Good to go. Okay, hey, thanks, everybody, for joining. This is Paul Lejuez, Citigroup, joining you from our Miami Consumer Conference, and I have the pleasure to be here with Levi's Management Team, CFO Harmit Singh, and in IR, Aida Orphan. Thank you, guys, for being here. The format of this is going to be very informal. It's going to be Q&A, and what we'll do, we've got some investors sitting here with us in the room. They'll be free to ask their questions. I'll probably kick things off with one or two of my own. Thanks, everybody, for joining us. Harmit, thank you again for being here. Maybe just to kick things off, you guys have had a lot of changes. 2024, I think you've spoken about that year as a year of transformation. Maybe can you talk about some of the changes that you've made to the business and processes? Maybe what else is coming in 2025? Maybe if we start there. Great. Good afternoon, and thanks for joining us. Thanks, Paul, for having us. Sunny Miami. It's sunny in San Francisco, but not sunny in most parts of the Midwest and East Coast. One quick comment. We're in the middle of a quiet period. I'm not going to talk about financial performance or guidance or trends for the quarter. Reference to guidance will reflect what we talked about when we reported to you in late January of this year. To your question about transformation, I'll just put this in context. I'm a firm believer that a healthy company is a growing company, and a growing company needs to continuously transform. The transformation is largely driven by what I call a changing consumer dynamic. If you just reflect what's happening this year in the regulatory tariff environment, a constant environment that's changing, technology, and consumer preferences are changing. Transforming is not a bad thing. I've been with the company a little over 12 years. This is my third transformation in the 12-year period. The first was when Chip and I got here, we were looking at a company that hadn't grown the top line, bottom line in highly levered balance sheet, very little innovation, and a business that was more wholesale. Our remit was, let's take costs out, let's bring innovation in, and reset the business. In 2015 to 2019, actually, we grew nicely. We were up 6% a year, and then we did the IPO. That was the first piece. The second was post-COVID, everybody had to hunker down and think through things differently. We really focused on digitizing the company and accelerating our e-commerce business as well as we took some costs out. That really led to 2021, which is the best financial year on record. EBIT margins are up over 12%. We were growing nicely, financially a great year. In 2024, you saw transition of CEO. We had a year in 2023 where growth was largely flat. The pivot was really to it was a DTC-first company. As you heard, we'd like a direct-to-consumer business. This is close to half our business to be more like 55% and not the 55%, where wholesale is a great complement to the DTC business. We are really setting ourselves to be a company growing from $6 billion to $10 billion and operating margins growing to about 15%. What is underpinning this strategy? Basically, a couple of things. The first is, I would say, narrowing our focus. Okay, we are exiting low-margin, low-profitable businesses. Denizen should be complete by the first half of this year. We have announced plans to exit Dockers. I can talk more about it, but feel good about completing that in 2025. We shut down a small footwear business in Europe. That is the first piece. We are also exiting some of the lower unproductive SKUs that we have as we make room for the newer pipeline, etc. That is really the first focus. How do we narrow the focus and really focus on growing and accelerating Levi's and, importantly, growing Beyond Yoga? The second is to your question about focusing on the ways of working. What we have really DTC-driven companies have a shorter go-to-market calendar. Wholesale companies have a longer market calendar. Our go-to-market calendar is about 16 months, really focusing on reducing that to about 12 months. We just hired somebody who's really going to be driving this as part of some recent leadership changes, and I'm happy to talk about that. We've also, as a DTC-first company, driving more direct-to-assortment. As we introduce newer fits, newer silhouettes, newer innovation, you'll see more of that commonality across the world. That's the second piece of what I call changing the ways of working. The third is really driving productivity in direct-to-consumer. It is not only about costs. It's about also growing top line. As an example, we've introduced that in the US. Our US mainline, which is full-price to store revenue, has grown very nicely over the last couple of years. We haven't publicly talked about it. I may talk about it when we report Q1 earnings. That is largely because we said our store associates currently, at that time, had about 70 different tasks. We narrowed it down to six, so they can focus on selling. We have changed our labor model. That is driving higher productivity. We are introducing newer styles and fits, as well as assorting our stores more between balance between women's and men's. That is really helping grow the women's business. Last but not the least is leadership changes. Last year was about fixing and refining the strategy. Earlier this year, we have aligned our structure to that strategy. For example, we have one person looking after product and merchandising. The second is our commercial teams are more aligned to our supply planning, demand planning. We call it '23. There was a period of time we were not able to service all our demand. I am personally leading the transformation for the company as part of