Hi, Christina. How are you? I'm great. How are you doing today? Good, good. This is unusual. Good. You know, you're dialing in from the U.S. We are here in Europe, but it's great to finally meet you. Yes, you as well. Thank you for joining us. Yes, I know it's a bit unusual, but unfortunately, I wasn't able to travel this year. This is sort of the best that we have as of right now. Hopefully, the technology works out well. Good afternoon, everyone, and welcome to Levi Strauss' Buyer's Edge chat today. Thank you all for joining us, both in the room and on the webcast. My name is Krisztina Katai. I'm Deutsche Bank's U.S. retail analyst. It is my pleasure to have with us Levi 's Chief Financial and Growth Officer, Harmit Singh. Thank you for being in Paris. I just wanted to start with Levi 's transformation. You're in your third transformation that is currently underway. Harmit, you've been with the company for over 12 years. Can you discuss the key changes that you made since last year, in particular, what has been working, how long can it continue, and what role does the recent divestiture of Dockers play in the company's transformation? Sure. Thanks. First, good afternoon, everybody here. It's great to be in Paris. I think if you walk the streets of Paris, you'll see a bunch of Beyoncé signs signaling our partnership with her. But Krisztina, to your question, yes, I've been with the company 12 years. Yes, it's our third transformation. You know, transformation is linked to strategy. And each of the three have been with their objective. The first was, you know, when I joined the company with the then CEO, Chip, we hadn't grown for about two decades, the top line and the bottom line, at the same time in any year. We weren't investing for growth. We were overlevered. We were a private company. So it was all about getting the company back to a growth path. And if that was successful, you know, going public, which is what happened in 2019. The second was, you know, largely driven by the pandemic. You know, like all of us, we hunkered down, but we said we'll emerge from the pandemic stronger. It was all about driving more digital business. E-commerce, which was at that time less than 3%-4%, today is more like 10%. E-commerce was unprofitable. Today, you know, it's very profitable. We continue to open stores, you know, while others shut stores. It made us, you know, a better direct-to-consumer business. I think 2021 for us was the best financial year on record in about two decades. The third transformation, which we're currently in, really started with Michelle coming across as the CEO, with me becoming the Growth Officer. The objective is, how do you take a $6 billion company and make it a $10 billion company? How do you take a company that this year we should probably end with a little over 11% EBIT margins? How do you make that 15%? That is really the transformation. Our strategies are, first, is about being brand-led, which is about driving more growth in Levi's and Beyond Yoga, which is a brand we acquired during the pandemic. The second is all about this pivot to a DTC-first company. DTC-first is not DTC-only. You know, wholesale is an important piece of our business. We will always complement our direct-to-consumer business. DTC today is, you know, close to 50%. When I joined the company, it was about 20%-30%, so a smaller piece. Today is, you know, half the company. The third is about powering the portfolio, which is about driving international and other brands. The transformation really focuses on three broad areas. One is we said, OK, if you really want to unlock the potential of Levi's, are there any businesses that are low margin, low profitable? We exited. We had a small footwear business in Europe. We exited that. Denizen is what we sold into Target at $30. We launched our Red Tab, which is Levi's in Target, a couple of years ago. We exited Denizen. We took a hard look at Dockers. The divestiture of Dockers was largely because Dockers was in a category that was not growing. It was diluting our growth because it has been in a decline for a while. It was not making a lot of money, in fact, largely break-even. We said, you know, we will divest from Dockers. The other thing we're doing to narrow our focus is, as we build a phenomenal product pipeline, our innovation calendar and our product pipeline have never been stronger. We are actually reducing the SKUs that are not as productive. It's all about narrowing the focus. The second big aspect of the transformation is changing the way we work. It's taking our go-to-market calendar from 16 months and bringing it down to 12months-13 months. It's driving more global directive assortment. If you go to our stores last year, the commonality was about 8%-9%. This year is more like 30%. Can we take our big bets and then make sure it's across the world, which is about directive assortment? The third is driving productivity in our direct-to-consumer business. Our direct-to-consumer business is less profitable than our wholesale business. Higher gross margin, but lower profitability. The question is, can we drive higher revenue per square