Earnings call transcript Q2 2023

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Operator

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co's Second Quarter Earnings Conference Call for the period ending May 28, 2023. All parties will be in a listen-only mode until the question-and-answer session, 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. This conference call is being broadcast over the Internet, and a replay of the webcast will be accessible for one quarter on the company's website, levistrauss.com.

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

Aida Orphan

us our call XXXX. second joining the to for for results fiscal you on today the discuss Thank quarter of

me Harmit are of call and on President Joining CEO and Growth Chip Officer. Levi our Singh, Bergh, and Chief Financial Strauss; today's

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

Form will be Actual statements We'd forward-looking quarterly remind information materially Form differ. statements. like are filings results that we SEC, this our particular, involve obligation forward-looking XX-Q uncertainties. to we this with on and our from could factors assume our of in our we forward-looking filed which to based XX-K our the to the results of information making and in to call, report update Please by no the these today on everyone statements differ review that any that Risk that the statements. us the for of included those Factors risks as available today, cause and on contemplated could call Also note on section

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

questions at remarks, the call one Finally, growth being for available the in call Harmit please will website hour, time be note, the shortly. have of give scheduled Chip the website, will is others and the question on to limit their to one this balance yourself opportunity reference constant currency. call addressed. of its replay so and revenue Today's in to entirety is for a IR webcast a year-over-year on our Please

Chip. over I'd turn the like to call now, to And

Chip Bergh

delivered We line today's welcome you, our expectations. and to a with in solid Thank call. everyone quarter

DTC reflect a and wholesale, very the our continued in strong other moment. and International different in one hand, will U.S. results Our on address in two dynamics which I business, on softness

Revenues X%. down were the for quarter

revenue However, the QX, implementation this on which to we into shift due primarily in in was attributable our ERP QX last the the $XXX from million to U.S. mostly discussed call.

was was shift, difficult flat revenue versus plus this ago. Excluding comparison year and half QX versus down first against year a X% XX% prior

our Our strategic growth above priorities performing are plan. or at

positive the globally a with Our unlocking to to DTC QX business, of continued the and strategy, confidence first XX% AURs first strength up digits. perform underscores mid-single in half value. tremendous brand expression Levi's broad the premium comp based continues Levi's total of grew brand sales our our in well, which growth up in most very XX% DTC of record The

or growing going Our International business X% the fastest America. also Latin of international momentum and strong led growing Russia, opportunities represents largest one XX% has the over and of our our excluding by part Asia it few forward. years last business continued remained in been

still difficult gross first International. well. more XXXX been XX% DTC soft as ago decade offset in margins to XX% year a been than total comparisons, wholesale represents However, this grow up DTC was strategic as Today, while has our versus wholesale a down wholesale from than down up focus has on wholesale with and business. strength of International X% U.S. revenues, our and And last U.S. U.S. by half U.S. from are revenue less revenues

drivers main of to our are business. U.S. There the slowdown wholesale two

consumer. on the put the price effects U.S. First, of has macro inflation higher economy a pressure slowing sensitive and increased

in demand. our supply our inability all rate distribution The resulting centers quarters, challenges higher mentioned our we inventory resulted chain have to U.S. for as fulfill growth backlog created Second, lower and customer in in actions of regain fill U.S. floor to and newness out these address the restore business. of last issues, our less quarters. competitiveness taking few stock number a to the on wholesale We're several

on Tier know select are of price gap X a our number which First, elastic the Red we versus Tab widened offerings, we too are wholesale most where surgical and competition far. taking reductions price price

taking Importantly, and less we of are women's assortment price are all in fits, stores, full U.S. not the vast price price U.S. reductions the fashion XXX wholesale our which majority mainline nor sensitive. including

continue our international results. Finally, the are demonstrate seen price any power taking we we to pricing strong businesses not on by reductions where as

and allow an seasons. us for strong continue levels, hit will Second, lined and back with which order seeing fill we retail. result the levels better to rates, positions to ERP the our the up are inventory now at in as will newness implementation in school this improve, in Further, and nearly historical us improvement behind to us, floors back have holiday deliver we stock in sell-in to for July key to

results confident will forward. wholesale our improve are going actions that these U.S. We

growth full turn The we the Due on low single stronger let's grew the brand half. top our executing first of three bottoms progress than Now I'll in year. to to low XX% men's. digits with last speak digits leading single for to Levi's our strategic with achieved grew slightly shift, starting Levi's with women's growth results priority, priorities, the our ERP brands. first brand's the

half XX and and to first giving with in jeans the we denim XXXth with strong across strong plus seeing of more overall, digits women's. worn trends $XXX,XXX of against market low super up helping in and globally year particularly greatest XX% and generated more demographic with demand marketing maintained drove drive leadership growth with U.S. drive In jeans than gained We've revenues XXX mainline year. U.S. XX share stores, old anniversary ever share women in double men's U.S, also celebration our with key looser XXX's rises. for the products the share premium lower story We boot we're consumer, The income category like of the end the impressions demand, for billions in our the gains options the our to low campaign last fits the continue

