WEBVTT - Levi Strauss CFO Harmit Singh Talks Tariffs 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.840 --> 0:00:11.360 All right, folks, Levi's strausshers. They are trading slightly lower 0:00:11.440 --> 0:00:14.240 today after dropping as much as fourteen percent on Friday. 0:00:14.280 --> 0:00:17.119 This is after the company's upgraded earnings guide and still 0:00:17.120 --> 0:00:20.840 fell short of hire investor expectations, following the stocks more 0:00:20.880 --> 0:00:24.000 than forty percent rally heading into that earnings print. Now. 0:00:24.040 --> 0:00:26.960 One key disappointment, at least according to analysts out on 0:00:26.960 --> 0:00:29.920 the street, is earnings growth failing to match the pace 0:00:29.920 --> 0:00:33.280 of sales expansion due to tariff and distribution costs. Me time, 0:00:33.479 --> 0:00:36.000 gotta say, Bailey, you did have td cow and raising 0:00:36.000 --> 0:00:38.360 its price target on the stock to twenty six from 0:00:38.400 --> 0:00:40.360 twenty two a share, and they've got their by rating. 0:00:40.200 --> 0:00:43.400 Yeah, staying bullish. And you look at the street thirteen analysts, 0:00:43.400 --> 0:00:45.360 ten of them buys. So is it a sell the 0:00:45.360 --> 0:00:46.720 news event? Price to perfection? 0:00:47.720 --> 0:00:49.559 We see it's a really good part. So let's see 0:00:49.600 --> 0:00:52.479 what one of the companies members of the C suite 0:00:52.520 --> 0:00:54.760 have to say. Harmit Singh is with us, chief financial 0:00:54.800 --> 0:00:56.840 and growth officer at Levi Stras. He joins us from 0:00:56.840 --> 0:00:59.720 our San Francisco bureau. Harmy, it's so good to have 0:00:59.760 --> 0:01:02.480 you here here with us. How are you and how 0:01:02.680 --> 0:01:05.479 is the consumer doing well? 0:01:05.520 --> 0:01:08.200 Thanks for having me, Carol and Billy, it's great to 0:01:08.240 --> 0:01:11.919 be here again. You know, we had a real strong 0:01:12.040 --> 0:01:16.520 quarder for consecutive quarters of high single digit growth and 0:01:16.800 --> 0:01:19.920 record gross margins, as well as the fact that we 0:01:19.920 --> 0:01:23.280 were able to raise up fully of guidance as well 0:01:23.319 --> 0:01:29.360 as gross margin and EPs expectations. Overall, as a company, 0:01:29.560 --> 0:01:34.160 we're a stronger and a higher performing company defined by 0:01:34.200 --> 0:01:38.680 accelerated growth, expanding margins, and higher return on invested capital. 0:01:38.680 --> 0:01:42.880 To your question about the consumer, the consumer is largely 0:01:43.000 --> 0:01:47.000 being resilient. You know, our products are really well segmented. 0:01:47.840 --> 0:01:50.040 You know, we have Blue Tap, which we which is 0:01:50.280 --> 0:01:54.520 our premium high pinnacle product and that's doing well. We've 0:01:54.520 --> 0:01:57.840 introduced that in the US, so far, so good. We 0:01:57.920 --> 0:02:02.680 have a Redtap product that is basically marketed to consumers 0:02:02.920 --> 0:02:06.600 who earn between one hundred thousand and over and that's, 0:02:06.640 --> 0:02:08.800 you know, based on our results, really done well. And 0:02:08.840 --> 0:02:12.520 then we have you know, a signature product sold through 0:02:12.720 --> 0:02:16.360 Walmart that again had a banner QURDA and that's for 0:02:16.720 --> 0:02:20.600 you know, a lower income consumer. So consumer strength really strong. 0:02:21.120 --> 0:02:23.520 That's where we were able to raise the fully guidance 0:02:23.520 --> 0:02:26.600 and our product pipeline hasn't been stronger now if you 0:02:26.639 --> 0:02:30.520 go outside the US and international business was up in 0:02:30.560 --> 0:02:33.760 the high signal digit and so Asia had a strong quarder, 0:02:33.840 --> 0:02:37.960 consumers strong. Europe had a decent quarda consumer in a 0:02:37.960 --> 0:02:40.040 better place than so is Latin America. 