my revenue. There were some leadership changes. That is really what has happened from our transformation. This is really setting us up to get to $10 billion operating margins. Got it. Maybe before we open it up for everyone else to ask their questions, maybe just hot topic, sourcing exposure, just given the tariff uncertainty. Can you talk about what you build in as far as tariff pressures, your primary exposures, and just ultimately, how do you think it all kind of shakes out for you guys? Yeah. It's a fluid situation evolving, not only by the day, but probably by the minute, as all of you know. Volatility is never great for either the businesses or consumers. We've been at this for over 150 years. A couple of things. In fact, A, we cross-source from about 25 different countries. No one country is probably over 20%. There was a time when we were importing in the mid-teens as a percentage of sales from China into the US. Today is less than 1%. We were able to cross-source it. Our vendors have factories in different countries. That's one piece. The second is imports into the US from Mexico are approximately 5%. As we think about making sure that we're able to respond and react, we've got different scenarios in the world. It's difficult to talk about every option out there. The only other piece I think to note is that we just take Mexico as an example. Mexico imposed, they increased their tariffs importing to Mexico sometime in December of last year. We've just taken pricing to kind of offset it because we have pricing for the brands in a very good spot, and we feel the consumer is generally resilient from that perspective. As we think about different options, as in when tariffs are imposed, the key for us to really think through is how do you mitigate it? Given our current exposures and imports into the US from China and Mexico, I think 2025 will be fine if that's where it is at this stage. If it's more universal, then we'll respond and react accordingly from that perspective. If you have to take pricing, which is unfortunate because you do not want the consumer to pay the consequences of that. Open it up. Just for clarification, what is the largest country? We haven't disclosed it. Most of our sourcing is largely Asia, some North Africa, a little bit in Mexico, as we talked about. It is primarily Asian countries. Asian countries are Bangladesh, Pakistan, Vietnam. We have very little import into the US from India, for example. Most of the product in India is made for India. You said you feel comfortable with tariffs as they're currently being discussed, and then from here, we'll have to see how changes. Correct. Correct. Like most companies, given that there's a bit of a pause, some of this is coming, we've tried to do what we can to bring things in earlier in a business. It's good for us because our business is largely code. It's a lot less fashion than some of the fashion competitors. There's only so much you can do from that perspective. That's DTC. Correct. I'm assuming that's margin accretive shift. Gross margin, obviously, on a yearly basis. Yeah. The way to think, the answer is yes, but let me give some color. If you think of our DTC, these are our stores and our e-commerce, which is close to about 10%. E-commerce is close to 10% of our business. The combination, as I said, end of last year was 47%, grew, I think, three or four percentage points from a year ago on the way to 55%. I think in 2023, when our overall EBIT margins were about 9%, last year we ended a little over 10%. DTC margins were probably in the low teens. Last year, we hit the high teens. We want to continue to improve it. The 380 basis points is a factor of a couple of things. One is higher revenue per square foot, which is driving higher productivity. As I said earlier, a better productivity on our cost structures that drive higher EBIT margins, as well as e-commerce as is now. Everything in all costs allocated is low double-digit margins. There was a time of negative. I think 2023 or so, I'd like you to correct me, it was in the low single digit. It has grown nicely. As we think about growth, DTC, we'd like DTC to be north of 55%, growing in the high single digit as we have guided earlier in the year. In the last few years, DTC has grown nicely. It's a combination of growing comp sales, opening doors, as well as growing e-commerce. It's a good trifecta. Does that answer your question? Yeah. Who actually leads? Yeah. No. Yeah. Good question. The way we are structured is we have a head of commercial for Levi's. That is all channels, right? That's stores. There's e-commerce as well as wholesale. Under Gianluca Flore, who we hired late last year, he came from Burberry, basically a retailer. Under him are managing directors of five or six what we call markets. You have the U..S and Canada. You have LatAm. You have Asia, etc., etc. Each managing director of a cluster is responsible for all channels. We also have a Chief Digital Officer who basically wakes up every morning and really focuses on growing e-commerce. That's what I call a good matrix because he's got a team that focuses on growing e-commerce business. That's the way it's kind of structured. E-com had cluster heads. Yeah, cluster heads. Under each cluster head, the way we structured, there's a head of retail, which is stores. There's a head of wholesale, and there is a head of e-commerce. There is dedicated focus on each of the channels. Now, under my wonderful transformation remit, I have a workstream, okay, that's called driving productivity on direct-to-consumer. I have a small little group that's saying, "Okay, how do we drive higher revenue per square foot? What do we do to drive better cost measures? How do we drive better working capital?" This