second DTC being our first. priority, to on Moving

DTC stores, global led I strong, As continued by and our stores also growth destinations. operated new Digital Gowans. flagship the our positive company digit which comp strength by Jason investments and led in impact QX, in across digital Officer, in U.S. broad the based mainline geographic all traffic of saw seeing DTC delivered Chief double benefits and was growth sales mentioned, also of segments. our tourist in strong We're

fulfillment experience for DTC and with grew of the Kentucky continue we better just XX% the begin Coast in and customer in from online, opened East driving business across the was of Consistent and and global both journey. traffic Strength state higher art shipping our offering there expand improving e-commerce conversion. month. growth Our digital a breadth all the and we'll driven QX, user while in as we this center to by brands e-commerce,

inventory bringing satisfaction lead over accelerating completes improving our This and business digital in-house, customer agility margin e-commerce positioning, U.S. more expansion reducing which drive times, and will time.

values our represents Overall, company. penetrated and million we in opportunity also versus are as tremendous membership. a channel prior businesses We member Loyalty for sales segments, signal peers a continuing continued and program, profit up average remain digital the growth drive e-commerce and XX under loyalty and our transactions year. with positive across transaction all grew members, to over XX% expand over the

largely strategic priority business. growth both women's a last the third is tops Women's diversify was respectively, of top our and total Levi's half by first year. On more basis, X% the particularly to Asia. Our than continue revenues and driven grew in brand, company to X% on XX%

men's. including rises, businesses dresses, remain fits to about In addition to our Levi's women's overalls. grow cargoes lower driven we newly ongoing strength her, enthusiastic opportunity growth by significantly in strength from Tops in saw offerings. also diversify for continue our denim were to these as and We launched

versus brands, by sports store quarter, As impacted accelerated and were the Yoga's two Dockers Dockers continued quarter Overall, while for Adjusting QX in the up X% brand with and with flat for in and up brand DTC was have other sales success The digits additional XX% our would Southern to growing bringing saw shift, in dresses U.S. QX, ERP weakness it in the count revenues California, notable the sales total bras the now Beyond opened driven continued first-half experienced XX% stores strength. by in second XX%. DTC four. up been . international in also XX% strength with first the wholesale, up half. double

partners we met and over is brand are around everywhere visiting of it to of and our including we Michelle have a I turn Levi's with been and customers world. I this traveled conviction and international I the Before inspired number quarter, consumers, our India, franchise strong extensively future China future. markets, their Levi's the incredibly by my And have of to the We've share and winning. and key and in view last the Harmit strength Mexico, we’re Levi's brand Japan. wanted

in strength give into and the into momentum DTC fix holiday we're we and wholesale the next confidence international combined fiscal year. end-of-the year actions business taking we me go with U.S. accelerate to with can key our as Our that season heading

played come is big, as path businesses and business, has our and also Levi's going good in Finally, smart She to rolls speed is digital forward She up current up a a into work organization am role later on tops for our also moves also organization figuring company of women's up this wholesale. commercial all the organization. lot remit confidence confident, the organization is giving over globally, how to on in the year and which Michelle key starting to the through brand has to some set and great long-term. out opportunities. our the make has come see me and our I future and U.S. to-market you're more dug products Her all those P&L She XXXX. Levi's is in the

I'm be confident before, now hired to next her said a and becomes even she I as she this great As take after that when myself she I months successor the sure would level CEO. company will when six of was more we

With to that, I Harmit. will over turn it

Harmit Singh

and on second revenue, to quarter for objectives margin while our today our the make-up We challenging our revenue advance our Thanks. long-term majority strong In delivered are in direct-to-consumer environment. These objectives. in of initiatives positive businesses global drivers growth profitability business. primary inventory, our of strategic the continuing a momentum and our the and we are in results channel international delivered seeing total and

leverage and data our In confidence the major made long we Also, are businesses. to improved reduced investment, our end progress also ERP areas allowing several in accomplished key our us the we year also business. foundation DTC U.S. impacts productively. position levels commitment solution we revenue below year giving now will levels, now We term digital to ahead meaningfully to exited our say we is other more our of with upgrade, inventories quarter, our the service prior behind highlighting inventory initial cloud and our growing U.S. quarter of plan. with a us. to That us a the also milestone Related as

the the the U.S. second half a wholesale, end impacting the While stronger EPS costs solid growth company. expected and the this margin we gross international perspective, sales for and second In year. put this will the a and up The given term. be we And back-half from longer have to are and in Chip as drivers business EBIT are margin our greater expected half are second back-half incremental will representing prior margin to DTC product the margins, sales half the and mentioned next also year. results all first-half. To with to benefit for a with a from revenues, into dynamics year, drive lowering higher we year outlook share tailwinds structurally stronger freight, business accretive initiatives and the foundation in laying of several same the of lower gross businesses, run-rate