foot? Can we improve profitability? As an example, in Q1, profitability was up 500 basis points from a year ago. Last year is up 400 basis points. We're narrowing the gap. Those are the elements of the transformation, Krisztina. They're working. You know, the transformation office reports directly into me. I've got a small group of folks, four folks, what I call the internal consulting arm. They're helping our different teams around the world to try and drive this. Great. Sticking with the transformation, if you could talk about maybe how consumers' perception of the Levi's brand has shifted over this time. What have been the reception or any resistance that you have seen from pushing into more of a lifestyle brand from predominantly a denim brand? Yeah. So a couple of things. First, as of last quarter, we were market leaders in the U.S., market leaders in men's, market leaders globally. We took the number one market leadership position in women's. And we're leading with the youth, 18-year-old - 30-year-old. When I joined the company, the average age in the U.S. for men and women, both categories, was in the high 40s, is now in the low 30s. And that's not happened by accident. It's taken, you know, the changes have happened over time. You know, it was largely the company I joined 12 years ago was largely a men's bottoms business skewed to the U.S. and skewed to U.S. wholesale. The company today is a better agenda mix between men and women. The women's business is close to 40%, on the way to 50%. It used to be a fifth of the business. It was a business that was less than $1 billion, declining with 30% EBIT margins. Today, it's the fastest growing of the two genders. It's growing double-digit. It's higher gross margin than men, so creative to the company. And, you know, a huge runaway for growth. The better gender between men and women is clearly a change. The younger consumer, clearly a change. The business that we're trying to evolve to, and the consumer is giving us license, is more a denim lifestyle. It's not lifestyle for lifestyle's sake. It's denim-focused lifestyle. I was just telling a group of investors earlier because the question was, you know, can you do just about anything? That, as you know, in strategy, that's the recipe for disaster. You know, we narrowed our focus. We said, if we are denim leaders and denim leaders in bottoms, can we be denim leaders across all clothing? You know, denim dresses, denim skirts, denim jumpsuits, you know, the shirt I'm wearing, which is a lightweight denim, you know, shirt, Western wear. By narrowing the focus, we actually expanded our opportunity. We're also expanding our TAM to include non-denim. You know, and that's chinos for him, performance tech, which is like the ABC Lululemon pant, because that's what they wear in a hybrid work environment. That's having a huge success. We just launched linen, but it's denim-inspired linen. To your question, I think the consumer is giving us permission as long as we lead with denim and allow us to get into adjacencies that, you know, are linked to, you know, who we are. I think, you know, the opportunity is immense. I think the category Euromonitor says is, you know, expected to grow in the mid-single digit. Our growth algorithm is in the mid-single digit, you know, for the next couple of years. That is what gets us to the $10 billion. Good. Great. Just given that tariffs are top of mind for many of us and for most investors as well, maybe if you could talk to us about your global sourcing exposure, just how has that changed relative to the first round of China tariffs of 2018 and your ability to mitigate the pressures in the current environment? The follow up to that is, have you seen any changes in consumer behavior as a result of some of the mitigation efforts? Sure. Yeah. I'm glad it's question three, not question one. But it's a question. So tariff, just think about the company. In 2018, you're right, which I say is tariff 1.0, we were importing into the U.S. about 15%-16% from China. We made a pivot. It took us 12-plus months. And today is approximately about 1%. We reduced that dramatically. I'll explain, you know, how that happened in a minute. The second is Mexico is, you know, close to over 10%, is about 5% now. Vietnam is probably in the mid to high single digit. Our sourcing base, we source from about 28 countries. We source from 20 countries into the U.S. You know, a lot of our vendors have factories in different countries. They learned from tariff 1.0. That allowed us to also diversify. A lot of our products are core things, the 501 thing, the 511. And we source from multi-vendors. You know, and it's our product is not rocket science. Yes, you know, as long as you work with vendors and you upskill them, that's something they can manufacture. And so as we think, so it's a very diversified supply chain. Plus, the company is diversified. Our company used to be concentrated in the U.S. It was primarily a business today. 60% of our business is outside the U.S. And so we have that, you know, global footprint. And growth is happening at a dramatic pace outside the U.S. You know, we've been growing in the high single digit. 