All right. Thanks, everyone. Thanks for being with us. Thanks for coming to the Wells Fargo Consumer Conference. I'm here. My name is Ike Borchow, Softlines Analyst at Wells. Really excited to have a great slate of companies here today for all of us to speak with. On stage, one of those such companies, Levi Strauss & Co., Harmit Singh, CFO. You know, Harmit, there's a lot of interesting things going on in the space today. I think some of them have to do with the subcategories within softlines apparel. I feel like if you talk to any apparel retailer out there today, the word denim or jeans is coming up. Maybe let's just start at the highest level, just talk about the denim category, what we're kind of seeing, when did it kind of start, what's your outlook, just all the drivers, and we can kind of dig in from there. Sure. Good morning. Thanks for joining us. Let me start, Ike, by this wonderful announcement saying we're in a quiet period. I'm not going to talk about current trends or latest financial performance today with my remarks, based on what we talked in Q2. To answer your question, denim is about a $100 billion category, and it's been growing in the mid-single digits. That is the expectation going forward. I think what's underpinning the growth is the environment has become a lot more casual. Just take the folks here or when you get back to the workplace. That's fact number one. Fact number two is that as the market leader, one of our responsibilities is to continue to grow the category. We've been around for 170 years. We started, we launched the skinny jean in 2007. It took two years for that to catch up. The cycle was about anywhere between six to nine years. Pre-COVID, we launched the first looser baggy fit, and COVID happened. It took a little while for that to take off, and it's taken off nicely. Having said all that, if you think of the looser baggy fit, it's about 15% of our mix. It's not our entire business. It's only 15%. Skinny and slim still contribute 20% of our business. As you think about trends, it's not one silhouette. There are multi-trends that happen at any point of time. Our view is that the category is here to stay and continues to grow. We're leading with different silhouettes, number one. Number two is, I'm wearing what I call the Blue Tab. It's the premium category. It started with a Japanese denim, inspired by Japanese denim. We launched it in Asia. It was largely for men. Now we've got a line for men's and women's. We just brought it to the U.S., 14 stores, full price stores. I was in Europe last week. We've just launched in Europe. We're expanding that category. As I keep coming back to it, these are the things that drive different trends and different pieces. We had the Beyoncé campaign that had a halo effect on the brand. It really started with Beyoncé calling us saying, "I'm launching this album. I have a song on Levi's. It's Cowboys Carter." We quickly used that because she'd been a fan of the brand. We've been a fan of hers to have a campaign over a 12-month period. It is brought into perspective, the Western, what we call the quiet Western trend. We never had Western shirts. We have Western shirts now. I'll talk about denim lifestyle in a minute because that's something that's here to stay for a while. I think those are the factors that are clearly driving the category as far as the way we're thinking about it because we've got momentum. The last three quarters were a good signal of momentum and it grew high single digit. We've got this goal to become a $10 billion company with 15% operating margin. The way we're thinking about it over the next 12 to 18 months is the cycle is here. Our job is to continue to grow the category, number one. Number two, we're signing up influencers in different parts of the world. I mean, we just signed up Shaboozi, again, focused on men, focused on Western. The influence in India, for example, we've signed up somebody for men, signed up somebody for women's. Again, men's and women's is important. We've got the Blue Tab. If this year was focused on music, next year is focused on music and sports. We've got Super Bowl in the Levi's stadium. We've got World Cup in the Levi's stadium. There are clearly things that we're working on that will continue to influence and grow the category. When you say, when you just go back to the quiet Western comment, that makes sense. Is that opening up new distribution for you? Are there new partners who are reaching out who either you weren't selling into before, or you were, but maybe there was a lot more opportunity for shelf space? How would you kind of go into that? Yeah, no, you know, but they, when we created a category through the 501, one could have argued, you know, we were the first on the Western influence. Over the years, we probably haven't focused on it. For example, after the Western trend started growing, we have had calls from some of our customers. You take Boot Barn, for example. We had a limited assortment. We've just grown that assortment. We've actually brought in women's lifestyle, and that assortment that we now have at Boot Barn is much larger than it was a little