ERP X% now $X.X provide performance adjusting our prior Total on the company move outlook. color year, our revenue more then for shift. billion when will decreased down I and QX versus of to X%

wholesale across broad-based top with positive in XX%. posted Our continued Company was sales also channel XXXX growth down growth growth XX% Global up and geographies, operated growth traffic comp volume. driven XX% QX by segments and higher on accelerated, across DTC of all e-commerce with brand. XX%

strong last Excluding the more performance of in declined Europe. offset than U.S softer Asia low growth digits top by but in Growth double XX% channel Latin the and was on and the America, nearly year. shift,

up sales airfreight full XX.X% Favorable price of record against costs. Adjusted gross product points channel performance. was year's margin the geographic last a QX XX higher and and and more price mix, lower than increases, basis FX offset record impact lower

XXX approximately are margins gross XXXX points HX basis our higher reminder, a As XXXX. than

discussing continue expect more color when to provide headwinds our I'll to several the cost We momentarily half. in transitory outlook. abate second

to The Adjusted quarter EBIT operated increase to SG&A up that support were store diluted in million, our well campaign in and to was our last X% line EPS $XXX count up A&P company primarily investment growth Adjusted XXX $X.XX. HX. as margin expenses marketing as was the in X.X%, largely was expectation with support with adjusted DTC year. ran X%,

on key the the countries. all Americas, Europe in momentum XX% excluding growth driven Here increase Russia, last year. [Andes] strength a net markets. a due declined of the last and growth Brazil on than to again highlights XX% growth of was of Latin X% by by excluding XX% XX% segment. Russia (ph). Mexico, DTC revenues X% year was with driven broad by growth grew, top In XX% continued up America, the XX% all year-ago. top across of based up more particular, saw DTC, top in DTC, growth on

countries growth Germany, Italy, Spain. by Europe saw increases UK, across most Poland the led in and

Asia’s very further performance growth accelerated with DTC. channels, driven again up across by XX%, revenues all particularly strong

return trends the also and in saw are are mortar. Thailand, in which across growth all pandemic we're sales levels improved channel with Japan and Turkey, seeing pre we strength and highlights. to We by notable encouraged brick India mainline China,

operating expanded leverage. margin to has points due Asia and stronger margins XXX basis to XX.X% gross higher also SG&A

looking sheet flows. our and balance cash Now to

improvement XX%, last QX quarter make to XX improve point units on up levels. up continue were our sequentially dollars We from were up plan and X%. progress to inventory inventory

of Importantly, did the co-products expense gold improvement current at healthy, two-thirds inventory with than more and come of total inventories margin not are representing inventory.

prior to ahead end We and of continue year year the to below expect improvement plan. sequential our levels

benefit be omnichannel The aided forward, and inventory a and real-time basis we're receipts peak of by including an our network. focused chain. going on our Inventory ability IT recent across prudent supply our inventory a enabling our globally moderating our ERP, to into is will diversified and of approach behind to taking our leaning investments, us chase, visibility on management

free-cash Adjusted from prior second of was up quarter, $XX in million $XXX in year. the quarter flow million the

year. inventory the to continue our we As improve throughout

expect cash also the year We free to end positive flow. with

are million quarter, capital Our also generation returned cash ABL us this for from approximately last per we QX in up million borrowing $XXX XX% increased which shareholders dividends, flow quarter. have In declared HX we to QX versus of last a and a repay allowed outstanding to prior week. $XX year. of year the last XXXX in Dividends XX% dividend $X.XX with share, via in-line

to Now moving our for XXXX. fiscal updated guidance

While we businesses trends our we are trend. due to momentum, continued in experienced and we than international stronger outlook where U.S. softer our strong anticipated expect DTC have wholesale lowering

growth compared of X.X% X.X% as are We guiding revenue of X.X% not X% to to previously. to growth

factors to There fairly $X.XX the equivalent driving EPS adjusted to year three of full prior $X.XX in $X.XX guidance. of range range $X.XX. expect within We from to are be a a change

deleverage. lower First, resulting and the cost slightly revenue fixed expectation our

mainly HX targeted due Second, losses And and FX margin to actions. third, tax-rate. our gross pricing higher non-operating lower a expected

the in a digit For segment, in from trends range dollars reported expect despite America. up now previously DTC the expected strength and of low-teens growth Americas Latin growth in year for we in and based guide. expect the by digit U.S. the low low-single in low-single on growth now within stronger previous still the Asia, improvement our we guided U.S. is continued digits and double decline

basis XX as drive decline prior expectation point wholesale. to end is basis in an volume taking points basis to The gross margin expect U.S. year, decline incremental the is XXXX. a are Despite to for previously. from due during XXXX, approximately share and point the contract to expected now we strategic XX capture year's XX.X% will gross all compared market and XXX Adjusted puts basis actions versus up we the takes pricing that margins points almost XX