75% of the apparel market is outside the U.S. 60% of our business currently is outside the U.S. So we have an opportunity to grow that over time. The way we are thinking about tariffs, I mean, if the base case is a 10% increase into the U.S. and maybe the 30% that's on the cards with China, we are looking at, can we mitigate that through costs? Can we mitigate it through vendors' negotiation? And then, you know, pricing. Pricing is not about just taking, you know, prices up. We are driving higher full prices because the product pipeline is working. We probably reduce our markdowns because inventory is in a good position, both with the wholesale retailer as well as us, et cetera. If that's the base case, I think, you know, we have a good chance of mitigating the impact. If the base case is reciprocal tariffs, that would probably take us a little longer, you know, because we've got to really think through supply chain. You know, moving and cross-sourcing from a bunch of countries takes a little longer. We were able to do it, you know, a couple of years ago. I think we can easily do it because we're the market leader in the products we make. To your question about consumer, you know, consumer in the U.S. is surprisingly resilient. I'm not going to get into the quarter largely because we just closed our quarter. When we reported results for quarter one in early April, we did say the March trends were, you know, a lot stronger than when we exited the quarter, which ended in February. The consumer generally has been resilient in the U.S. Consumer in Europe, you know, we are seeing, you know, stronger than we had originally anticipated. Consumer in Latin America generally in a good spot. In Asia, other than China, you know, also in a good spot. China, we have a small business, less than 3% of the business. They're going through some macro headwinds. You didn't ask the question, but I'll answer because I've been asked this. Are we seeing a backlash? Because we're an American company. It's who we are. We've been overseas for about 80 years. There's very little local competition. You know, we have competitors, but they're largely global competitors. So far, knock on wood, we haven't seen, you know, backlash against our brands. Obviously, you know, it's something we watch out for. We have teams on the ground. They engage with the communities. A large piece of our business is local consumers. So far, you know, that's holding out. Okay. That was going to be my follow-up question if you've seen any of the anti-American sentiment, but you just answered that for us. Maybe if we could talk about the strong performance that you have seen in your DTC, so direct-to-consumer business. If you could just touch on what are your plans to further optimize the channel, store opportunities, both as you think about expanding in the U.S. as well as internationally. Yeah. So the best kept secret, because we grew up as wholesalers, but the greatest opportunity. If you take our direct-to-consumer business, which for definition is our own stores, we have about 1,200 or so across the world. We have another 2,000 stores largely run by franchisees. You know, because I look after, as part of my growth portfolio, all the real estate and franchisee expansion, it's important that franchises also grow. Last year, we opened about 100 net doors. Forty were franchisees around the world. Europe, for example, is a mixed market. We have 800 stores, 400 franchise, 400, you know, companies. Getting the franchisees to grow is an important piece of the remit. Your question, direct-to-consumer business, which is about a fifth of our total business when I joined as of last quarter of quarter one, was 52% of our business. You know, I jokingly say, you know, but it's true. Our direct-to-consumer business is delivering what I call a trifecta. Our comps sales have been positive now for about 12 consecutive quarters. We're opening new doors. Last year, we opened net 100. This year, we have, you know, our guidance is 50-60 net. Our e-commerce business has been growing in the mid-teens. Our e-commerce business is now 10% of our business, on the way to 15%, and hugely profitable. EBIT margin is probably higher than the company. That's in a good place. Our view is our direct-to-consumer business can, you know, head closer to 55%, between 55% and 60% of our business, while we either keep wholesale flat to slightly up, right? The growth is really going to be driven by direct-to-consumer in the high single digit. That's what our growth algorithm of mid-single digit talks about. The other thing that we really focused on is driving productivity in our direct-to-consumer business. Our direct-to-consumer EBIT margins are lower than wholesale, will always be, but we're narrowing the gap. What are we doing to do that? One is the higher, you know, productivity per square foot on revenue. Take our stores. If our women's business is truly to be 50% of our business, our stores currently don't have the floor space dedicated to women at 50%. It's a little lower than that. Wherever we've been able to give equal space to women