0:02:40.080 --> 0:02:41.359 Well, I'm just going to lay it after you. I 0:02:41.360 --> 0:02:43.760 think I bought my first pair of Levi's in a 0:02:43.800 --> 0:02:46.000 long time, just a couple of months ago. My daughter, 0:02:46.000 --> 0:02:48.440 who's twenty two, so much younger than me, has been 0:02:48.440 --> 0:02:51.440 buying Levi's for a while. So Bailly, I mean they're back. 0:02:51.480 --> 0:02:54.960 I go into the store in downtown in the village 0:02:54.960 --> 0:02:56.320 and yeah, it's packed. 0:02:56.440 --> 0:02:59.160 Well, you get a partnership with Beyonce. All the marketing 0:02:59.240 --> 0:03:01.799 you guys are spent in terms of targeting both young 0:03:01.840 --> 0:03:04.920 and older generations. But Harmie, I want to ask about tariffs. 0:03:05.040 --> 0:03:09.560 So Levi expects tariffs from China about thirty percent, but 0:03:09.680 --> 0:03:12.360 increase expectations of twenty percent from the rest of the world. 0:03:12.520 --> 0:03:16.080 Where are you sourcing your genes materials? Is it more 0:03:16.400 --> 0:03:19.080 are you more exposed to that doubling in terms of 0:03:19.320 --> 0:03:22.520 are you getting materials from Vietnam in place of China. 0:03:23.480 --> 0:03:27.520 Yeah, so, or we're taking a holistic approach as we 0:03:27.560 --> 0:03:31.400 are able to offset the tariff impact. You know, as 0:03:31.400 --> 0:03:33.440 you think about this year, we raise guidance in the 0:03:33.440 --> 0:03:36.280 top line and the bottom line and gross margin. So 0:03:36.600 --> 0:03:40.240 you know we've been able to withstand that your specific question, Bailey, 0:03:41.440 --> 0:03:46.320 we source about one percent we import into the US 0:03:46.360 --> 0:03:49.960 from China, a little over a percent from India most 0:03:50.000 --> 0:03:53.960 of and Vietnam is in the mid to high single digits. 0:03:54.000 --> 0:03:57.240 So most of our imports are from the Southeast Asian 0:03:57.400 --> 0:04:04.160 countries think Bangladesh, think Pakistan and the rest of Asia. 0:04:04.680 --> 0:04:07.920 The way we think about our supply chain, it's fairly 0:04:07.960 --> 0:04:12.840 well diversified. We import from about twenty countries into the US. 0:04:12.920 --> 0:04:16.320 Sixty percent of our businesses outside the US, and so 0:04:16.800 --> 0:04:21.000 we're well positioned to mitigate and offset tariffs. And the 0:04:21.040 --> 0:04:24.320 way we are thinking about the holistic approach, given that 0:04:24.520 --> 0:04:27.960 volume is driving a big piece of our you know, 0:04:28.240 --> 0:04:34.040 revenue momentum, and we have tenured vendor relationships. We're working 0:04:34.080 --> 0:04:38.839 with our vendors. We're looking at different cost efficiencies across 0:04:38.880 --> 0:04:42.719 our organization as well as you know, being very thoughtful 0:04:42.760 --> 0:04:43.479 about pricing. 0:04:43.839 --> 0:04:45.760 So let me just ask you though you guys, did 0:04:45.880 --> 0:04:48.520 you know you mentioned you raised your full your outlook, 0:04:48.960 --> 0:04:53.000 you did warrant that tariffs are starting to bite profitability 0:04:53.040 --> 0:04:54.480 to measure by gross margins improves. 0:04:54.520 --> 0:04:55.000 So these are. 0:04:54.920 --> 0:04:57.960 The good stuff, but again that tariffs are starting to 0:04:57.960 --> 0:05:01.560 bite HARMI can you tell us what that means? What 0:05:01.720 --> 0:05:02.760 the bite of tariffs? 0:05:03.600 --> 0:05:04.960 When? When? 0:05:05.240 --> 0:05:07.680 How much you know any color around that? 0:05:08.560 --> 0:05:11.240 Sure? So you know overall, you know, we were able 0:05:11.279 --> 0:05:16.039 to raise top line and bottom line guidance despite absorbing tariffs, 0:05:16.080 --> 0:05:19.240 and so we are able to mitigate it. To the 0:05:19.320 --> 0:05:24.040 question about tariffs, uh, you know, tariffs will introduced on 0:05:24.160 --> 0:05:27.640 Liberation Day. We normally buy our products you know, six 0:05:27.680 --> 0:05:31.200 months in advance, and so you know we are working 0:05:31.360 --> 0:05:35.719 through you know, our efforts and we've got different