Welcome, and thank you for standing by. This is a restricted line. This meeting is related to Wells Fargo business. Any unauthorized party in this meeting or any unauthorized use of the information communicated in this call is subject to prosecution to the fullest extent of the law. Any unauthorized person on the line at this time, including press or media, please disconnect from the call at this time. All participants are in a listen-only mode until the question and answer session of today's conference. At that time, you may press star one on your phone to ask a question. I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to Ike Boruchow. Thank you. You may begin. Thanks, Courtney, thanks everyone for dialing in. My name is Ike Boruchow. I'm the softlines analyst at Wells Fargo. We appreciate all you who dialed in today, and more importantly, we appreciate Levi's for being with us. We're lucky enough to have CEO Chip Bergh, CFO Harmit Singh, and of course, Aida Orphan as well with us. I want to thank the team for making the time in such an uncertain time for the softlines group. I know this will be really informative for everyone. Before we start, I want to give one more heads-up to all the investors dialed in. This will be basically a fireside chat for the H1 of the call with me asking the team questions. Around the 30-minute mark, we're going to open it up to your own questions, which the operator will help out with that. Just be aware. Okay. I guess we'll start it off. Chip, thanks again for being with us. I really wanted to start with the top-line visibility and the top-line drivers of the business. I know there's plenty of time for margins and cost questions later, but specifically, the topic of denim cycle comes up all the time. You guys are the market share leader in denim. I'd love to get more perspective from you just on what you're seeing in your own denim business, how this is informing your strategies into 2022? What kind of tailwind is this in terms of, is this multi-year? Is this 12 months? Just, I think that's probably a good place for us to start. Okay. Well, first of all, Ike, thank you very much for having us this morning. We're delighted to be here. There are a number of factors contributing to the results that we delivered this past quarter. We were really pleased with our overall results with net revenues up 3% versus the pre-pandemic levels. Really strong profitability. It's clear that on the one hand, there are some good tailwinds for us. Clearly, the casualization trend that started before the pandemic and goes back quite a while here in the U.S. The pandemic has accelerated the casualization trend. It is now I know we've got folks on the call from other parts of the world. We're starting to see places where it used to be suit and tie and more formal business wear in the office. We're starting to see casualization happening in other parts of the world that have been kind of holdbacks, if you will. The pandemic has clearly accelerated the casualization trend. We've been talking about these new looser fits and silhouettes, which we actually led this trend. I like to say that's what market leaders do. Market leaders drive category growth, that's what we've been doing here. We led these trends. Actually, before the pandemic, we launched a collection, a small capsule really, of looser baggier fits. It was something that the team had picked up, we launched it. When Levi's does something and goes big, it can move the needle. Those fits caught on, and we just kept doubling down through the pandemic. As we're exiting the pandemic, it is clear all you got to do is walk down the street. These new loose and baggy fits and silhouettes are definitely driving the business. I think I was the first one to call it three quarters ago that we are in a new denim cycle. The last denim cycle actually predates me at this company. I joined the company over 10 years ago, and the last denim cycle was really driven by the skinny jean. Denim cycles are good for the business overall. They're good for apparel overall because, as the silhouette changes, it also drives changes in tops. It drives changes in footwear. We're clearly benefiting from all of that. I would say it's not just the tailwinds that we've been driving. Our business is really, really strong. I would come back to just the overall strength of the Levi's brand around the world. We doubled down on marketing and connecting with the consumer during the pandemic, and I think we're starting to see that. Just to dimensionalize what's happening in the denim category, for the last two quarters in a row, the jeans business has grown faster than total apparel. That's U.S.-only data. It's the only good quality data that we have on a shorter timeframe. The U.S. adult jeans category over the last nine months has grown to $11.2 billion, which is significantly ahead of both the pandemic period, which was $8.5 billion. Pre-pandemic was $10.6 billion. That is, I think, a real clear signal that denim is surging. Back to the brand strength. Our denim bottoms business grew double digits this past quarter, really fueled by women's, which outperformed every category of our business. Our women's bottoms business was up 18%, this was pre-pandemic. Men's was up high single digits. We're feeling really good. Brand strength is probably amongst the strongest it's ever been, and we're driving growth across all the channels. Super helpful. I guess one follow-up to that is, the category is clearly doing very well. Are you taking share at the same time? Can you talk about, are there brands you're taking share from? Are there certain outlets where you