some color guidance, I'll new the in our context expectations into HX it put provide To total. around

digits. revenues expect mid-single grow We to

versus in XXXX same versus expect HX, actions. our rate product maintain and pricing As slightly in XXXX, will HX. gross U.S. up the to by is X% delivered rate lower sales costs growth expected we as maintain to margin driven plus the HX Similarly, partially targeted flat wholesale Adjusted HX. freight, run offset by we mentioned

benefit corridors gross are pricing However, year-over-year evenly lower basis than slightly year. materialize expect more margins QX the product fully QX distributed than because over up more the actions between prior of XXX and slightly gross to point costs XXX the margins doesn't points basis QX, we until contract with

also EBIT in points than is total, but margin basis adjusted with at to nearly EBIT XX.X%, significantly QX. XXX HX roughly Looking a anticipated higher expand to adjusted margin QX

we XXXX low in up we an to last setting double digits and structurally year conclude, expect for the year. us well HX beyond. Lastly, tax To stronger the X% rate end versus expect

higher U.S. and account growth, a our of our for DTC stabilize smaller greater share the our at revenue, wholesale Driven less in will than action international pricing by stronger execution Our ongoing surgical XX%, a and of gross end respectively. and XX% business margin, share as nearly XX%. premium businesses year will

Inventories are prior XXXX levels. expected to end year below

exit to XXXX flow And remain points we a importantly, of expected Our XX% than we margin our of substantially year margins the is our payout will ratio shareholders Day. at with XX% gross basis return of QX XXXX continue with to higher higher cash targeted Investor XX%. to than to XXX% EBIT north communicated XXX and free-cash our

our position wholesale, large continue, growth improves fast U.S. generate outlook and leverage to our wholesale as DTC our to lowering we COGS business stabilizes strong model we while beyond U.S. significant international unique and XXXX. growing will Lastly, financial which businesses because of HX in are expect the

and Q&A. ahead go call now open the we'll that, for With

Operator

comes of JPMorgan. Our line questions. the you. open floor Boss Instructions] question [Operator Thank Matthew first for from now The is of

Your Matthew. question please,

Matthew Boss

Great. Thanks.

So update you then if trends could the flexibility the category macro elaborate your the an demand back denim on and relative And what in Could you in U.S. that on to expense trends seeing globally today? of Harmit, Chip, current level trends? you're worsened provide Europe share market is half?

Chip Bergh

Matt. Thanks the deeper a contrast Hi, with share between in question. little the market U.S. and bit category, the take for then talk I'll -- dig of this Europe. I'll I'll and and kind start

the category, here of U.S. on you get quarterly that we the all, first in may So only remember data

don't or internationally, So outside data. share the any market we data really of market U.S. get don't -- get we

got have And you swings downs, XX as extreme category, the we volatility. category wild U.S. the look data. peaks, month lots spike we've take all since is a in the of biggest May, know, So up if we within pandemic, downs, on through are basis past there been extreme growth. extreme a But against

look the against a we market months on past past a on is today was The May I'll XX% U.S. May when And time, denim XXXX about in point, than on past versus percent a the key period than in in in XXXX, XXXX bigger dollar it peak. a XX bigger value past category up pre-pandemic the a that's minute. a here right basis. XX-plus overall is we the talk That's share was So category. month the it the and take at of category of XX-month XX% XX that basis were though, versus XX at you modestly look if down that spike we're now. base the months basis,

I'll is very digging wholesale, which remarks, our premium is our digits, have the In expression the the because really which being of digits control the look speak U.S. clearly of our are dynamics. and business, double a story business, category really two that is soft, wholesale channel. And mainline we at to that value much different there being and two as is we're most of sensitivity, U.S. the paradoxically some softness that. I in when it squeezed. consumer strong or brand. both double U.S. script, moderate wholesale DTC stronger. we the U.S. prepared are And lower of in dynamics, more Much over, channels, we the U.S., down But One some key down into price is brands driving in paradoxically, very big income say talked U.S. in

had But also, internal the the and causing rate chain out own challenges carrying, last of supply calls, fill levels customer were service several stocks. led ultimately, as over we've issues inventory were which we've issues to talked we which our through customer with

levels to levels are seeing service inventory to are our levels, closer that improving as that returning normal improved our we improve. is the those improving sell-through. And Now this which we into conditions, service out-of-stock we're quarter, are are levels new seeing

optimistic we're feeling So that. about

half, wholesale U.S. business first the our versus X% is for still But pre-pandemic. up

period. So despite a we're the such double digits, fact that down against up base big it's

of mainline As first I relatively to comp stronger, QX. paradoxically, said, strong and e-commerce really all And digits second really quarter in in much in U.S. is mid-single half. full-price with low DTC the well. was U.S. double-digit and performing e-com kind growth DTC