leavers, 0:05:36.200 --> 0:05:38.960 uh to kind of position its who you take. Quarter three, 0:05:39.000 --> 0:05:43.479 the the Quarterbach has reported gross margins are record. So 0:05:43.480 --> 0:05:45.840 we're able to offset tariffs because we've got other things 0:05:45.880 --> 0:05:49.120 working for us, you know, as we grow our women's business, 0:05:49.560 --> 0:05:53.960 our direct to consumer business and international all of which 0:05:54.080 --> 0:05:57.560 are a creative to gross margins and allow us to 0:05:58.080 --> 0:06:01.880 you know, mitigate and offset some of the tariff exposure 0:06:02.400 --> 0:06:05.359 a cord of four. We did guide gross margins to 0:06:05.440 --> 0:06:08.320 be slightly down versus a year ago, and had it 0:06:08.360 --> 0:06:11.360 not been for tatiffs, you know, we'd have grown gross margins. 0:06:11.400 --> 0:06:15.000 But overall, as we think about the year, we'll report 0:06:15.120 --> 0:06:18.480 again another year of record gross margins. So we're working 0:06:18.520 --> 0:06:21.600 on leavers for twenty twenty six. The good news is 0:06:21.640 --> 0:06:24.479 we'll end the year stronger and we believe a well 0:06:24.560 --> 0:06:28.679 position to have another strong year in twenty twenty six. 0:06:28.880 --> 0:06:31.080 And Kara, we've talked with a good friend Peter Atwater 0:06:31.120 --> 0:06:33.720 for quite some time about that key shaped recovery where 0:06:33.880 --> 0:06:36.440 people who are well off are doing much better than 0:06:36.440 --> 0:06:40.600 those really in the bottom quintile Harmie. When you look 0:06:40.640 --> 0:06:42.880 at your goods, when you look at the ability to 0:06:43.040 --> 0:06:46.240 raise prices from the impact of tariffs, which products are 0:06:46.240 --> 0:06:49.560 you able to more easily raise prices where you aren't 0:06:49.560 --> 0:06:51.680 going to see consumers push away? And how are you 0:06:51.720 --> 0:06:54.159 thinking about that strategy as it relates to say, the 0:06:54.440 --> 0:06:56.560 genes that you do sell through a Walmart where you 0:06:56.600 --> 0:06:59.160 don't have that gross margin going direct to consumer, and 0:06:59.200 --> 0:07:01.600 you do have likely at least when we look at 0:07:01.600 --> 0:07:04.239 the data consumer who's feeling the pinch of inflation. 0:07:04.320 --> 0:07:07.839 Broadly speaking, Yeah, and so the first thing barely to 0:07:07.880 --> 0:07:12.080 your question is our products are well segmented depending on 0:07:12.360 --> 0:07:16.240 the income profile of different consumers. I talk blue tab, 0:07:16.480 --> 0:07:22.160 red tab, and signature Signature is what's sold into the 0:07:22.680 --> 0:07:26.600 lower income consumer. We've been very thoughtful about pricing. We're 0:07:26.680 --> 0:07:30.360 leading with product innovation rather than price, and so we're 0:07:30.360 --> 0:07:33.640 doing what we can to maintain a price point. It 0:07:33.720 --> 0:07:36.720 is evident in quarter three Signature, for example, I think 0:07:36.800 --> 0:07:38.880 is up in the load double digits for the year. 0:07:39.400 --> 0:07:43.080 As we think about, you know, our other products. The 0:07:43.160 --> 0:07:46.360 good news for us is our product pipeline has never 0:07:46.400 --> 0:07:49.880 been stronger. You know, we're leading with loose and baggy 0:07:50.160 --> 0:07:52.360 while at the same time selling a lot of slim 0:07:52.440 --> 0:07:56.320 and skinny both for him and her. You know, we've 0:07:56.320 --> 0:08:01.200 got wonderful you know, waste up products, think trucker jackets, 0:08:01.240 --> 0:08:04.880 think linen shirts, et cetera, et cetera. And so as 0:08:04.920 --> 0:08:09.120 a company, we're making this pivot to be more of 0:08:09.160 --> 0:08:13.760 a denim lifestyle retailer going forward. Our past was all 0:08:13.760 --> 0:08:18.160 about denim. Our future is going to be about denim lifestyle. 