while ago. Cavender, largely based out of Texas, 50 stores, was not selling Levi's. We've just launched Levi's with them. Yesterday, I was wearing the 537 and the 557, which is literally made for him. Western influenced denim product, et cetera. Yes, it's beginning to happen. As I said earlier, it's not one trend. It's a bunch of things. Over time, I think you'll see us grow our Western business. That's largely a U.S., maybe parts of Europe kind of trend, and those are large markets for us. It's a good thing. Just to help us understand, is there an easy way to think about it when the trend, when the skinny denim, I believe that was multi-year, but how long did that last? Now you've got baggy. You also got flared, but there's some other things. I feel like we're only 18 months into that. Is there a cheat sheet over where you think about that over a time period? Yeah, no, you know, it's not a cheat sheet, but we're paranoid that these trends slow down. Our designers are always thinking of what's next. The skinny cycle, I believe, lasted for, I think, seven to nine years. When I joined the company in early 2013, I remember having one of my first media interviews. I was asked after that, is Skinny dead? I said, no. I think Bloomberg asked me the same question once we reported Q2 earnings. I said, no. The good thing about a brand like ours is we have silhouettes for just about everybody in every occasion. That's why we're winning with men's. We're now number one in women's, and we're connecting really well with the younger generation. As long as we have a silhouette for every occasion, we have a silhouette that is trending well, I think we're in a good spot. Our designers are already thinking what next. Is it, you know, how long does a looser baggy fit last? Does it go back to slimmer, skinny, or somewhere in between? What is this, the new flare, et cetera, et cetera. I think those are the things that we keep working on. Now with a direct-to-consumer business, which is now 50%, when I joined the company, it was about a fifth of our business. We can test things. You can interact with consumers. We have 40 million loyal consumers. I jokingly tell people for a brand like ours, there should be closer to 100 million. We didn't have a loyalty program pre-COVID. It's something we launched post-COVID and it's growing nicely. I want to go back to something we talked about last night. You've mentioned several times that Levi's is kind of becoming not just a denim company, but a denim lifestyle company. Can you just explain what exactly you mean by that? Sure. I mean, it's, I think the first round, which was a year or two after I joined, Chip and I, we were thinking about, okay, what do you want the brand to evolve to? It was more about lifestyle. It's more a head-to-toe look. We're known for denim bottoms and known for denim bottoms for him. We were not winning with women's. Now the women's business, which is 11, which was 20% of the business, is now close to 40%. We're winning with her today. It was, I think where we were focused was just head-to-toe look. We hadn't defined what the head-to-toe look was. It was only denim and art. Two years ago, when Michelle joined, we took another look at the strategy and we said, okay, maybe let's start with owning denim and denim head-to-toe, and that is denim lifestyle. We were not in denim dresses. We were not in denim skirts. We were not in Western wear. We said, okay, let's just make sure we own this look. The other thing that we said we need to probably think about is as the world becomes a lot more casual, is the only adjacency we probably want to take a look at is non-denim, for things like the performance tech bench, which we have launched, which is like the ABC of Lululemon, because the performance category is growing. It's still growing. It's probably slowed down a little, but it's still growing. It's not an area where we are deeply penetrated. Non-denim now is 40% of our business and growing, which is a less known fact. I think what that allowed us to do was to expand our addressable market because we're underpenetrated in denim dresses, denim skirts, denim jumpsuits, denim Western wear. Because people know us for denim, it's an easier consumer selling. That's what really helped also accelerate the growth of the business. Got it. A lot of what you're talking about is clearly showing up in direct-to-consumer. I think you've talked about 13 straight quarters of positive comps, so that's pretty clear. Can you remind us what you've kind of talked about on the wholesale side, order book visibility, not just in the U.S., but also in Europe? How long does it take for your partners to see what you're doing and then recognize there's something to this? We want to buy more. How does that work and what have you seen? Yeah. We're denim first. We're not DTC. Sorry, we're DTC first. We're not DTC only. Right. We believe that we have to grow, maybe not as fast as our direct-to-consumer business, our wholesale business. Wholesale is important to us. We need wholesale because it gives us market reach. It allows us to have stores that we won't have if it's just a DTC