Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: All right, folks, Levi's strausshers. They are trading slightly lower
Speaker 2: today after dropping as much as fourteen percent on Friday.
Speaker 2: This is after the company's upgraded earnings guide and still
Speaker 2: fell short of hire investor expectations, following the stocks more
Speaker 2: than forty percent rally heading into that earnings print. Now.
Speaker 2: One key disappointment, at least according to analysts out on
Speaker 2: the street, is earnings growth failing to match the pace
Speaker 2: of sales expansion due to tariff and distribution costs. Me time,
Speaker 2: gotta say, Bailey, you did have td cow and raising
Speaker 2: its price target on the stock to twenty six from
Speaker 2: twenty two a share, and they've got their by rating.
Speaker 1: Yeah, staying bullish. And you look at the street thirteen analysts,
Speaker 1: ten of them buys. So is it a sell the
Speaker 1: news event? Price to perfection?
Speaker 2: We see it's a really good part. So let's see
Speaker 2: what one of the companies members of the C suite
Speaker 2: have to say. Harmit Singh is with us, chief financial
Speaker 2: and growth officer at Levi Stras. He joins us from
Speaker 2: our San Francisco bureau. Harmy, it's so good to have
Speaker 2: you here here with us. How are you and how
Speaker 2: is the consumer doing well?
Speaker 3: Thanks for having me, Carol and Billy, it's great to
Speaker 3: be here again. You know, we had a real strong
Speaker 3: quarder for consecutive quarters of high single digit growth and
Speaker 3: record gross margins, as well as the fact that we
Speaker 3: were able to raise up fully of guidance as well
Speaker 3: as gross margin and EPs expectations. Overall, as a company,
Speaker 3: we're a stronger and a higher performing company defined by
Speaker 3: accelerated growth, expanding margins, and higher return on invested capital.
Speaker 3: To your question about the consumer, the consumer is largely
Speaker 3: being resilient. You know, our products are really well segmented.
Speaker 3: You know, we have Blue Tap, which we which is
Speaker 3: our premium high pinnacle product and that's doing well. We've
Speaker 3: introduced that in the US, so far, so good. We
Speaker 3: have a Redtap product that is basically marketed to consumers
Speaker 3: who earn between one hundred thousand and over and that's,
Speaker 3: you know, based on our results, really done well. And
Speaker 3: then we have you know, a signature product sold through
Speaker 3: Walmart that again had a banner QURDA and that's for
Speaker 3: you know, a lower income consumer. So consumer strength really strong.
Speaker 3: That's where we were able to raise the fully guidance
Speaker 3: and our product pipeline hasn't been stronger now if you
Speaker 3: go outside the US and international business was up in
Speaker 3: the high signal digit and so Asia had a strong quarder,
Speaker 3: consumers strong. Europe had a decent quarda consumer in a
Speaker 3: better place than so is Latin America.
Speaker 2: Well, I'm just going to lay it after you. I
Speaker 2: think I bought my first pair of Levi's in a
Speaker 2: long time, just a couple of months ago. My daughter,
Speaker 2: who's twenty two, so much younger than me, has been
Speaker 2: buying Levi's for a while. So Bailly, I mean they're back.
Speaker 2: I go into the store in downtown in the village
Speaker 2: and yeah, it's packed.
Speaker 1: Well, you get a partnership with Beyonce. All the marketing
Speaker 1: you guys are spent in terms of targeting both young
Speaker 1: and older generations. But Harmie, I want to ask about tariffs.
Speaker 1: So Levi expects tariffs from China about thirty percent, but
Speaker 1: increase expectations of twenty percent from the rest of the world.
Speaker 1: Where are you sourcing your genes materials? Is it more
Speaker 1: are you more exposed to that doubling in terms of
Speaker 1: are you getting materials from Vietnam in place of China.
Speaker 3: Yeah, so, or we're taking a holistic approach as we
Speaker 3: are able to offset the tariff impact. You know, as
Speaker 3: you think about this year, we raise guidance in the
Speaker 3: top line and the bottom line and gross margin. So
Speaker 3: you know we've been able to withstand that your specific question, Bailey,
Speaker 3: we source about one percent we import into the US
Speaker 3: from China, a little over a percent from India most
Speaker 3: of and Vietnam is in the mid to high single digits.