0:08:18.880 --> 0:08:20.120 I just want to know, do you really have a 0:08:20.120 --> 0:08:22.720 pair of baggy barrel jeans. I can't get my head 0:08:22.720 --> 0:08:24.840 around them. I'm trying, I'm trying. I'm just I. 0:08:24.800 --> 0:08:25.320 Haven't done it. 0:08:25.360 --> 0:08:28.040 I haven't done it, Armie. What I do want to 0:08:28.040 --> 0:08:30.240 ask you to is you guys have had kind of 0:08:30.280 --> 0:08:32.200 a mission, a goal to get to ten billion in 0:08:32.240 --> 0:08:34.160 sales by twenty twenty seven. I think you may have 0:08:34.280 --> 0:08:36.520 adjusted a little bit. I think also a fifteen percent 0:08:36.559 --> 0:08:39.760 EBIT margin. Could you reach fifteen percent in the next 0:08:39.760 --> 0:08:42.520 few years even if sales have not hit that ten billion, 0:08:42.720 --> 0:08:45.040 you know, talk to us little bit about that mission. 0:08:45.800 --> 0:08:48.840 Yeah. No, you know, we gave out the expectation of 0:08:48.920 --> 0:08:52.920 ten billion and fifteen percent on I invested Day in 0:08:52.920 --> 0:08:56.640 the middle of June twenty twenty two. Since then, you know, 0:08:57.320 --> 0:08:59.760 there's been a lot of change and a lot of 0:08:59.800 --> 0:09:03.440 un certainty. As a company, we've kind of, you know, 0:09:03.720 --> 0:09:07.240 navigated our way through uncertainty. We haven't given a new 0:09:07.320 --> 0:09:09.839 date on the ten billion and the twenty and the 0:09:10.400 --> 0:09:15.160 fifteen percent. Our thinking is we'll probably do that sometime 0:09:15.320 --> 0:09:19.400 next year. But your question, the company that we are 0:09:20.080 --> 0:09:23.760 building and the company that has got the foundation, given 0:09:23.800 --> 0:09:26.959 where we're ending this year, so you take twenty twenty five, 0:09:27.000 --> 0:09:30.200 we'll end about six percent organic growth. Last year it 0:09:30.360 --> 0:09:33.080 was three percent. The year before that it was flat. 0:09:33.960 --> 0:09:36.720 If we're thinking EBIT margins, this year, we'll end about 0:09:36.800 --> 0:09:39.679 mid levens. Last year it was in the mid tents. 0:09:39.720 --> 0:09:41.720 The previous year it was about nine. So we've seen 0:09:41.720 --> 0:09:45.240 a steady progress and our view is we probably get 0:09:45.280 --> 0:09:47.680 to the fifteen percent faster than we get to the 0:09:47.720 --> 0:09:54.920 ten billion. But really a company that is steadily delivering 0:09:55.000 --> 0:09:59.240 mid single digit growth in a category that probably grows 0:09:59.280 --> 0:10:02.360 a little, you know, south of that. So our view 0:10:02.559 --> 0:10:05.600 is that we will. We are market leaders now in 0:10:05.640 --> 0:10:08.480 the US, number one in men's, number one in women's, 0:10:08.840 --> 0:10:11.440 and rarely resonating with the youth. And so the question 0:10:11.640 --> 0:10:16.000 is if you're able to stay at you know, and 0:10:17.040 --> 0:10:20.120 implement our strategies our views, we can continue to be 0:10:20.120 --> 0:10:22.240 a market leader and probably pick up a little bit 0:10:22.240 --> 0:10:26.840 of share, especially because the denim category is accelerating. We've 0:10:26.840 --> 0:10:29.640 seen the acceleration in the US, we've seen the acceleration 0:10:30.160 --> 0:10:33.559 outside and that's largely driven by the world becoming more casual. 0:10:33.760 --> 0:10:35.559 Yeah, I have more genes in my wardrobe than I've 0:10:35.559 --> 0:10:38.040 ever had in like since high school. Like it's really 0:10:38.120 --> 0:10:40.480 kind of wild. Anyway, Billy and I can get another question. 0:10:40.559 --> 0:10:43.319 I was just gonna ask in terms of geographic expansion. 0:10:43.840 --> 0:10:46.480 When you think about China, what's going on with China 0:10:46.520 --> 0:10:49.880 and also what products do the Chinese consumers want? Is 0:10:49.920 --> 0:10:52.080 it that high end good or is it more of 0:10:52.120 --> 0:10:53.360 a bargain purchase. 