I guess market because going which, talk a to real grew We the briefly, part past last this thing just I'll indicator share in say about of health. market brand it's quarter. key share the U.S. I'm such

take to men's moment, Our two on for the leadership the marketplace. up share going the women's. a women's. time here XX a forgive years men's in probably that XX%. share took is the grow you’ll share was on the decades, were victory number and up to I'm women's, for to X of in market We to in me more We only little lot market if And growth here. I've That major share first points double point with the brand we on one in brand time than first and were been X%,

share one where also in the mainline our maintained leader. we strength which key kind with share are -- speaking of we to up, market and premium again our which point is also XX $XX is year tier and XX we leadership target the are old, our business, consumer, of the We gained to

get have suspect similar. it. pretty with But We don't we We picture quickly, real annually is market and as I probably same size. get data Europe, much don't share. market nearly information that on

a heard strong. base. remarks, Europe Excluding very, up off X%. the XX% DTC is picture Russia, pretty prepared of was coming very the you That's similar, And as in

up was DTC Traffic double Europe. in mid-single excluding business are double up channels in own still digits. digits our -- Our is and Russia, comps up was digits

in way, easier, in Europe Our second the much the get half U.S. both by comparison, and

from And numbers that us of kind standpoint. from a so, is a tailwind

we softness in in are seeing wholesale and also wholesale. -- the was down are budgets for Europe But Europe being U.S. their in Europe, The open-to-buy customers in with wholesale also cautious quarter.

think as as I So more do of for the is we having market. a picture of and the robust U.S. data is fairly without Europe, for I us, say would Europe, premium similar.

in tends X Tier even of very So, general are the points, price Europe product at it be wholesale, very, similar. to dynamics across most but higher

to... want you do Harmit,

Harmit Singh

Yes.

So levers about bit let could little further. doing. me we me what talk just we're talk But let push the that a

The tale this so working. Matt we've the doing a base is. on worlds, channels. also of as new halves is our really tale to -- a two and of readjust a tighten overall, a everybody tighten, you're international good that revenue we So not two is far whatever it's and expenses. of there base year familiar can to What things call, it's is been two Direct expense working. and only channel example was COVID consumer because, tale

U.S. tightening related putting we're costs and to businesses, wholesale. -- to we're So resources we're those reallocating fuel

other thing discretionary and on we're done I'll is, some we costs, overall examples. really give The focused you have

hires the new tightened like. and We travel. tightened We've have

heads. meet been other worse, meet we'll that still on to look from on of fixed we we're we've people consumers, what's customers, term, COVID. will critical example, that hold. of hard kind during Hires, travel like because things the perspective ensuring for did costs that long this we're hiring things If the for travel, take hiring tighten, and a is heads. while look business at travel get open. tighten still we at We're new If So most not

our is business So the quite have few run for an but realigning drive the principle. this a the to I we options available, other prospective important term. cost again, tightened think, base And bit long we revenues,

prepared a are ensuring costs Day important that XXXX EBIT tailwinds. exiting the we get think commodity becoming some to a we in us. which pieces Matt [indiscernible], tailwind, about profitability is, going said are for was in our I thinking laid think and critical out to But there be is example, we for headwind my number COGS, the that are point that to drive it critical I thinking and remarks, Investor HX, start so it's and that that magic year maintained, especially at as margin about costs and and

Matthew Boss

It’s great color. Best of luck.

Chip Bergh

you, Thank Matt.

Operator

you. Thank

the next comes Guggenheim. line Our of Bob Drbul question of from

Your Bob. question please,

Bob Drbul

you're margin, the more the half? between expecting expectations, gross back little you Yes. you Thank a that trends When outlook year, color decline, for QX QX more Thanks. you've can from gave Harmit. cadence just think us of on guess the but the and just probably and you some I question the of in my quarterly you. the in about that half second lowered the give

Harmit Singh

Bob. Sure,

revenue the reduction the slightly in than margin slight about substantially in I HX guidance. outlook, we The a substantially largely three anticipated pricing First, despite margins in Gross targeted factors margin and as And growing. higher. what but tax remarks, that largely that's is are last XXXX, HX the because rates prepared EBIT his of factors talked the better. really still to up Chip lower really piece prepared gross in in remarks driving mentioned actions is reduction flat, and

In know, margins improves. both you and terms comparisons, of and for ease QX, Growth QX. the sales into color sequentially QX and gross on as QX

until and And that up which is inventory in fully in we at lower -- have product we're when to The is digits QX prices cotton working up we're doesn't high cotton We lower going single QX. that Our digit bought the still is different. substantially costs, high, new in the inventory is of was through QX. and benefit QX. single low by view materialize largely driven

new In improvement is fact, I price in think about points. the XXX basis COGS

QX And will is QX something EPS the we'll in weighted because mid-single of expected the SG&A see not about can be of in see versus QX expectation. we double but EPS, towards to so that growth margin expect we and up revenue in and the piece substantial a digits that's it just XXXX. -- only in QX, gross HX,

other note what of for call, are, The all I only that you recent would thing I probably trends.