see more share opportunities? I guess it's just, you have to balance just the category growth versus your own ability. I know your market share is already the highest out there. Yeah. Are there opportunities to take share along the way, too? Yes, absolutely. We are building share. In fact, just to dimensionalize it on a year-to-date basis, this is NPD data, the U.S. jeans market is up 5.7%. We're up over 6%, 6.2%. That clearly suggests we're growing share. The share data we get, which varies around the world, clearly indicates that we're driving share growth on the women's business. Men's business is more well-developed, as you know. The share doesn't move a whole lot, but we are growing share, broadly speaking, here in the U.S. and around the world. Got it. Super helpful. Okay. Harmit, this might be more a conversation for you, but I think we can't have a conversation on any brand in the space today without digging into the supply chain and inflationary pressures. You won the prize. You're one of the first to comment on the pressures next year, which was met with a nice sigh of relief for the space the next day. I think you talked about low single-digit inflation in the first half, now you're thinking mid-single digit inflation in the back half of 2022. You're also saying you believe you can offset these headwinds, which is pretty impressive. Maybe just talk us through how you're able to do that. What are the initiatives that you have in place to offset those pressures? What exactly are those pressures? I've had some people asking, is that all cotton? Is it other things? Help us with that. Similarities and differences between today and 2011. I know you gave some details on the call, going back to that would probably be helpful. Sure. Again, good morning, and thanks, Ike, for hosting this and importantly, for everybody joining it. Let me start by just talking about supply chain and address your questions on inflation. I think as Chip referenced on the call, our view is our supply chain is a competitive advantage. I'm going to leave you with three parts, which is, we believe it's diversified. We believe the team has been very agile and continues to be agile, and then proactivity in cost management, which will address your inflationary pressure. On the diversification, we source from 24 countries around the world. Not one country makes more than 20%, so we're not concentrated. Because we have a high core base, we've established sourcing of our core products from more than one source. The proof of this has been evidenced when there was a debate about tariffs in China. We were importing from China into the U.S. two years ago, it was 8%. A couple of years before that, it was as high mid-teens. It's down to 1%. We're able to cross-source or transfer production in other markets. Vietnam, which has been in the news, continues to be in the news. Our sourcing from Vietnam is less than 5%. There's an old saying, which is, "Don't put all your eggs in one basket." I think we're demonstrating that as we've diversified as well. Secondly, all of us woke up to the news this morning that the Biden administration is working to increase the throughput on the West Coast by 24/7, just a working mechanism. This is where the rest of the world is, and I'm very glad the administration is doing that. We've seen congestion in the West Coast now for about 12+ months. It started soon after the pandemic. What we were able to do, because you can't do this by just putting a switch on or whatever. We were able to divert hard supply from the West Coast to the East Coast. The West Coast, which used to make about 40% of our logistics into the country, is now down to 20%. We continue trying to be as agile as we can, and this is just an example. To your question on cost management. We buy in two halves. We don't buy cotton directly. Most of our manufacturing is done through third parties. Because we have a large core, we can, for some of the core items, place orders for longer than 6 months because it's largely seamless or same style. Because we do buy in two halves, we did lock in for the H1 of next year, which is 2022. Inflation in COGS, and COGS is more than cotton, at about 1% relative to 2021, and because of the pricing we have been taking. We were a little skeptical of the view that inflation would be transitory because our view is, how do you define transitory? If you go back to the 1970s, people thought inflation would be transitory, but it lasted a couple of years, and you just couldn't seem to able to be proactive, and it worked. We've been taking pricing now for a little while, and that will really help us offset the inflation pressures. The other good news this morning is cotton is down. We track it I think two times a day. It's come from the $1.13 it was when we printed our earnings. It's tracking at $1.05 futures. As you can see, futures do taper off as you start getting into the H2 of next year. We're in the process of pricing our tops for 2022. In the H2, we think we'll be able to land in the mid-single digits. The reason it's not 30% up as cotton is because the entire cost of manufacturing for us is more than cotton. We use, on our bottoms, somewhere in the 18%-20% is cotton, GBP 2 of cotton per a pant. Our tops is much less. As an overall cost of goods, cotton is substantially lower than the 18%-20%. It's not all cotton. The other piece is, price was a wonderful opportunity. We continue to drive productivity, which is using the same fabric across a whole bunch of styles. As we have reflected in the last few calls, we have talked about driving more commonality of assortments. Pandemic brought that home because you can move inventory, et cetera. We're driving a lot of productivity, as well as trade management, to try and offset some of these costs. That's one cost, which is COGS. As I said earlier, we have priced. We believe there's pricing power. Chip talked about market share growth. Our AURs are up in the mid-teens, and that's, I think, a combination of both pricing as well as ensuring that we continue to premiumize the product. I think our view is, if we have to surgically take pricing to offset some of the inflation pressures in the H2, we could do that, and that's something that we're very conscious of. The other costs relate to shipping costs. 