first, a DTC only business. It gives us access to a consumer base that, you know, because in DTC we sell tier one, tier two product. In wholesale, in the U.S., we sell tier three products. It gives us access to a consumer base, think annual income of $100,000 plus, that we wouldn't have had if we didn't have wholesale. Plus, we've got these wonderful relationships with customers. I think what is happening is our newer styles, the newest silhouettes, the newer fits are denim lifestyle look. When our wholesale customers are seeing the success in our own stores, in our own e-commerce, then they start buying into that product. It gives us a little time to test, and then with the wholesale business, scale over time. That's what we have seen happen both in Europe as well as in the U.S. We've had a couple of good quarters in wholesale growth in both places. To your question about pre-book, in Europe, we have a pre-book, which is six months out. 40% to 50% of the demand from our customers is pre-booked. That pre-booked business for the second half, fall in specific, is up, which is good. In the U.S., there's not a pre-booked business. In Europe, it's just relationships with customers. We do get their demand. We buy in and manufacture the product to it. So far, as I said, in quarter two, when we reported earnings, demand's been very resilient. We haven't seen, at least at that point. I won't get into recent trends. We'll talk more about that when we report earnings in a couple of weeks. There is demand for our product. The consumer is generally resilient, especially $100,000 and above. We have a product called Signature by Levi Strauss & Co. we sell into Walmart, just about $20. That's for the mass consumer. That business has also done reasonably well in the first half of this year. Got it. When the business started to really unlock a lot of efficiency and margin, you guys spoke a lot about narrowing the focus of the model, the organization. Can you talk about something? There are clearly some things that you guys have done over the last 12 months. Can you talk about the main two or three that you think is really unlocking some value for you guys? Because something clearly, especially on the gross margin line, there's some special sauce going on and it kind of seems like you figured some things. Yeah. See, I mean, a couple of things have happened over the last few years. One is about narrowing the focus. We looked at, you know, low margin, low growth businesses. Denizen, we were selling Denizen as over a $150 million business to Target. We launched Red Tab in Target, and Denizen we sell for $30. Levi's we're selling for $50. We realized, you know, rather than have both the brands, it's probably better to have Red Tab business and grow that business with Target, you know, have more of a denim lifestyle look. That's worked. We exited Denizen. We had a smaller footwear business. When we were talking about lifestyle, which was lifestyle for the sake of lifestyle, we had bought a footwear business years ago from a licensee. That didn't make sense for a number of reasons, and so we exited that business. The latest exit was Dockers. Dockers was $300 million in revenue, break even, gross margins lower than the company, category growing at a slower pace, no direct-to-consumer kind of business in the U.S. We said, okay, it probably makes sense to exit that. We talked to, you know, we've got an agreement. We're exiting that business. We've exited the U.S. and Canada as we speak and the rest of the world by early next year. That is the first piece. The second piece is really taking a hard look at our SKUs. I mean, we have, and we haven't done that in the past. Especially important to eliminate unproductive SKUs so that we make way for the new product innovation that's coming so that you don't build inventory. We've probably eliminated about 15% or so. We're driving more of directive assortment, which is, you know, well, everybody has a 501. All parts of the world have a 501. All parts of the world have 511. The SKUs may be a little different. We're kind of rationalizing the fabric, making sure that we're able to drive more scale and leverage with our vendors, et cetera. That's the other piece. That's the first piece of narrowing the focus. The second piece is real focus on improving productivity in our direct-to-consumer business. E-commerce as an example was losing money. Today it's making money. It's not diluted to the company. An all-cost loaded technology cost, advertising cost, it's now at par with the company, which is great. The second is our stores. You know, the good, good EBIT margins, but lower than wholesale. If you're making this pivot into a DTC-first company, where DTC today is about 50% of the business, it is important to start narrowing the gap. We have a whole program working under the transformation office, which is part of my remit, where we're trying to drive higher productivity. DTC margins over the last year or so have grown very nicely. They were probably in the low teens. They're now in the high teens. The gap between wholesale EBIT and DTC EBIT margins is narrowing. It'll never