DTC Our May. Chip filling trends we've outlets. especially results recent We're are in similar trends are we and wholesale as of seeing sell-through, stock. making orders mentioned, as positive seen -- sure in there trends is But and

the And the we about so, ensure sometime targeted think reduced the once will XX-odd the fill for days. that talked next progress. in addressed, stock we I situation see prices then And as and is fit we

that that's I continue to consumer as consumer can where accelerate to we continue we we grow share. demand think price-sensitive this feel and address

Bob Drbul

you. Thank

Harmit Singh

Welcome, Bob.

Operator

Thank you.

Our from Jay Sole next UBS. the line question comes of of

open, line is Jay. Your

Jay Sole

Great. Thank you so much.

So a where you sort as reason channels? those more sort brand can helpful. a it sort themselves the this you we bit of my divergence. How much for how How income be hoping that divergence is sort that just are the Maybe maybe channel? channel. you. like supply of unpack well. little just can issue? not in the is the those the is the of question, how not resonating bit, performance is channel income much of much channels the in brand But wholesale that Thank If DTC is is much about the middle DTC performing would that It versus the chain sounds tell can U.S. Chip, of performance consumer little lower much between that consumer, talk us

Chip Bergh

that's And strategic in kind Levi's. control would from U.S. really, we control it's results. take on the -- it the we're in big question, stores, comes really we're experience, with is good we're in the our as and focus control into assortment look store and mainline, paradox globally a in wanting -- really especially there, of in at And why the DTC the the that's we're of And of is, performing ours brand, the consumer consumer as heard buy really well. we including success we're to seeing are stores of what of focus our good results, a the that's I the control in business, say e-commerce including Sure. because you

double the U.S. consumer, are double clearly as is it wholesale is okay? digits. of digits. we down some So our down dynamic, wholesale the said, think value I brands

competing of to wallet, new channel other that dynamic, think summer is needing to under definitely Some all we're some And trade-offs now. a lower and feeling for tough we're is the of suspect pressure. vacation that having But to I jeans. of I choices moderate income it. it reading versus income make And consumer pay consumer's same the is some dollars of definitely I the that's pair are being think out a now spent moderate that of a consumer newspapers, for

in -- had loaded as that bluntly that issue think I that as week. within are literally I it inventory is the also And the improving say we've But our customer are I levels the that's improving fill in we because something This there's our suspect part of that dynamic, that congestion week our stocks, experiencing we start as of it. fill said closing and sell-through. improve. our as third that abated as out fill We're is prior of more over So I'll quarters rates rate that's centers earlier, into control. inventory, that to normal, we our were or out seeing towards rates quarter and now has distribution trend our

we're optimistic about So that.

strategic, and the they making rollback. this selective only last partial point And are point is then price about some very reductions,

other to wide in wholesale. U.S. years, the it out last widen the including than increases that in taken going the too have talking in the two And U.S. we of is in XX we over than have more items items including brands fix wholesale. put globally, price the that and six sell we that So some of about and our And in gap XXX wholesale versus price in to price-sensitive items we're price line, U.S. here in the sell here on U.S. most the items wholesale But U.S. the into that. we of perspective, we're out more gap

stabilize we well, from this to than less less XX% than gap, But base than we've depending should closing the analysis want or use, be in with customers bit what our -- it business of going price little our this been that engaging this of the on volume. from total X% we of as on by know further. it's it's a and So you items it's XX% our analysis total assortment and number less to know our

of going the business versus a fiscal supply period So sharper the addressing these of momentum give year to even and growth combination in our combination as multi-brand in holiday to this gap be competition confidence critical on of second chain should stabilize the we're track and bit and us year. deliveries get the potentially price in into into The next and little customers. wholesale two wholesale those back half our the things

Jay Sole

Got so Thank it. you much. That’s very helpful.

Operator

you. Thank

question the Ike next line Wells of Our comes Boruchow Fargo. of from

Your question Ike. please,

Ike Boruchow

reach. the taking the follow-ups margin to on question. Thanks Harmit, Hi. for two guidance

due out once the back big much but can the QX because Maybe year-over-year then in flip Because kind of more margin initiatives? fourth are you favorable, Just the Is and to downtick XQ whether gross you're not then what a the And guidance understand Like in said? clarify the in improving just why I'm that understanding we it's that of to that pricing pricing heavy the digits why -- actions. mid-single these clearly, that the become quarter get versus up little I margins XXXX? seems half? these get does you giving. year-over-year of SG&A to that gross

that. So I just wanted I'm to make Thanks. sure understanding

Harmit Singh

we our cut that's whole inventory prices inventory is in future and just QX still inventory to mark core, the is behind we That's should because we down. have we see why that margin it And lower Yes. QX, will new because really the carry have QX, then the that The match inventory, largely over switch. of into receipts gross manage new did to QX, us. and QX. the QX, in in the What to on have we're still We big flip full of to going Ike, dramatically some In in it why COGS. -- the demand. impact inventory we selling didn't we're that and