70% of our shipping capacity to the H1 of next year is locked. The holes we're seeing in demand, our view is that we will air freight. We've continued to air freight in quarter four as in quarter three. Given our gross margin accretion, we're more than offsetting that. That pressure probably continues for a couple of quarters, and at some stage it should settle. That's how we are thinking about ensuring we're able to chase into demand. In terms of impact, our impact in quarter three, in terms of, I would say, lost sales, was minimal. It's about $10 million. It's a little more in Q4. As you've seen, Q4 guidance is also progressively getting better. As things like congestion, et cetera, decrease, obviously that's a bit of a tailwind as we head into 2022. Got it. All right, cool. That's helpful, Harmit. Thank you. I've got two more- To address your last question, which was how are we different today from 2011. I think Chip was just getting on board as we were headed into the crisis. Chip, why don't you talk about it? Because the company is so different. I actually joined the company back in 2011 as the new CEO. Just to keep this very brief, we are a dramatically different company today than we were in 2011. We are in a much better and much stronger position to face not just cotton, but I would say inflation much more broadly. Our business is dramatically different. Just to dimensionalize it, in 2011, 58% of our business was in the U.S., 48% was U.S. wholesale. We didn't have a strong brand back then. We were somewhat beholden to our wholesale partners. We didn't have pricing power back then. Today, we are much more diversified, it all gets back to the strategic choices that we took 10 years ago. We're a more premium, more diversified business. Today, we're starting to approach 60% of our business outside of the U.S. International mixes more positively. It's a higher gross margin business for us. We're much more DTC. Back in 2011, 21% of our revenues were DTC. This past quarter, I think we were 35%, 36%. At the end of last fiscal year, I think we were close to 40%. As I said earlier, we have a stronger brand. We took pricing in the H2 a year ago, and it's sticking. We took that pricing anticipating inflationary pressures. If we need to take more, we're confident that we can take more strategically, on a very targeted basis. We've got a much stronger brand. We're now leveraging data science, and AI machine learning to make pricing and merchandising decisions, promotion decisions. It's like a night and day comparison. That gives me a ton of confidence that, no matter what is thrown at us, we're going to be able to navigate through it. I think, the challenges that many of our peers have seen in this most recent quarter, the fact that we were able to get through it with about a $10 million impact to our top line on $1.5 billion suggests that this is a team that kind of knows what it's doing and can manage through these difficult times. Got it. Well, I want to ask you one more, then one last one for Harmit before I open it up. Yep. I wanted to kind of transition to capital allocation, but more specifically, Beyond Yoga. You gave a lot more details on the last call. You are not really a company that is known for big M&A. You seem very excited about this deal. What were the key drivers behind that decision to acquire that brand in that category? And then when we think about modeling this out over a multi-year period, what is the potential here from a revenue perspective and a margin perspective for that asset? Yeah. Ike, when we did our roadshow, we talked about capital allocation, and we also talked a little bit about M&A and what our filters are. We have three filters. Number one, there has to be a strong strategic rationale behind a potential acquisition. Number two, there needs to be a very strong financial case. Number three, there needs to be a good culture fit. I've done acquisitions in the past, my years at Procter & Gamble. Harmit's done acquisitions in the past. I was involved in the Gillette acquisition. I was the first private buyer dropped in. Culture and culture fit is really important. We have that as one of our filters. We've been looking at acquisitions for a while. Our balance sheet is super strong, and I think a lot of you often ask, "Well, what are you going to do with all that cash?" We've been looking at them, but until now, we really haven't found anything that really meets those three filters for us. What do we like about Beyond Yoga? First of all, first and foremost, it provides an entry into the fast-growing, high-margin premium activewear segment. The U.S. is the largest market of athleisure or premium athletic wear. I think we said on the call that the total athleisure market is five times bigger than denim in the U.S., so it's a huge market. The performance part of it is obviously a little bit smaller, but it is a high-margin, fast-growing business and growing globally. This is not just a U.S. phenomenon. Number