to work with here to determine what is going to be our right path forward, but it's going to be really important for us to be super sensitive to the consumer and make sure that we're on the right path.

Aida Orphan, Harmit Singh

Speaker Change: Okay, and Harmit, can you get inventory faster like now in order to address what's happening or what happened with the inventory you have on hand relative to the win and the methodology for inventory evaluation that we should know about with timing of prices relative to the cost of goods sold.

Speaker Change: Yeah, I mean, Oliver, we're looking at all options right now, you know, I'm sure.

A lot of our partners have been called.

Speaker Change: You know, and so we're looking at options, we've been able to successfully air-fraid.

Speaker Change: In the past, when we were chasing product, the fact that we have…

Inventory for Spring & Summer, is a good indication.

Speaker Change: We're also working on a faster go-to-market calendar, especially for the newer products. So, you know, we're doing everything that we can within our means.

Speaker Change: And to your question about, you know, cost accounting and, you know, depending on the tariff, it totally depends where tariff settles. It's such a fluid situation and so we're working through it.

Okay, thanks. That's regards.

Thanks, Oliver.

Speaker Change: Thank you. Our next question comes from Paul Lejuez of City. Please go ahead, Paul.

Paul Lejuez: Hey, thanks guys. Can you tell us how you're thinking about the various macro backdrops of the major regions that you operate in and also how you're looking at the competitive landscape currently? If you're seeing any changes in terms of promotions, either increasing or decreasing, just, you know, sort of, what is the backdrop that you're thinking about by your major regions?

Yeah, so the good news, Paul, is...

Paul Lejuez: You know, Q1 is a good indication of the momentum and the brand. The growth was brought based.

Paul Lejuez: All regions were up, you know, Europe was up only three.

Paul Lejuez: But on an organic basis, it was because that was driven by the ramp up in our distribution center.

Paul Lejuez: And so, as we think across the world, you know, Europe third consecutive quarter of growth, US fifth consecutive quarter of growth, Mexico.

2nd Conductive Quarter of Growth

Paul Lejuez: Asia, you know, double digits. So generally, the momentum is strong from that perspective, being global and 60% international.

Paul Lejuez: I think will make a difference at least from that perspective. Consumer generally resilient across the world. They're responding to our new products, you know, our products of a great value as Michelle reference. So we're feeling generally good from that perspective. Thank you.

Paul Lejuez: Any changes on the promotional front? Yeah, and promotions, actually, we heard tightening promotions and that's why the focus on foot prize sales. You can see it in margins. We're not necessarily.

Paul Lejuez: You know, going the other way at this stage because the consumer is not giving us a reason for a change. And because in mentoring, generally in a good spot, there's no reason to push that. [inaudible]

Down Faster, Push Price Down Faster.

Great. Thanks. Thanks. Thanks. Thanks. Thanks. What? Thank you.

Thank you. Thank you.

Gams from Brooke Roach, Up.

Thank you. Thank you.

Good afternoon, and thank you for taking our question.

Speaker Change: I was hoping that you could talk a little bit more about your playbooks, should the macro-environment worsen, what's the cost structure of your business today, how much additional machine a leverage can you drive this year to off that higher product cost.

if the macro environment worsens materially.

Speaker Change: It's all been planned right now, Brooke. I think the best proxy, unfortunately, but the best proxy recently is 2021, which was COVID.

At that point of view was...

Speaker Change: between 65 and 75, the rest variable and variable also add incentives are variable for example but you know the last thing you want to touch especially when there's so much momentum in the brand.

I put it there.

Speaker Change: I think as you think about our stores, very similar cost structure, but even then we actually grew our store base, you know, we kept adding stores. And so. So.

Speaker Change: You know, we're thinking through it, we're putting everything on the table right now as we think through the three levers which is

Speaker Change: You know, cost initiatives without compromising the long term, stakeholder management discussions which is customers and are vendor partners and the third is pricing, you know, options initiatives and so we are looking at all options broke. [inaudible]

Speaker Change: And then we have an international business that's very strong, right? That could also be, you know, we can drive some momentum there to offset some softness if any in the US.

Great. Thanks so much. Best of luck.

Speaker Change: Thank you. Okay, well thanks everyone for joining our call today and we look forward to talking to you next quarter. Thank you.

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