-- And now, in take that about from pricing big so, see -- and about days. largely the the is pricing. you XX that's we It largely month a From pricing it's similar. started delta why perspective,

a you'll is in more piece QX, bit and it's little a QX difference. but that of little COGS So impact in largely see making the the

asked are end third, HX very think, it going One I it's the inventories, not margins, north they points to And in term. And this commodity be And XXX XX%. of XXXX, gross points That that improve clean, half to in out and the fashion. first is time, bearing that think another] that's probably was because promoting and the relative at of a are et was in We'll difficult you, year two-thirds were time predict I’ve prices. At XXXX. second point goes look this cetera. probably over margins XXXX seeing XX%. second levels some cotton by half to better. question [with half headwind similar time, at huge we a basis of this longer in were point futures, relative because at for (ph) Our XXXX becoming were I tailwind we least is XXX stakes time to estimated of we still basis in

a stays then, that tailwind in of bit So XXXX. a that's

Ike Boruchow

half? back in the And the SG&A

Harmit Singh

big mid-single digit, low a we're about mean SG&A full digit, for on really quarter driving year HX, the it mid-single single to Ike. think how we three, quarter I are that's four We chunk -- stage. low this thinking stores, at still The digit, digit. mid-single it. a of That's for opening

we the basis in stores it's a XX-odd XX, second think first opened in XX the stores. on half, net half, I

driving So mentioned et really the which cetera, are fairly setting But as SG&A, that's most up DTC et the tight cetera, I this at long is of costs, really term. earlier, discretionary for stage.

Ike Boruchow

you. Thank Great.

Harmit Singh

you. Thank

Operator

you. Thank

Our line Stifel. next Jim question Duffy of of comes from the

please, question Your Jim.

Jim Duffy

Are U.S. and would perspective with but second me Harmit, And And Or slowing promotions? environment, trends in the I'm volume well? on buying little Thank to your also you as Thank DTC. on what's U.S. your and you you from curious for to this taking more from stores current your a for activity my promotion? promotional the How questions. respect consumer assumed in is backdrop? focus characterize the you. More outlook driven full consumer from half consumer Are DTC. in they speak stores if price seeing price? resistance could by you

Harmit Singh

Yes.

recall, last promotional. So we see was quarter fairly quarter Jim, promotional. four in promotion, some three, year what's began promotions, but to fairly assumed was if you four Quarter

And time. our we ago, promotion year kind pricing four, HX probably thinking people same we're trade actions, quarter getting offset at the promotional taking extent. better are probably So it's a than is, that are an slightly were end deeper of what getting this our better. and is That's some less last better, on three absence quarter HX. better, quarter the slightly help inventories wanted will deeper there promotion of inventory by probably year because in set promotional, two pricing taking than view than fits on by the actions, better probably is to promotions inventories actions Plus, pricing because slightly to getting

of factored that's of So kind in. kind

outlets, question as U.S. well To business our and is DTC own about the stores. in your business as DTC our our mainline

$XXX,XXX like days largely sensitive. et promote we Father's earning do very cadence same Friday Our price targeted. consumer our the it's for have I cetera, Day, consumers cetera. happen, mainline, mean, Black where but example, on it's will outlets, and too. plus less And we're for et seeing important, the we

And some also the some are Tier of of outlets. the in X sold Chip our products pricing, that talked about

should promotions own outlook. stores probably our So that overall, in for But are seeing less adjust wholesale. the than we in

Chip Bergh

guess other now season. is other of our channel clearly at I the end just DTC working I right one and is thing thing, that newness add is would in Jim, we're

and is back-to-school. else shop season. to going hitting setting ready you product everybody look us us for around, the for because next month, the up this a see begin get That of or if online floors lot go trying everybody to you're So later will sales

product excited have we've at in coming we're because newness definitely excited selling but collaborations resonating. through and and really of we're that when it's the some -- And product, price the next products no got product [indiscernible] we about no full And when new and works. problem season the

Jim Duffy

you. Thank

Chip Bergh

Jim. Thanks,

Operator

Thank you.

Advisory next Telsey Our question with Group. from Dana Telsey comes the line

please, Your question Dana.

Dana Telsey

afternoon. Good Hi.