is a wonderful matrix that works. The reason profitability in DTC, growing productivity in DTC is so important is because the wholesale EBIT margins, as you know, are slightly higher than DTC margins. It becomes a higher DTC business. You have to start closing the gap. We're narrowing the gap. It'll never be the same. If DTC is growing at, whatever, five, six times the pace of wholesale, because our expectation of wholesale at least for 2025 is flat, and DTC in the high single digit, obviously, it's going to drive higher leverage on your costs and drive higher profit. It sounds like just the press message. Sure. I know '24 kind of folded early and came back. Yeah. First, I love your jacket. I mean, I was an operator. Very high metric in that case. Okay. COVID forced me back to Wall Street. Okay. You've got to be flying versus flying home for five years. That's good. It's good to have an operator in Wall Street. To your question about, sorry, the question was, yeah, the men's. What really happened on men's? We had a real good quarter four, both men's and women's, and the men's business grew nicely. What really happened is the styles and the silhouettes really moved to baggier and looser fits. Our viewers, and that's the way we've seen trends over that women gravitate towards happening on trends first, and it takes a little longer for men to get there. What we noticed was the move to the looser, baggier fits started accelerating in men's. We were not ready from a product perspective. We chased into the product, and it hit the floors. We were ready for holiday because we had a very strong holiday. That made the big difference. That was a lot earlier. Yeah. Sorry? That was a lot earlier. Yeah. Sure. Sure. I mean, men's was growing in different parts of the world and in our own stores. It was not growing as much as wholesale. Wholesale has improved because inventory is a lot leaner. Financially, we also got a lot better, especially in Europe. We saw that. That's the. Yeah. Is there a collaboration? Yeah. Yeah. No, it's working well. It's not a big collaboration. Yeah. It gives us good brand heat from that perspective, but it helps grow the brand. The bigger partnership, obviously, is Beyond Yoga, which is making a big difference. Last year, so backers or. That is anyone's going to get shut down. I mean, how do you envision the business? Because there's a lot of moving parts. When you report, it always seems like the DTC is really good, and then all these other things are kind of bad. It's hard to understand how we think about it going forward when some of this stuff is just not. I mean, how should we? Yeah. No, it's a question that we got a lot last year. It was confusing. This year, we've introduced a metric called organic net revenues. Organic net revenues really helps both us internally because it's across the company, as well as externally, and for all of you to understand what's the true growth in the business. Organic net revenues, which we introduced as we reported Q4, is largely backing up the impact of change. Plus, the business is very good. The business is very good in a large deal of the business. If you think of quarter four, on a reported basis, I think quarter four was up 12%. The organic growth in net revenue was up 8 because quarter four, for example, had a 53rd week. That's also backed up. True health of the business is. That is how we are going to be reporting forward. Now, we have not exited Dockers. That will happen when we close the transition. Dockers is a good candidate for discontinuing. If that happens, we will see the change both in 2025. If you back out Dockers, how much is that? How much is Dockers more? Yeah. Dockers in the U.S. is primarily. Let's think of the business. Dockers, I think at this stage, we haven't talked a lot, but it's about 50% international, 50% US. The US is primarily wholesale. If you think of the wholesale direct-to-consumer segmentation, I would say 60-65% wholesale, 35% international. That's really the Dockers. The Dockers business is a little over $300 million as of 2024. Gross margins probably slightly under 50%. The EBIT, fully allocated, and I'll explain about that in a minute, is probably breakeven. A couple of years ago, as we really wanted to focus on Levi's and Dockers, we had a choice on Dockers. Do we do what we're doing now, which is exit the business to fiscal drag, or do we take a last effort to try and do what private equity does, which is carve it out and have a dedicated team running it, compensated completely on Dockers? That's what we decided to do. When we decided to do that, we said, "Okay, let's allocate our costs and see what's the business." On an allocated basis. That's why I think the Dockers EBIT margin generally is back. Breakeven. That explains the Dockers. The reason we're getting out of it is it's a brand that we created. In fact, I was talking to Bob Haas a couple of days ago, and we were talking. It was created in the late 1980s, largely as Casual Fridays who stayed in. It is a category that is low growth, and margins are subpar relative to the companies. We felt that as we narrow the focus on Levi's and Beyond Yoga, give it to somebody who can actually take it. If you do give it to someone, I can take it to the next level. Does that become competitive that we have to keep an eye out for it? Yeah. I mean, it's the different categories. If you just think of the casual pant space with Levi's, with chinos, and our performance tech and everything else, the market share of Levi's is probably slightly higher than Dockers. Yeah, they're going to go for a share of the closet. As leaders, we lead in the marketplace. I think it'll be our desire to maintain that leadership position. Can you talk about use of