Speaker 3: So most of our imports are from the Southeast Asian
Speaker 3: countries think Bangladesh, think Pakistan and the rest of Asia.
Speaker 3: The way we think about our supply chain, it's fairly
Speaker 3: well diversified. We import from about twenty countries into the US.
Speaker 3: Sixty percent of our businesses outside the US, and so
Speaker 3: we're well positioned to mitigate and offset tariffs. And the
Speaker 3: way we are thinking about the holistic approach, given that
Speaker 3: volume is driving a big piece of our you know,
Speaker 3: revenue momentum, and we have tenured vendor relationships. We're working
Speaker 3: with our vendors. We're looking at different cost efficiencies across
Speaker 3: our organization as well as you know, being very thoughtful
Speaker 3: about pricing.
Speaker 2: So let me just ask you though you guys, did
Speaker 2: you know you mentioned you raised your full your outlook,
Speaker 2: you did warrant that tariffs are starting to bite profitability
Speaker 2: to measure by gross margins improves.
Speaker 1: So these are.
Speaker 2: The good stuff, but again that tariffs are starting to
Speaker 2: bite HARMI can you tell us what that means? What
Speaker 2: the bite of tariffs?
Speaker 1: When? When?
Speaker 2: How much you know any color around that?
Speaker 3: Sure? So you know overall, you know, we were able
Speaker 3: to raise top line and bottom line guidance despite absorbing tariffs,
Speaker 3: and so we are able to mitigate it. To the
Speaker 3: question about tariffs, uh, you know, tariffs will introduced on
Speaker 3: Liberation Day. We normally buy our products you know, six
Speaker 3: months in advance, and so you know we are working
Speaker 3: through you know, our efforts and we've got different leavers,
Speaker 3: uh to kind of position its who you take. Quarter three,
Speaker 3: the the Quarterbach has reported gross margins are record. So
Speaker 3: we're able to offset tariffs because we've got other things
Speaker 3: working for us, you know, as we grow our women's business,
Speaker 3: our direct to consumer business and international all of which
Speaker 3: are a creative to gross margins and allow us to
Speaker 3: you know, mitigate and offset some of the tariff exposure
Speaker 3: a cord of four. We did guide gross margins to
Speaker 3: be slightly down versus a year ago, and had it
Speaker 3: not been for tatiffs, you know, we'd have grown gross margins.
Speaker 3: But overall, as we think about the year, we'll report
Speaker 3: again another year of record gross margins. So we're working
Speaker 3: on leavers for twenty twenty six. The good news is
Speaker 3: we'll end the year stronger and we believe a well
Speaker 3: position to have another strong year in twenty twenty six.
Speaker 1: And Kara, we've talked with a good friend Peter Atwater
Speaker 1: for quite some time about that key shaped recovery where
Speaker 1: people who are well off are doing much better than
Speaker 1: those really in the bottom quintile Harmie. When you look
Speaker 1: at your goods, when you look at the ability to
Speaker 1: raise prices from the impact of tariffs, which products are
Speaker 1: you able to more easily raise prices where you aren't
Speaker 1: going to see consumers push away? And how are you
Speaker 1: thinking about that strategy as it relates to say, the
Speaker 1: genes that you do sell through a Walmart where you
Speaker 1: don't have that gross margin going direct to consumer, and
Speaker 1: you do have likely at least when we look at
Speaker 1: the data consumer who's feeling the pinch of inflation.
Speaker 3: Broadly speaking, Yeah, and so the first thing barely to
Speaker 3: your question is our products are well segmented depending on
Speaker 3: the income profile of different consumers. I talk blue tab,
Speaker 3: red tab, and signature Signature is what's sold into the
Speaker 3: lower income consumer. We've been very thoughtful about pricing. We're
Speaker 3: leading with product innovation rather than price, and so we're
Speaker 3: doing what we can to maintain a price point. It
Speaker 3: is evident in quarter three Signature, for example, I think
Speaker 3: is up in the load double digits for the year.