XXX, quarter, the prior channel be Thank to expected are in other number, channel, the for the was of how half how the back million? given I from the think And compared XX% the you. which same looking birthday mass And wholesale then did CapEx, As $XXX there? is in with year? being down the differ you marketing, think businesses? is about then wholesale around the what planned to marketing that still last you Or mass

Harmit Singh

So I the question, indicated million. value think channel give question, on the I'll CapEx we I'll CapEx to But answer the had and Chip. $XXX-odd

million, like $XXX for expectation between CapEx and that. $XXX million something Our is

areas. investments towards on in about So and and talked technology broad just opened our which I had And then Dana, to two that doors, Europe. We really a be new omnichannel around DC, e-commerce some business. will infrastructure and digital the upgraded an CapEx. the oriented accelerate building we've are we our -- about what Those DC largely and to we the ERP talked DTC, we're is in

our infrastructure So algorithm. propel that's at growth why really investments we're in service to looking some growth the and

Chip Bergh

I right But quarter. tough our say, which mass strong the question, wholesale challenged, general in of of the of under guess, is and results, And saw pretty -- and forgetting value I soft. the And would channel last Yes. consumer overall mass economically but wholesale you second includes I brands, also in general, last pretty that may is now. is think their be their balance balance the part in and the softer I three Amazon,

in space Levi's time, So down that focus you in channel. -- one Levi's that trading in have channel, is Target that's, but over last I with the think for wholesale roughly is have collectively, the which of Did sell that do think, respectively, of several performing Levi's for double our years we've say how Levi's. other I to space And Levi's in with more with is the the We the Target. digits. out signature, on had expand is we're I target. question? is do an Denison And floor success going we Target continue over to performing line of And elsewhere how for floor would

Harmit Singh

I question your And think, was, marketing? Dana, on

Dana Telsey

Exactly.

Harmit Singh

Yes.

adjusting in in will because the first more our hard. a marketing fell spent working a be that of the little on ago which is are year of than depending campaign world we we on the and it part XXX in HX, half, the less So expenses half then second

overall, as a slightly marketing a of is expenses ago. year than lower And percentage so, our revenue

Chip Bergh

have just, be plan, I wholesale to campaign had where half. our expenses the did is XXX blunt, U.S., the to in mean, we've globally. below And Yes. advertising in cut We U.S. down, second the

front spending loaded Our was this year.

balance And softer what coming in had dollars, the so, little is outlook we second the we half, bit of spending the top of revenue, keep guided half But originally. just have in line total back books we as to to in with a line. a the roughly second kind the scale our and down spending the percentage reflecting in have that on

Dana Telsey

you. Thank

Operator

you. Thank

the Vasilescu Paribas. Our line Laurent of BNP comes from next of question

Laurent Vasilescu

taking Chip, you Good Harmit, hear my for could me? afternoon. much very Thank you question.

Chip Bergh

can. Yes, we

Laurent Vasilescu

taking for very my much question. Fantastic. you Thank

expecting Just us bps on gross helpful bridge you around margin, product was the questions, about was headwind. noting a Harmit, two a Promotionality question. two XX cost follow-ups, bps. One very last gave Ike’s XXX quarter are can you second of the in the just quarter? the out Maybe -- for you for maybe of for promotions much you can that audience, terms half year? second parse And how you the

China? you're what seeing that Maybe And level. question, every to seeing give separate Harmit, to in back China then on color hear of could that pre-COVID just a Are improvement bit great you little marketplace? month is a sequential in on

Harmit Singh

Yes.

quickly I'll help both. answer So

year remarks, I HX, up. gross last ago. to The -- a prepared mentioned margin versus in flat to year my relative slightly So

So say adversely points, XX basis impacting. to points basis XX pricing I'd

ago, that. second COGS half year offsetting really a So

flat. broadly is the -- But a the So that's little the in I more that's there's QX, is driving mean, bit less broadly, benefit pricing tailwind. And that's COGS largely between what's factors, a airfreight, QX. two really benefit. which and in of COGS

COGS So benefit into obviously XXXX. we the rolls exit higher a year that with

quarter XXXX. with than for question two Michelle, China. great big recently I, your businesses is along time, and business was Quarter them. The Chip in higher our in a China. were up was teams To

in a along As than is bounce a rest with higher double Asia, from guidance, China the of we digit I Asia. think the slight reflects think growth we over the rest of the back quarter, which teens as last in year, think our Asia high

in going different really see China be China's and product about to seems markets what the we the in watch the our market think We are and is But in they're little that China and Chinese was that there, working. long for and before there XXXX. premiumizing We're team markets. how pre-COVID focused in stabilizes still business to the expectations Asia, some is on there premium-oriented a happens offers

Laurent Vasilescu

very much. Very helpful. you Thank

Harmit Singh

you Thank

Chip Bergh

[indiscernible]. I it wrap think we're going to there

for with penetrating Okay. and your we very want again forward We're to you and dialing I time, in for thoughtful to look just everybody and at speaking thank questions, quarter. next and

Operator

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

Levi Strauss & Co. (LEVI) 6 Jul 232023 Q2 Earnings call transcript