two, I really believe, and the reason I'm excited about this is, if we take what they bring to the table, they have a really good, deep understanding of their consumer. They created a community behind the Beyond Yoga brand. They have amazing product. Consumers talk about its buttery softness, and that is a big differentiator. It competes at a premium price. You take the fact that it is largely a direct-to-consumer business. Take all of that and the incredible team that is there, and it's a small team. Along with the other impressive fact that really kind of blew me away, because I like to think we're a pretty disciplined leadership team. Harmit and I are financially pretty disciplined. This company has never lost money. It's been in business for 16 years. The last 10 years, it has grown double digits, and they've done it the old-fashioned way. They never went to private equity for money. They never had to take out a loan. They just basically plowed their cash and earnings back into the business every year and continued to grow it, and the last 10 years, they've grown double digits. Put that together with our capabilities, brand-building skills that we've got here. I spent my entire career, until I came here, working at P&G, building brands, launching new brands. I think we've demonstrated that we know what we're doing with the Levi's brand and the turnaround that brand has had over the last decade. You take our brand-building skills, you take our capability in brick-and-mortar retail and DTC overall, and you put that together with the pipe that we've had built to our global distribution network with on-the-ground operations in about 60 countries. You put all that together, and you go, "This could be really big for us." You're not going to pin me down to a number or a timetable, but the fact that the brand has grown double digits for the last 10 years and been profitable, and we said on the call that it's going to be accretive right out of the gate from a margin standpoint. We're confident that this is going to be a long-term play for us, and it will be a meaningful contributor to our overall portfolio over time. Fair enough. I will not try to pin you down on this call, but maybe later. Maybe later. My last question, Harmit, this is probably a question we could talk about for 130 minutes, I guess the concept of margin in the entire space is just seeing record high margins in a lot of instances. I think you talked on the call a lot about the current state of the margins for your brand. I think you said something along the lines of 3/4 of the gains you're seeing right now, you think could be sticky. Maybe 1/4 of them are transitory. Can you just elaborate a little bit more on the puts and takes? I guess where I'm coming from is. I know when I look at our margins in our model, we're assuming your margins re-base a little bit closer to 12 next year as things do, to use your words, kind of normalize a bit. I think the street's closer to 13. I guess, how do we think about the trajectory of margins as we think through the transitory versus the structural changes in the business? Yeah. First, our view is that we continue to grow margins. That's the growth algorithm we talked about when we did the IPO. We were asked, "How high is higher? What's your target?" We said 12% plus, and we've delivered on that. As you think about where we end the year, EBIT margin will be 12% plus. To the question on growth margins, when we said growth margins grow 40, 50 basis points every year, the pandemic accelerated a whole bunch of things. It accelerated our structural focus on e-commerce. Our women's business continues to roll. Women's gross margins are now higher than men's, and we completely under-penetrated there. International, it's still only in the good days when everything is open international, only 50% of our business. The world apparel market, 10% of that is overseas. I think there's an opportunity there. We are now demonstrating their pricing power. The reason I said, okay, gross margins are up over 400 basis points in quarter three, and what do you use for modeling purposes as you think longer term? I think 3/4 of that is structural, it's here to stay, and is driven by the factors I talked about. About 100 basis points is probably driven by the environment. It's driven by lean inventory. It's probably driven by low promotion levels, et cetera. Does this stick or not? That's probably anybody's call. Our view is, as a brand, we're going to do everything we can to ensure we continue to get what we can for the brand, et cetera. If market turns promotional, then it's a different story. Our U.S. wholesale growth margins have never been this strong because we have pushed premiumization, we have reduced markdowns and dilution. The other piece in our gross margin that is incorporated between Q3 and Q4 is higher air freight, about 70 basis points of air freight. That's something that we think doesn't last forever, at some stage it normalizes. Those are the puts and takes. Our view was because the run rate could be used as a base for growth next year. Our view was, rather than use the run rate for H2, it's important to use where we end the year. Understand what are the puts and takes, then grow off that. I think your point about starting with a base of a little over 12% and growing off that is probably the best way to look at it versus starting off a base of 13% and growing from there for 2022. There's still a lot of uncertainty. We just talked about commodities, et cetera. I think intrinsically, growing EBIT margins and growing gross margins is something that our growth algorithm aspires to do. It could