as men, the business is 50-50. Take the mainline stores in the U.S. Mainline is full-price stores. We have about 75-80 of the stores. A couple of years ago, you know, we had about 8-10. We have dramatically increased that. Our women's business and our own stores in the U.S., full-price stores, is over 50%. They're high gross margin. You know, we think that's an option. Our view on stores in the U.S., full-price stores, we probably can double that over time. Europe will be opening a couple of stores a year. Asia is where, you know, the bulk of the openings are, you know, across most of the Asian markets. I'm not even counting China because China will take a little while, we think, to sort itself out. That is why our view is DTC continues to grow, continues to get more profitable. The thing I have not talked about is waist up, which is what we call tops. Our tops business is about a fifth of our business. We sell four bottoms to a top. It used to be seven bottoms to a top. Our view is we have to get to a one-to-one ratio. And the consumer, to your second question, does not probably think of us as much if he or she wants a top. They think of us more as a place where you can get good bottoms. And that is the journey we are on. But, you know, that is something that we are trying to drive. And tops business has been steadily growing 7%-10% a year and is not dilutive to overall gross margins. Great. You touched on some of the drivers there between DTC narrowing the gap on profitability, but you have this 15% operating profit margin target. Can you maybe bridge us on how we get there from today's level? Just maybe break down between opportunities and cost of goods sold versus SG&A. Ultimately, is 15% operating margin an absolute ceiling or could there be upside later down the road? Yeah. To your question about, you know, the bridge to the 15% operating margins, the, you know, let's say we end the year in the mid-11s, right? If you look at the trajectory the last three years, 2023 was probably a little around 9%. 2024 last year, we ended a little over 10% because I've taken our Dockers, right? Because Dockers was really low margin this year in the mid-11s. We have steadily grown our EBIT margins. If you look at top-line growth, in 2023, it was flat. 2024, organic growth was 3%. This year, our guidance is 3.5%-4.5%. Our view is we can be a mid-digit growth company. That is important because that drives leverage on SG&A. Our view is gross margin, you know, acceleration. Gross margin in the last three years has accelerated really nicely. 2023 was a little under 58. Last year was a record at 60. This year, we've indicated 100 basis points of improvement, so a little over 61. The first quarter was a nice beat on gross margin. I think gross margin will continue to accelerate. Why will it accelerate? A couple of reasons. One, the businesses we're trying to drive, which is women's, DTC, international, all higher gross margin. You know, gross margin acceleration just structurally is here to stay. We're also, you know, driving higher full-price selling because our product pipeline is strong, is hitting home, is relevant, and that should have its own benefit. Plus, as we are able to reduce our go-to-market calendar, are able to reduce and drive more productivity in our assortment, that also helps gross margin. I haven't quantified all that, but that's additive. SG&A is an interesting one. You know, for a business that's moving to or squeaking towards DTC, one can argue SG&A grows. The way we think of it is SG&A as a percentage of revenue. In and around the 50% is a good place to be in. As we drive more productivity on our direct-to-consumer business, you're able to leverage the SG&A growth. If you're growing mid-single digit, you're probably leveraging SG&A, and that drives your EBIT margin. That's our thinking. That's our path to 15%. Is 15% a ceiling? You know, for a business that's growing higher DTC and continues to grow mid-single digit, probably not. Let's get there first, and then we'll think about it from there on. I mean, it's clearly a mandate. Our commitment with our board is to get to $10 billion and 15%. Our long-term incentive plans, which, you know, in the next three years, plans are locked, you know, have that trajectory built in. You know, it's clearly a commitment from our CEO, myself, the executive team, and the board's there. Yeah. Great. That was a good overview. Just touching on some of the categories, right? Denim bottoms are trending well. How do you see the health of the global denim market and your share within that? You have other initiatives. You talked about the launch of linen, tops as well. Just any other categories that you're excited about, especially as you think about women's opportunity and, you know, younger consumer? Yeah. I mean, you know, the world's become a lot more casual. I think that's a good tailwind. You know, the prediction, at least from Euromonitor, is the denim category grows in the mid-single digit. The activewear category is expected to grow faster. Denim dresses, skirts are expected to grow faster. As we think about our TAM, that's why, you know, expanding