Speaker 3: As we think about, you know, our other products. The
Speaker 3: good news for us is our product pipeline has never
Speaker 3: been stronger. You know, we're leading with loose and baggy
Speaker 3: while at the same time selling a lot of slim
Speaker 3: and skinny both for him and her. You know, we've
Speaker 3: got wonderful you know, waste up products, think trucker jackets,
Speaker 3: think linen shirts, et cetera, et cetera. And so as
Speaker 3: a company, we're making this pivot to be more of
Speaker 3: a denim lifestyle retailer going forward. Our past was all
Speaker 3: about denim. Our future is going to be about denim lifestyle.
Speaker 2: I just want to know, do you really have a
Speaker 2: pair of baggy barrel jeans. I can't get my head
Speaker 2: around them. I'm trying, I'm trying. I'm just I.
Speaker 3: Haven't done it.
Speaker 2: I haven't done it, Armie. What I do want to
Speaker 2: ask you to is you guys have had kind of
Speaker 2: a mission, a goal to get to ten billion in
Speaker 2: sales by twenty twenty seven. I think you may have
Speaker 2: adjusted a little bit. I think also a fifteen percent
Speaker 2: EBIT margin. Could you reach fifteen percent in the next
Speaker 2: few years even if sales have not hit that ten billion,
Speaker 2: you know, talk to us little bit about that mission.
Speaker 3: Yeah. No, you know, we gave out the expectation of
Speaker 3: ten billion and fifteen percent on I invested Day in
Speaker 3: the middle of June twenty twenty two. Since then, you know,
Speaker 3: there's been a lot of change and a lot of
Speaker 3: un certainty. As a company, we've kind of, you know,
Speaker 3: navigated our way through uncertainty. We haven't given a new
Speaker 3: date on the ten billion and the twenty and the
Speaker 3: fifteen percent. Our thinking is we'll probably do that sometime
Speaker 3: next year. But your question, the company that we are
Speaker 3: building and the company that has got the foundation, given
Speaker 3: where we're ending this year, so you take twenty twenty five,
Speaker 3: we'll end about six percent organic growth. Last year it
Speaker 3: was three percent. The year before that it was flat.
Speaker 3: If we're thinking EBIT margins, this year, we'll end about
Speaker 3: mid levens. Last year it was in the mid tents.
Speaker 3: The previous year it was about nine. So we've seen
Speaker 3: a steady progress and our view is we probably get
Speaker 3: to the fifteen percent faster than we get to the
Speaker 3: ten billion. But really a company that is steadily delivering
Speaker 3: mid single digit growth in a category that probably grows
Speaker 3: a little, you know, south of that. So our view
Speaker 3: is that we will. We are market leaders now in
Speaker 3: the US, number one in men's, number one in women's,
Speaker 3: and rarely resonating with the youth. And so the question
Speaker 3: is if you're able to stay at you know, and
Speaker 3: implement our strategies our views, we can continue to be
Speaker 3: a market leader and probably pick up a little bit
Speaker 3: of share, especially because the denim category is accelerating. We've
Speaker 3: seen the acceleration in the US, we've seen the acceleration
Speaker 3: outside and that's largely driven by the world becoming more casual.
Speaker 2: Yeah, I have more genes in my wardrobe than I've
Speaker 2: ever had in like since high school. Like it's really
Speaker 2: kind of wild. Anyway, Billy and I can get another question.
Speaker 1: I was just gonna ask in terms of geographic expansion.
Speaker 1: When you think about China, what's going on with China
Speaker 1: and also what products do the Chinese consumers want? Is
Speaker 1: it that high end good or is it more of
Speaker 1: a bargain purchase.
Speaker 3: Yeah, so China for US is still underpenetrated. China represents
Speaker 3: about two or three percent of our business. You know,
Speaker 3: our business in China has been slow and soft. The
Speaker 3: Chinese consumer right now is going through a bit of
Speaker 3: a macro on certain climate. But the good news for
Speaker 3: us is they love the brand. Our brand equity scores
Speaker 3: are really solid. We think China can be, you know,
Speaker 3: a business that grows double digit over the long term.