be put and take given the environment, but that's what we've demonstrated both pre-pandemic, we're demonstrating during the pandemic, and we continue to demonstrate post-pandemic. Should we expect, just like with the IPO, when you targeted 12, now you've gotten there, above 12, I mean. Regardless of next year, should we expect another multi-year kind of target or long-term target from you guys at some point in the near future? Yes. Thank you for bringing that up. It will be three years since we have gone public by the summer of next year. We have toyed with the idea of doing an investor day probably somewhere on the East Coast so we can get a lot more participation. Maybe summer next year. What we are waiting for is some kind of establishment of things getting a little normal. Our view is when we report earnings in Q4, we probably give a perspective on 2022, and then a longer-term view sometime before summer of next year. That is when we will talk about what is our growth algorithm, what are our margin targets, and where does this company go? Your question on Beyond Yoga, that probably gets answered then because we would have integrated the business to establish a plan, et cetera. I think just bear with us for a few more months. Let's just settle down, and then I think look at us because we are a group that wants to grow this company for the long term. I think giving longer term is important, and that's at this point in time. Got it. Super helpful. Makes a lot of sense. All right. Well, Courtney, I will pass the mic to you, and I think we can open up the call to questions from the investors who are dialed in. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one, unmute your phone and record your name clearly. Your name is required to introduce your question. If you need to withdraw your question, press star two. Again, to ask a question, please press star one. Mike, the group is referring to you. I keep going. Is there anything in queue? Our first question comes from Michael Fitzsimons. Your line is open. Hi. Good morning. Thanks for taking the time. I just wanted to understand the AUR comment. I think you talk about mid-teens AUR increases. I don't know if that was in a specific geography or a specific channel. Just broadly, if it's across the board, maybe just talk about that level of pricing and how much is sustainable? How much you worry about or don't worry about? Yeah. Mike, the AUR increase was across the board, across all channels. It's across geography, it's across channels, and I'm just looking at the data. It's across genders. It's, I think, demonstrating a couple of things. It's demonstrating pricing power. It's demonstrating the fact that as U.S. wholesale strengthens, we are now growing our business with retailers like Target, where we expanded big time. AURs are stronger than or higher than some of the other mass retailers. We are now at Nordstrom. We talked about pop-up stores there, et cetera. The question about will this stick, will it not, I think we continue to believe, A, we have pricing power. We are unlocking AI and machine learning design, and accelerate that. We continue to believe that the brand can be premiumized. Just think about the U.S. being largely a good market versus Europe and many countries in Asia being more better and best. As we grow our direct-to-consumer business, which is largely better and best, that's where we see the improvement from a premiumization perspective. Those are broad strategies. Should we expect a mid-teen growth forever? Obviously not, because base gets stronger. I think as we continue to bring in more innovation. If you think about pricing, I always look at pricing in three buckets. There's pricing for inflation. That includes foreign exchange. We do source in dollars and sell in local currency. There's pricing for innovation, as we introduce new styles. Chip talked about the loose and baggy fits, and we've been adding a lot of sustainable elements to our product. The question is, do we price for that? There is reducing markdowns and promotion. I would say we've done a little bit of pricing for inflation, pre-pandemic. We accelerated that during the pandemic. We did a little bit of pricing for innovation. We've kind of inactivated that, and we reduced markdown. As you think about AUR tailwinds going forward, I think it's largely going to lead to pricing for innovation and driving more premium products over time and then making sure we offset inflation. Okay. Thank you. Our next question comes from Michael Binetti. Your line is open. Thanks. Hi. Hey, guys, and congrats on a great quarter. Just quick question on the full year guide. Just wondering if you can give any sort of commentary around Q4 and why it was kind of brought down so much. Is this all supply chain or are there any other twists and turns that we should be aware of? Thanks. Yeah. Our full-year guide was that on a revenue basis, we'd get close to 2019 levels. On an EPS, I think it was $1.42- $1.45, which is probably a 27% increase relative to 2019. Company's a lot more profitable. Gross margins, I think on gross margin, I think we said a little north of 57%. We talked about Q4. I think Q4 top line was up take through in the 7% on a reported basis. A few words that we did raise the expectation with EPS of $0.38-$0.40. The footprint takes, I think the trends were affecting back about a point in top line. I think we said we'll offset that with the Beyond Yoga. Again, I don't know, because we didn't give an expectations for quarter four, when we gave the last guidance, we talked about the H2 of the year. Folks may have implied what quarter four was, we just clarified