be the same. It's because you have to spend capital and you have associates in the store. If you narrow the gap and DTC grows at, you know, three, four times the pace of wholesale, it'll drive leverage to the bottom line. That's what we are seeing. If you take our EBIT margins, three years ago they were nine. I think this year we have got in the mid 11s. DTC has grown from under 40% to 50%. DTC has grown and so have EBIT margins. That's a good, you know, way for us to think about how do you get from the mid 11s to the 15%, which is where we are starting to be over time. Within DTC, what would you say are the key drivers? I believe several years ago, e-commerce wasn't even making money for you. If it was very low profitability, that's now, I think you said corporate average. You're saying the DTC overall is expanding margin. With e-commerce, what was the big unlock? Then DTC, labor, et cetera. I think what we did first is we had the right leader in place. Somebody we hired from Nordstrom, who wakes up every morning saying, "I have to grow e-coms." That's important. It's not only revenue, it's also profitability. What we really did was a few things. We fixed the fundamentals. We had to have a complete distribution remap going on. Distribution centers that were built for wholesale, not for omnichannel. Distribution centers, we're moving to more omnichannel. There's one inventory. We built a distribution center in the U.S. dedicated to e-commerce. There's levi.com. At that time, there was dockers.com, amazon.com. Everything is serviced from that. It increases the, improves the service levels and drives lower shipping costs. That was the second piece. The third is we have a loyalty program that we've never had. You now have, we can determine the lifetime value of a consumer. You can leverage your e-commerce platform for that. Those are the factors that have really helped drive a mid-teens growth in e-commerce. E-commerce, for example, pre-COVID was 4% of our total business. I think last quarter it was about 12%. It's on the way to getting to 15% of our total business. If the operating margins are not at par with the company, we think we can continue to improve it. It'll just help accelerate the part to get to that 15%. You've also talked about, let's just switch gears a little bit. You've talked about some initiatives on the cost side. I think you've got some legacy DCs or warehouses that you're trying to update or basically, can you walk us through what savings opportunities there are, what your network should look like? Like, let's say what your network looks like today, what you expect it to look like in the next two to three years. What are the big drivers there? Sure. I think our distributing expenses, I mean, we reported now, are a little over 7%. They were about 5% or so a couple of years ago. What drove that? Yeah. I think what drove that increase was first, you know, growing e-commerce. E-commerce is a little bit more expensive. The second piece was just inefficiency, I would call it, because our DCs were not built for omnichannel. Right. We had inventory in different DCs, servicing different channels, et cetera, and largely manual. The way we're going to is an omnichannel environment. The other thing that drove it was higher depreciation because we built a DC in the U.S. We were all set to open a new DC in Germany for Europe. We said, okay, you know, if we are to upgrade some of these older DCs from manual to automation, it's going to cost us hundreds of millions of dollars. Do we need to run every DC ourselves? We went into more of a hybrid environment. We will always run a few DCs because it's important to have skin in the game. In Europe, for example, the Germany DC, we transacted with GXO. They're a big logistics company, does a lot of business for a lot of customers in Europe. They gave us a $100 million check and we've just transited the business to them. Over time, what it allows them to do is bring in one or two other customers, leverage fixed costs, reduce our cost per unit. In the U.S., Maersk is just opening a DC, has opened a DC a couple of months ago in Ohio. That will allow us to shut down some of the older DCs and then move the fulfillment into their DCs. I think that's the transition that's happening. Now these things take a little time. There is a ramp up. You're moving from an older environment to a newer environment. The vision is have a hybrid setup, make sure it's omnichannel, make sure it drives inventory efficiency and lower cost per unit. That's the thinking. Over the last six months, I think Michelle had given me the task as part of my transformation to really focus on distribution logistics. We've just hired a new Head of Supply Chain. Yesterday was his first day. He came from Victoria Street. I've hired a distribution logistics leader who joined us from Columbia. We're going to work together and make sure that we drive the efficiency. To me, the longer play is, will it, can it unlock more growth because you're servicing an omnichannel customer or a consumer? Does it drive more efficiency and lower costs per unit? That's the, you know, it's the one-two punch