proceeds from potential transactions? Yeah. We haven't talked about it. We'll talk about it as and when we have something more to report on Dockers. The way we are thinking about it is there are basically three options. One is use the cash to grow the business. We are in a very good situation financially. We have enough cash. Balance sheet is not levered. You probably noticed that Fitch moved us to investment grade. We don't need the cash to grow the business. We're spending about 4% of our revenue in capital to grow the business. That's not a need. The second is, should we pay down more debt? We've got $1 billion of debt. The cost of debt is a little over 4%. We feel we're in a good spot. We don't need to do that. It really comes down to returning capital back to the shareholders. That is how we're thinking about it. It could either accelerate our buybacks. It could be a special dividend. We will come back with it. Basically, in the bucket of how do we return this back to the shareholders? Anything as it relates to stranded costs, which we're thinking about? Sorry? Yeah. Stranded costs. Stranded costs, as part of this wonderful transformation that we're doing, that's also part of, okay, how do you keep taking costs out? Stranded costs is part of our thinking. Now, about ballpark, what do you think Dockers is worth? I can't get into it. We're in the middle of the same process. No, we can't. I'll be negotiating against myself. You said it's a $300 million expense. A little over 300 last year. Let me just high-level whatever you're able to speak to just as it relates to the consumer more broadly. Coming out of Q4, which we saw through the beginning part of Q1. The last question is out of the question for calls. Yeah. Yeah. I'll try and go around the world. I think overall, our view of the consumer generally resonates. I think the attraction to brands that are innovating, brands they can trust, and products that are a lot more relevant, I think. Country. We've seen that. We have enough examples around the world where we try and say, "Okay, here is something that's not working. Let's discount it." Versus, "Here is a new product." They gravitate to the product. If you think around the globe, the consumer in the U.S. is generally resilient. We're seeing it clearly in our direct-to-consumer business. These are where the company experienced the full line of assortments and is our execution, and that's been growing nicely. Europe, I would say, consumer in a better spot today than probably a year ago, right? Our Europe business, as an example, returned to growth in the second half of last year, right? DTC was up nicely. Wholesale followed suit. I was just in Asia last couple of weeks and seeing very similar trends. If you just take our Asia business, between 2021 and 2024, Asia, I think, grew in the high single-digit annually. Margins were up 800 basis points. We opened a bunch of stores in Asia. Consumer generally feeling it was probably in India also. Consumer confidence very high. A great piece of our India now is the sixth largest market. Generally feeling good. Latin America, which is. If you think of our business, Ida correct me if I'm wrong. I'd say the US is about 40%. Europe is about 30%. Asia is about 60-70%. Quarter four, Latin America, Mexico, it was a bit of a drag. It came back faster. Generally feeling good about the consumer globally. Difficult to predict when tariffs come in, the impact on the consumer. We do what we can. Our product pipeline has never been strong. I've been talking to earlier. They've never seen us. Our product pipeline is strong and healthy and relevant. I think that's how we would kind of interact with the consumer. A little bit about the women's business. It's been really showing great signs of growth. I think in the fourth quarter, it looked like it was really flagging nicely. Maybe what are you embedding within your wholesale growth forecast for the women's side of the business? How much runway there? That seems like the product is selling out very quickly. If you take the women's business, 10 years ago, it was about a fifth of our business. Today, I think at the end of 2024, it's close to 36%. Our view is it should be a power and over time. A steady progression. I think when yoga pants were taking off in 2014, 2015, we sat back and said, "Do we get into that, or do we really establish products that are relevant for her, which is slimmer fit, a little bit of stretch, and more comfortable?" That's what we did, I think, in the fall of 2015. At that time, the business was about $800 million. We had gross margins of close to 30%. The business is declining. Today, the business is close to $2 billion. Gross margin higher than many. It's had a very nice growth. We feel it can be a lot bigger going forward. When we are opening stores, trying to assort our different products, we're giving enough space for women so that it doesn't make a difference. Because when she walks in and sees the stuff or the product that's relevant, she doesn't buy. We're also, as we focus on denim lifestyle, we were not selling denim dresses, denim skirts, denim outerwear, for example. That's something that we've added to the line last year. That really helped because that really reinforces the denim lifestyle in Singapore. The largest store, one could see different assortments there, which is really good. The other thing that you'll see in spring is what we call a Blue Tab. Blue Tab is a premium version of our assortment. It's basically either made in Japan or made of Japan, but inspired by Japan. It's a product. It's been in Asia for a while. It does really well. It does very well in China. We hadn't yet innovated around it, both for him and her. We've just done that. That's launched in