it. On a full-year basis, we're ending the year stronger than what we indicated in the last quarter. Just as a clarification, when I talked about AURs being up mid-teens, I was talking about direct-to-consumer. As a company, our AURs are more in the high single-digit growth, but it's AURs up mid-teens for our direct-to-consumer business. I don't know if that answers your question. Yeah. I guess my question was, sorry if this wasn't clear, around revenue. I think you guys said you guys were going to be above 2H growth rate, guided, and then, you know, now it's kind of lower. That was the question, just on top line. Yeah. I think the only headwind that we saw was probably foreign exchange, and that's largely driven by the euro. We thought we'd offset that by including the Beyond Yoga, because we have two months of the Beyond Yoga in our numbers. Profitability-wise, we did raise expectations for the year. Thank you. Our next question comes from Kimberly Greenberger. Your line is open. Hey, guys. Good morning. Thanks for taking the time. In recent calls, you discussed how your U.S. wholesale is in a much healthier place today than pre-COVID. I guess, could you just talk about what COVID did to accelerate the changes that you had been making? What those changes are, and where you are in the process of improving the U.S. wholesale business? Finally, just how do you feel about your current distribution footprint in the U.S.? Thank you. Great question. I'll take this. I would say the pandemic had probably a real positive impact on our U.S. wholesale business, less in terms of what it did for us and more in terms of what it did for some of our customers. I think it gave everybody an opportunity to clean up their inventory, get focused on their e-commerce business, build new capabilities on e-commerce, and a lot of those things have come back to help us. We had remapped our U.S. wholesale distribution prior to the pandemic, probably 18 months, two years prior to the pandemic. That's when we really started. It was about the time that Sears was going down. That's when we had started our test with Target. We're really happy with the Target results. We're now in 500 doors, which was kind of the goal that we had set. If you go into a Target that has Levi's, what you see is two relatively small pads for men's and women's, but a really good representation of the brand. Some premium pricing there in terms of the mix of the items that they've got. They're carrying our wholesale items, but they're carrying a more premium mix of our wholesale items. We've got some bottoms in there going out the door at nearly $50. They've got truckers in there. We've been really happy with that. That has been accretive in picking up new consumers. They've done the research and demonstrated to us that these are consumers that in the past have not bought Levi's, and because it's in their favorite place to shop, they're now buying Levi's. That's been a real positive. We really tightened our focus in a couple of other wholesale customers to really focus on the top 100 or 150 doors. As open Levi's were shrunk, going into the pandemic, we started saying, "We don't really care what we look like in stores 650. We want to be great in those top 100 doors that do the majority of their business." That was another big pivot. We basically exited the off-price channel. Off-price is not brand accretive. It might be good from a share standpoint, but it's not brand accretive. Somebody can walk into Ross or TJ Maxx and buy a pair of Levi's for $16.99. It's just not great for the brand. We had made the decision to kind of pull the needle out of the arm on that. All of these things have kind of come into play. The final piece, I guess, is our focus on premiumizing the marketplace. A much stronger presence now at Nordstrom, where we've actually got a pop-in shop now, which is really, really working well and looks great. All of this has been an effort to just premiumize the brand, and it's working. Clearly, we have also been helped by the fact that our customers' inventories are clean. We're not getting the pricing and promotion environment in U.S. wholesale is a lot of full-price selling, not a lot of crazy discounting because they've got clean inventories and consumer demand is strong, so they don't need to. That has clearly helped as well, along with the fact that many of these customers have accelerated their e-commerce business, and we're benefiting from that as well. Harmit said it earlier, we use the phrase, the pandemic has accelerated change in so many different places. It accelerated the landscape shift in U.S. wholesale, and you see it in our gross margins right now. Got it. That's very helpful. Just to make sure I understand, other than off-price, there wasn't really any major exiting of sort of subpar doors. Just want to understand that. Then one last question, maybe for Harmit. You guys have seen a really nice continuing acceleration in U.S. wholesale. Should we think of that as sort of restocking or is that representative of underlying demand? To your first question, I think as doors closed, there was an accelerated pace of closure of doors in wholesale. There was a time when our mix from traditional retailers, the brick-and-mortar traditional retailers, think of the big three or the big four, was pretty high. When Chip talked about U.S. wholesale being 50% of the business, our traditional retailers were close to 20% or something like that. Today, the mix has those underperforming doors have closed and an accelerated side mix. This brick-and-mortar is approximately 10%. The growth is really coming from the non-traditional