that we're working on. Got it. The last thing I wanted to ask about is, you know, you go back to the 2022 analyst day, things were riding high after 2021. You had implemented a 15% margin target. At some point, about 18 months ago, you effectively kind of pulled it, said this is, you know, the time horizon doesn't make sense. There were issues in the business, which we talked about what's been fixed. It seems like you've had the confidence at some point in the recent future to kind of throw it back on the table, the 15%. It kind of feels like you've given us a lot of the reasons why you're feeling confident. What else can you unpack about the ability to get there? Is it just, you know, the trifecta on DTC? Is it the margin drivers? Is it distribution? What is it that gives you the confidence to kind of throw that back on the table? Yeah, I think it's all of that. When we gave, I think our timing on Investor Day was interesting. It was June of 2022. It was pre-inflation. You know, remember the narrative of inflation is transitory, and then inflation hit. It did slow, it did impact the consumer, especially the consumer in wholesale. The other piece was, if you think of 2022, the first half of 2022 was very, very strong. It naturally led to an inventory build in the second half. With inflation, demand kind of evaporated. All of us were stuck with inventory. We're marking things down, et cetera, et cetera. It was an environment that was very different to what we anticipated when we did Investor Day. I think what's different is that over the last three years, we have seen growth accelerate. For example, in 2023, growth was flat. Organic growth was flat. Last year was up 3. This year we've guided in the mid-single digit. The second thing is our gross margin has dramatically improved. In 2023, it was less than 58%. This year we're guiding a little over 61%. That is a combination of selling higher full price sale, growth in DTC, growth in international. Our women's business now is now higher gross margin than men, which is interesting. There's that piece. We've tried to do a better job maintaining SG&A. What that has done is EBIT has moved from 9% in 2023 to mid 11th. As you think about the path to get to the 15, in simplest terms, it means sustaining of mid-single digit growth, growing gross margin 30 to 40 basis points a year, which if we just grow DTC at the pace we have said, high single digit, continue to grow women's business, continue to grow international, that's what will get to the 30 to 40 basis points. Keeping SG&A in control drives the EBIT leverage. That's why we're confident we can get to the 15%. We're also seeing, as you said, the trifecta in DTC, which is a combination of three things. Same store sales growth. We don't publicly talk about it, but we have grown same store sales growth now for 13 consecutive quarters. It is opening 50 to 60 net new stores a year. We think we can do that for at least the next five years. That's 250 more stores. Growing our e-commerce business in the mid-teens. If you want to get to the 15% e-commerce as a piece of the business, that's something that we can. With e-commerce now being profitable, that drives that leverage. Those are the factors that give us confidence. We have some opportunities to drive our distribution costs lower. That's one thing that we're working on. At some stage, we'll talk about where that can go, and other synergies that we're thinking through. Last question. What do you need to see or what are you waiting to learn more about before you can put a timeline on that? Yeah, I mean, if it hadn't been for tariffs, we'd probably be at this point, like some of our other peers talking about the timeline on how to, you know, when do we become $10 billion? When do we get to 15%? What's the path over the next couple of years? We kind of delayed it. I would say maybe six to nine months. I just want, you know, again, having learned from 2022, June 2022, where it's difficult to predict inflation and the slowdown in the consumer, just want to get clarity on tariffs. We think we're in a relatively competitive position on tariffs given our sourcing base and given the fact that 60% of our business is global, it's outside the U.S., that we can mitigate and absorb it between pricing, some vendor negotiation, and some cost synergies. Maybe this time next year or earlier, we'll have a conversation on here is the path to the $10 billion, here is the path to the 15%, and here's the timeline that we're thinking through. Got it. That's the general thing. I think the leaders in the company are confident. Internally, because we have a long-term incentive program, we have sat with the board. There's a clear path on the $10 billion. There's a clear path on the 15%. Our board is very committed to making sure the company is able to live up to its ambition. Now the question is at what stage do you bring that to life with all the investors and the sell side? Got it. Momentum's there. Story's in a great spot. You guys have done some great work. Wishing you the best in the future. Thanks for being with us, Harmit. Thank you. Yeah, thank you. Thanks a lot.