our non-denim presence. It's a less known fact, but, you know, we probably sell 30%-40% of our product is non-denim. We already have the license or the permission from the consumer. The question is, can you grow that? That's been growing nicely. The question is, can you grow that over time? You know, one of the reasons to exit Dockers was if you just looked at Levi's and Levi's share in the casual pants segment in the U.S., we were already higher than Dockers. You know, the question was, if you're already higher than Dockers, can you grow that segment over time unconstrained? You know, that's another reason that drove that thinking. Our view is, you know, that's why we say mid-single digit growth, Krisztina, and not higher. You know, but over time, I think we can grow that. As I said earlier, international is still underpenetrated. China is still 3% of our business. At some stage, the macroeconomics in China improve. You know, we get our act together and we can unlock that market. I think there's a bit of an opportunity there. India, you know, we're number one in men's, number one in women's. In fact, we're number one in apparel across the board, right? And it's a young consumer. We have 450 stores, largely franchised. We've got about 15-20 of our own company-operated stores. So we think that's another huge opportunity longer term. Okay. And wanted to touch on just your pricing philosophy in terms of, you know, AURs are higher versus when you first joined naturally. You know, just how do you feel about AUR levels relative to where the market is, some of your competitors? How do you think about absorbing some of the costs to provide value for consumers, especially in this environment? And then just over the medium to longer term, like, is there more room for AUR increases down the road? Yeah. I think I, you know, love the fact that AUR is better and there's huge opportunity. The way one thinks, because I grew up in Pepsi and Yum!, where it was very important that transactions and volumes also increase. If you think the last two quarters, you know, two-thirds of our growth were actually higher volume. One-third of our growth was AUR. That means we're selling more. As we open doors, we sell more. Also, the throughput through our existing doors, you know, comp sales is also a combination of selling more. That's about getting more consumers, especially as we get, you know, higher frequency from our younger consumer. That makes a difference. AURs have grown nicely, as you rightly say. I think the opportunity on AURs is a couple. One, as we drive higher full-price selling, because that's an opportunity for us as we become more of a retailer, that should help AURs. Higher DTC mix will help AURs because our DTC business has higher AURs on wholesale. Pricing, you know, we have pricing opportunity. Our price value is really good. That's where you've seen the growth of the last couple of quarters. You know, I think relative, especially on the women's side, I think we have good, you know, and when we look at the brand equity scores, that's clearly an opportunity. The thing that we are underpenetrated, and now we have a product line, it's called Blue Tab. It's our premium product. We just launched it in Asia. 30% of Asia is premium, and it's doing really well. It's basically made in Japan or inspired by made in Japan. That's really the thinking. We've just launched it in the U.S. and across 14 stores. Not a lot of stores, but again, doing well. We're bringing it to Europe. I think we can grow the premium piece of our business. The consumer is giving us permission to introduce premium product, and that will also drive AURs over time. I'm a big believer that the made in Japan or the Blue Tab line, which is a small piece of our business, can be a bigger piece of the business. I'm wearing the Blue Tab, you know, denim bottom, for example. It's an opportunity for us. Those are the things that I think drive AUR over time. Yeah. That's great. Just still thinking about, you know, your overall business and just wanting to touch on your full-set partners in particular, you know, how are you planning inventories with your key partners? If you could touch on those conversations for the balance of the year. Just given the level of volatility that we have seen in overall consumer confidence, that might be more of a U.S. question, but have any of the partners become more cautious with their order books? Yeah. I think we haven't seen cancellations. Pre-book in Europe, we have a pre-book, you know, business model. Pre-book for fall, winter is positive right now, where about 40%-50% of the wholesale demand is booked in advance, six months, is positive. In the U.S., similar, you know, we haven't seen cancellations. People are being prudent because our products are working. DTC is a good proof point. If the DTC business is doing well, that's what, you know, partners lean in and say, "Okay, we need that product." That's, I think, a big piece of what's happening. I think wholesale customers or partners are generally conservative. The good news is inventories are generally lean across the system, especially when