retailers. I think that's good news for us, just to strengthen the structure of the business. I think pre the pandemic, U.S. wholesale was a little volatile. If you look at pre-pandemic, the last couple of years, U.S. wholesale was kind of flat. We were offsetting door closures with getting more floor space, improving AURs and accelerating women's. I think today there is growth in U.S. wholesale. It's going to be modest, and when we talk about our growth after the things normalize, we will talk a little bit about how do we continue to grow this at a modest pace. That's just in response to your first question. To your second question about are people building inventory. We're still chasing demand right now. We're not necessarily, based on recent performance or recent results as we start the quarter, we're not seeing demand curtail. The hope is that the inventory that's being sold in is inventory that sells through. We're not seeing a dramatic change in sell-through rating at this point. I mean, our view is holiday will be a relatively strong holiday season. It has likelihood. It's already probably started. I think the NRF talked about 3%-5% increase year-over-year. As we just get a sense of demand and where people are, it's indicating that it's leading to a strong holiday season. Now, brands that have inventory someone asked this question, I think, during earnings, and I didn't think that it would be relevant, I'd be asked, when do you build positive inventory growth year-over-year? I think, as we said, we believe because our fiscal ends in November, a month before holiday, in our view is we probably end the year slightly up relative to inventory relative to last year, in 2019. I think that's just indicating that we also think the holiday season will be relatively strong. Thank you. Our next question comes from Dave. Your line is open. Hey, guys. Thanks for taking the question. Wanted to go back to Q3 results. I know you guys had mentioned on the Q2 call that June was up, June sales were up mid-single to high single digits against 2019. The number for Q3 overall was about, I think, 3%. If you could just go through where the deceleration happened. I know you had guided to that. Maybe there was some pent-up demand benefiting June. If you could be more specific about which regions or channels you saw that sequential deceleration, that would be helpful. Yeah, sure. A good question, thanks. It was largely Asia. The lockdowns accelerated Asia. I think a number of stores in Asia that were closed through the quarter were about 20%. Asia was down 23-odd%, 23%, something like that. I think that was the one region that was a bit of a drag. U.S. continued to go strength to strength, and Europe I think July, lockdowns increased, and then as they exited quarter things got a little better. Those are the factors that impacted the different regions. Having said that, as we exit September and get into October, most of our doors in Asia are now open. We see our Asia business improve dramatically from what we reflected in quarter three. We probably be down. But not as highly down as it was in Q3. I think, we're seeing general strength, continued strength in the U.S. and Europe. I think Asia will be probably the region that has improved performance into fall. Got it. Yeah, that was going to be my follow-up. As you go from 3% to the 6%- 7% in the guidance, is that really all Asia, or are you assuming acceleration anywhere else? Yeah, I think Asia is, I would say, a big factor. Slight further strength in Europe because in Europe we're just getting out of lockdowns. I think those are the two factors that drive it. The only thing I would say, just from a timing perspective, Black Friday. The impact of Black Friday, because we're looking at relative to 2019. In quarter four 2019, we didn't have the impact of Black Friday. It's going to be a positive headwind in Q4. It's about two points growth. Got it. Okay. Thanks. Our next question comes from Dick Morgan. Your line is open. Hi, Dick Morgan at Point72 here. Thanks for taking the time. I guess, to your early denim cycle commentary, as we think about both the impact of casualization here and abroad, plus the shift to wider silhouettes, what would really give you pause or hesitation around that? Is there any kind of KPIs or things you're looking for just in case that trend maybe starts to fade or starts to reverse a little bit? Well, we're watching it pretty closely. I wouldn't go out on a limb and say that this is going to be like skinny bottoms that lasted over a decade. By the way, women are still buying skinny bottoms. That hasn't completely gone away at the expense of these looser, baggier fits. We are watching it kind of quarter- to- quarter. It was about 50% of our bottoms business this past quarter. It was about 50% the prior quarter. It seems to have, I don't want to say leveled off, but it's kind of been consistent over two quarters. We'll have to see how it continues to go. We're watching the consumer. We're all over social media, because we're looking at what are the young kids doing, which drives a lot of this. It still seems to be resonating, but I'm not here forecasting it's going to last like skinny bottoms for the next decade. We just got to stay on top of it. What I continue to reinforce with the team is we need to continue to just focus on the consumer and what is the consumer looking for and meet those needs and ideally be out in front of them. Just to give you a couple of numbers here, our high-rise and looser fashion fits on our women's business were up 81% versus 2019, almost double where they were in 2019. 