Asia. It's doing very well. Coming to the rest of our globe, that should make a difference. I think to your point, just being in the baggy fit has also made a difference. We introduced the baggy fit just before COVID, and it's taken off and continues to do reasonably well. We're not as concentrated in baggy as people think we are because we sit back and say, "Okay. We learned this from when t-shirts were on and logos were driving the t-shirt business. We were saying, 'What's next?'" The teams are thinking, "Okay. We have a baggy cycle. It helps the denim cycle. What's the next trend over time? I think it's a constant dialogue perspective. That's really what's driving the. Would you quantify the sales within your existing accounts? It's. It's repeated, and it looks like women's growth. Yeah. No. I mean, it is an opportunity also. Clearly, you see the success of what you introduce first in DTC, and then it moves to the other channels. We believe, to your question, have you quantified it? Probably not. But it's in the $6 million-$10 million. When we say $6 million-$10 million, women's is a big piece of that. And women's growing at twice the pace of men's is probably what's going to be here to stay. If it's gross margin accretive, that's. Can I have some clarification? Just on the call, you talked a little bit about distribution expense and what we should expect going forward. I just was not quite clear. I know there is a component that was the duplicative DC overhead costs and then moving e-com. That core distribution expense growth of 6-7%, does that include the DC expense? Going forward, should we expect it to be less? Is the core 6-7, the first half will also have some additional distribution on top of that? Yeah. No. I think the distribution expense is between 6% and 7% as a percentage of revenue, right? Our objective is to reduce that. This year, because we've got these transitions taking place now, as part of the recent reorg that's been given to me as part of my transformation and working with the folks who try and figure out how to reduce it. The objective, when we were running our own DCs, which we still are, but now we've got GXO running our DCs in Germany and GXO, we've transitioned one DC here. The entire objective is, because this is what they do for a living, that the cost per unit actually comes down over time. In the short term, because we're running two DCs, there's those transition costs. Over time, the SLAs that we've set up are to reduce our distribution expense. Now, that will happen because they can add other customers from the same DC we could. That leverages some of the fixed costs. There is a lot more automation from that perspective. When does that reduction happen? I think you probably start seeing six. As you think about one of the levers to get from, say, at the end of this year, even margins towards 11-15%, driving lower distribution expenses is part of that. Does that answer your question? Yeah. Overall, the first half, we should expect to be higher just because those expenses will be phasing out towards the end of the year into 2026. Let's take Germany, for example, right? It's a new distribution center. It opened in October or November of last year. We're just ramping up. It really services Europe. We're ramping up. It's a process. We're ramping up. I think we probably get to steady state or normal state sometime by the end of the first half. I think when we get there, then we start seeing some productivity and improvement. The first half, you'll see some of that. I think I've said this before to some of you. It also, because you can't service all the demand because you're ramping up. Wholesale, as an example, in Europe, the pace of growth is going to be much slower in the first half than the second half. You don't see that probably in the US because we've got other DCs, etc., etc. I'll just finish with one. Can we talk about US wholesale? Department stores, mid-tier versus premium, trends in both, opportunities in both? Maybe we can end there. Yeah. I'd say the wholesale overall, probably more stable than it was a year ago. It was a lot more volatile about a year ago. You've seen that if you just look at the US results, five consecutive quarters of growth with quarter four wholesale actually being positive, right? We've been cautious when we guided wholesale to flat, I think. In January, we're just cautious because it's an environment we don't control. Our sales in department stores has over the years gradually come down, right? At the end of 2024, department stores in the US is probably slightly less than 10% of our total revenue. It was much, much higher years ago. These are department stores. I mean, think Macy's, think Kohl's, JCPenney, Belk, etc. That's what we call as department stores, I think. Europe, for example, we've seen wholesale come back nicely in the second half of last year. As we think about opportunities in wholesale, because wholesale, as I said, is a good complement of DTC. To the question that was asked earlier about women's, I think women's is an opportunity. I think getting into our newer styles and fits opportunity, it takes a little longer for them to convert. They also want to see the proof in our own DTC stores before they buy. They buy a lot of Kohl's, the 511s, the 501s, etc., and 502s. Converting takes a little longer because they've got inventory, and it takes a little time, etc. I think they are—I mean, that's where we're seeing positive growth. They are in the process of converting to the newer styles. It just takes a little longer. It's a bigger system from that perspective. Got it. We are at time. So we will end it there. Thanks, everybody, for joining. Thank you. Thanks for having us, and thanks for taking the time.