you benchmark versus 2019. My own view is that, you know, even despite the last two quarters, we've, you know, where top line has been growing in the high single digits and wholesale has been relatively strong, we have to be cautious and conservative. The way we are looking at it is, you know, I'd rather miss a sale than have too much inventory. The inventory that we are really targeting is the newness and innovation. We have, you know, and it's clearly working. Our partners want it. It's working in our stores. That's what we're really looking at. We're trying to be a little bit more surgical and faster in cleaning up some of the older assortments that were slower moving. You know, and that we're managing inventory. You know, we do not have too much inventory just because you want to try and get inventory in earlier so that you do not pay the tariffs or, you know, you are able to, you know, mitigate the exposure on tariffs. We are just being balanced there. The other thing that I think as we improve our go-to-market calendar, we have got a lot more religion on is chasing into inventory. You know, in the past, we were probably buying 100% of what we thought we would sell. Today, we are buying much less, and we are chasing into stuff that works. It may cost us a little bit more in air freight, but it does prevent us from spending all the cash and bringing the inventory in, you know. I think that is the other balance that is being looked at. Okay. We have about three minutes left, so let's see how many more we can squeeze in here. I wanted to ask you on Beyond Yoga. It's been a great acquisition for you. It has put up some really nice growth over the past few quarters despite what appears to be elevated competition in the market. What do you think are the keys to your success, and what do you think differentiates Beyond Yoga versus the competition, both lower and higher price in the eyes of the consumer? Sure. Just for folks here who probably do not know Beyond, we bought Beyond Yoga late 2021. It was largely because the performance in the activewear segment was on a tear. It was a little less than $100 million, is a little over $100 million. The reason we bought Beyond Yoga was the product is different. It is, A, what the name suggests, you can wear it for more than just, you know, yoga classes. You can wear it out in the evening. They have nice dresses now. It has a large breadth. It was largely a women's-only offer and largely e-commerce with some niche wholesale retailers and only in the U.S. The perspective was you can enhance the women's offer. We have got dresses, we have got fleece now, we have got outerwear, we have got maternity. You could bring in a men's line. That is what we are working on. It launches sometime in the second half of this year and then open doors. We have five doors largely in the West Coast. They're working well. We're opening five doors this year in the East Coast. If that works well, you can take it internationally. That's the thinking, Krisztina. We've got a new management team, largely folks who worked in Athleta. You know, Nancy who runs it took Athleta from about a $250 million business to over $1 billion. They have the experience. That's, you know, the hope. Like every brand in our portfolio, they have to earn the right to be in the portfolio. They know, and they're compensated also like they would in a private equity enterprise where they're compensated on how the brand performs and the value the brand creates for the enterprise. Great. Maybe just one final to round this out, rapid fire on capital allocation priorities. You just sold Dockers brand. Do you see opportunities for further M&A and what else are you focusing on for 2025? Yeah. If you think of capital allocation, 3.5%-4.5% on capital to grow the business, largely new stores, e-commerce, and some infrastructure stuff. We are a dividend-paying company. Our yield is about 3%. Our cash payout ratio between dividends and share buybacks, we want to range between 55%-65% of free cash flow. M&A right now, given that we are just narrowing our focus and exiting the brands, I think in the short term, we are good where we are. Longer term, if, you know, there is an opportunity that accelerates women's or accelerates our tops business, you know, we could look at or international. In the short term, I think we are in a good spot. Our debt is at a good level. Our leverage is, you know, a little over, you know, a percent. Generally a strong balance sheet. You know, as we said about Dockers, even though we sold it for over $300 million, which is one time's revenue, net proceeds about two-thirds. We said we'd return $100 million, which is half those net proceeds back in the form of share buybacks. We were being conservative given the macro headwinds. If things are clearer, obviously that could be a little higher. Okay. Great. That is probably a really good place to leave it. Thank you, Harmit. It was a really good conversation. Thank you for attending, everybody, both in the room and on the webcast. This will conclude our fireside. Thank you so much for joining us. Thanks, Krisztina. Thanks for having me.