2019, it was a relatively small collection, and now it's half of our volume. The 501 we talked about on the call. The 501, which is our franchise, if you will, was up 20% versus Q3 2019, combined between men's and women's. Both were up, and up real strong. We watch it from quarter- to- quarter. It's really hard to predict these things. When we first launched that first collection right before the pandemic, I wouldn't have predicted that this was going to start a new denim cycle. We're continuing to keep an eye on it, and it seems to be working. All of our competitors are following it, so that's an indication that they see it, too. That will fuel it further. I think we're in for a ride here for a while, whether that's another two quarters or four quarters or four years or eight years, I don't know. It's just really tough to predict these things, which is part of what makes this industry so much fun and so exciting. Got it. Just one follow-up question there. I think to your point earlier, the last denim cycle over a decade ago, and the first-mover advantages, going back to that denim cycle, were pretty big. The trend broadened out and not everyone, but a lot of retailers started following it. As that happens on this denim cycle, what do you think are the risks and the opportunities as more people start to move into these new silhouettes and these new styles? Well, as I said, I think it validates that this is the look. It increases the odds that it really does drive a denim cycle, I believe. It kind of floats more boats. We feel good about the fact that the jeans category, at least here in the U.S. where we've got the data, the jeans category is growing faster than total apparel. Now, admittedly, we were pummeled more than total apparel during the pandemic. The fact the competition is moving into these same silhouettes and talking about them on their earnings calls as well, I think validates that this is real. It's legit. I think the expectation is that it's going to provide a tailwind for a period of time, and I think it's good for the industry and the category overall. As I said earlier, I think to Ike's first question, as the market leader, and I've worked on market-leading brands back before in my P&G life. I ran the Gillette business for seven years. It's a responsibility of market leaders to drive category growth. It feels really good to be driving growth at this growth rate right now across the entire industry. When the total category grows, it doesn't have to turn into a share war, and a zero-sum game, which is what happens when categories are flat or declining. We feel really good about the robust category growth, and we are gaining share through it. It's a double win, if you will. I don't worry about the fact that competition has followed. I actually think it's a good thing for the category, for the industry, and ultimately for us. Great. Thanks for that. Yeah. Hey, guys, I think we need to begin to wrap up the call. There was one final question I did want to ask. Harmit, I know we talked about the Beyond Yoga acquisition in general, but just bigger picture, the capital allocation strategy going forward. You guys did buyback program, dividend, M&A. I think you spent $800 million in capital last quarter. Just strategy going forward on how we should think about uses of cash. Yeah, no. Thanks, Ike to answer that question. The company is so much stronger than it was pre-pandemic, profitability-wise and even from a cash perspective. As a company, coming into the pandemic, the focus was revenue and profitability. I think during the pandemic, we accelerated our focus on cash, and cash conversion now is part of a bonus program for all the executives in the company in the annual plan. We're generating a lot more cash today than we were pre-pandemic. The question, we've always said, this company really hums, it generates a lot of cash. The question is, how do you allocate it? I think for the first time, probably in the history of the company, it goes back 150, 160 years, this kind of unlocked all the levers of cash deployment. The first port of call is spend capital to grow the company. Two-thirds of our capital deployment is really growth capital, new stores, technology, AI, et cetera. Some infrastructure capital as we build a distribution center, upgrade our ERP, et cetera. That's what I would say 3% this year, but long term, between 3% and 3.5%. The second is returning capital to our shareholders. We reinstated dividends back to 2019 levels. We introduced a share buyback program, largely for a couple of reasons. One, float is more than double than it was during the IPO. I think you want to put our money where our mouth is. We think there's intrinsic value. The last time we did share buybacks, we did create value. The third is just to offset dilution in employee stock. The third pillar is all about M&A, organic M&A. We took back Romania, we took back, I think, another market sometime in the last 12 months. We went and bought Beyond Yoga, and we're going to grow that and scale it. I think as we think about capital allocation longer term, the company will generate a ton amount of cash, and those will be how we prioritize. First, capital to grow the business, returning capital to shareholders, and then M&A. We're not going to do M&A on a regular basis. We've done one. We have to scale it, earn the right, make sense, and then think about other categories where we want to grow. Excellent. Well, Chip, Harmit, Aida, thank you so much. Everyone who dialed in, thank you for dialing in, and we appreciate it and hope everyone enjoys the rest of the week. Thanks, everyone. Thanks for having us, Ike. Thank you. Bye-bye.