Speaker 3: But your specific question, the Chinese consumer is fairly discerning
Speaker 3: on the brands he or she gravitated to. There is
Speaker 3: a high end consumer as well as a consumer that
Speaker 3: lies the mid market consumer, what we call the coproducts.
Speaker 3: So if we think about our Asia strategy, we really
Speaker 3: you know, our products are relevant for the mid market consumer,
Speaker 3: while we also offer products for the higher premium end consumer.
Speaker 3: Thirty percent of the Asian denim category is premium. Uh
Speaker 3: and you know premium. For example, a high Spinnacle product
Speaker 3: is largely Japanese uh uh, you know, fabric Japanese denim
Speaker 3: and inspired by Selvision. So that's what we are selling.
Speaker 3: And I think over time we'll be able to start
Speaker 3: growing a China business back in in the load double digit.
Speaker 1: Rainy interesting seth, I will say, Carol, I know you
Speaker 1: mentioned you have more jeans than ever. I have been
Speaker 1: buying the Sherpa jackets, the denim jackets like crazy. I
Speaker 1: don't know why. I have three of them in different colors.
Speaker 2: I've brought a bunch of denim jackets.
Speaker 1: That's what I'm in. I'm like, I don't wear jeans,
Speaker 1: I wear chinos, but I wear the denim jackets like crazy.
Speaker 2: I know, I just I don't know.
Speaker 1: I love it.
Speaker 3: I love it. Ebody. I works every morning. Yeah, and
Speaker 3: Bailey and Carol. Now we've got the blue tab. It's
Speaker 3: it's it's a full of jacket. You can definitely wear
Speaker 3: two off it depending on the on the on the
Speaker 3: uh you know, uh. Dress environment at Bloomberg walked in
Speaker 3: here fairly casual, so you know it's something that we
Speaker 3: are not bringing to offer. We should make your wardrobe
Speaker 3: at some stage.
Speaker 2: Hey, one last question, does it feel like God HAMI
Speaker 2: the It's been a crazy year and a lot of
Speaker 2: stuff coming at everybody, investors, the world at large. Does
Speaker 2: it feel like things are starting to calm down on
Speaker 2: a day when we've talked about what seems like progress
Speaker 2: in a ceasefire between Israel and Hamas.
Speaker 3: Yeah, you know, as I mentioned earlier, you know, we
Speaker 3: have lived through uncertainty. You know, the good news for
Speaker 3: us is the category strong. We have real business momentum,
Speaker 3: The brand's never been stronger, and we have a product
Speaker 3: pipeline that has never been full, especially as we head
Speaker 3: towards holiday. You know, our focus right now is making
Speaker 3: sure a product is on the on the floor. Because
Speaker 3: of what we have seen Carol is consumers gravitate to
Speaker 3: new and gravitate toward's relevant and you know, and you know,
Speaker 3: our view is if we can offer the right product
Speaker 3: and build a brand experience. And that's why we've got
Speaker 3: real focus on our direct to consumer business while complementing
Speaker 3: growth with our wholesale business. So this quarder, you know,
Speaker 3: both DDC and wholesale was up. We had in the
Speaker 3: US five consecutive quarders of high growth, and it's fueled
Speaker 3: by both the channels.
Speaker 2: All right, O, Harmie, when you talk with your design team,
Speaker 2: I like high waist buttons, kind of slim through the
Speaker 2: legs and then a little flare. I'm just gonna put
Speaker 2: it out there, a little stretch in there too. It's
Speaker 2: kind of my favorite, my favorite, my favorite, you were, Jeb,
Speaker 2: thank you.
Speaker 3: Yeah. And I'll take that feedback, Karen. I know, I
Speaker 3: sincerely believe feedback is a is a gift, and getting
Speaker 3: feedback from consumers like yourself is something that I'll take
Speaker 3: upon myself to feedback to our designers.
Speaker 2: All right, I'm going to hold you to it. All right,
Speaker 2: good stuff, Armie, thank you so much for me, It's
Speaker 2: saying Chief Antal and Growth Officer Vert Levi Strauss, joining
Speaker 2: us from our bureau in San Francisco.