0:10:54.080 --> 0:10:59.640 Yeah, so China for US is still underpenetrated. China represents 0:10:59.679 --> 0:11:03.080 about two or three percent of our business. You know, 0:11:03.200 --> 0:11:06.160 our business in China has been slow and soft. The 0:11:06.280 --> 0:11:11.200 Chinese consumer right now is going through a bit of 0:11:11.240 --> 0:11:16.600 a macro on certain climate. But the good news for 0:11:16.720 --> 0:11:20.880 us is they love the brand. Our brand equity scores 0:11:20.880 --> 0:11:24.040 are really solid. We think China can be, you know, 0:11:24.960 --> 0:11:27.920 a business that grows double digit over the long term. 0:11:27.920 --> 0:11:32.439 But your specific question, the Chinese consumer is fairly discerning 0:11:32.520 --> 0:11:36.079 on the brands he or she gravitated to. There is 0:11:36.120 --> 0:11:39.920 a high end consumer as well as a consumer that 0:11:40.040 --> 0:11:44.040 lies the mid market consumer, what we call the coproducts. 0:11:44.080 --> 0:11:47.080 So if we think about our Asia strategy, we really 0:11:47.800 --> 0:11:51.520 you know, our products are relevant for the mid market consumer, 0:11:52.480 --> 0:11:56.960 while we also offer products for the higher premium end consumer. 0:11:57.320 --> 0:12:01.959 Thirty percent of the Asian denim category is premium. Uh 0:12:02.040 --> 0:12:05.960 and you know premium. For example, a high Spinnacle product 0:12:06.360 --> 0:12:10.360 is largely Japanese uh uh, you know, fabric Japanese denim 0:12:10.760 --> 0:12:15.560 and inspired by Selvision. So that's what we are selling. 0:12:15.880 --> 0:12:19.200 And I think over time we'll be able to start 0:12:19.240 --> 0:12:23.520 growing a China business back in in the load double digit. 0:12:23.360 --> 0:12:25.960 Rainy interesting seth, I will say, Carol, I know you 0:12:26.000 --> 0:12:28.400 mentioned you have more jeans than ever. I have been 0:12:28.480 --> 0:12:31.560 buying the Sherpa jackets, the denim jackets like crazy. I 0:12:31.559 --> 0:12:34.120 don't know why. I have three of them in different colors. 0:12:34.120 --> 0:12:35.440 I've brought a bunch of denim jackets. 0:12:35.440 --> 0:12:37.240 That's what I'm in. I'm like, I don't wear jeans, 0:12:37.240 --> 0:12:39.840 I wear chinos, but I wear the denim jackets like crazy. 0:12:39.920 --> 0:12:40.960 I know, I just I don't know. 0:12:41.040 --> 0:12:41.400 I love it. 0:12:41.400 --> 0:12:45.640 I love it. Ebody. I works every morning. Yeah, and 0:12:45.720 --> 0:12:48.800 Bailey and Carol. Now we've got the blue tab. It's 0:12:49.240 --> 0:12:52.199 it's it's a full of jacket. You can definitely wear 0:12:52.520 --> 0:12:55.800 two off it depending on the on the on the 0:12:56.040 --> 0:13:00.400 uh you know, uh. Dress environment at Bloomberg walked in 0:13:00.440 --> 0:13:03.520 here fairly casual, so you know it's something that we 0:13:03.559 --> 0:13:06.880 are not bringing to offer. We should make your wardrobe 0:13:06.880 --> 0:13:07.880 at some stage. 0:13:08.400 --> 0:13:11.840 Hey, one last question, does it feel like God HAMI 0:13:12.040 --> 0:13:15.000 the It's been a crazy year and a lot of 0:13:15.000 --> 0:13:17.760 stuff coming at everybody, investors, the world at large. Does 0:13:17.760 --> 0:13:19.520 it feel like things are starting to calm down on 0:13:19.559 --> 0:13:22.959 a day when we've talked about what seems like progress 0:13:23.000 --> 0:13:26.079 in a ceasefire between Israel and Hamas. 0:13:26.640 --> 0:13:30.000 Yeah, you know, as I mentioned earlier, you know, we 0:13:30.080 --> 0:13:34.720 have lived through uncertainty. You know, the good news for 0:13:34.840 --> 0:13:40.239 us is the category strong. We have real business momentum, 0:13:40.720 --> 0:13:43.640 The brand's never been stronger, and we have a product 0:13:43.720 --> 0:13:48.360 pipeline that has never been full, especially as we head 0:13:48.360 --> 0:13:52.440 towards holiday. You know, our focus right now is making 0:13:52.440 --> 0:13:55.520 sure a product is on the on the floor. Because 0:13:55.520 --> 0:13:59.640 of what we have seen Carol is consumers gravitate to 0:13:59.840 --> 0:14:05.160 new and gravitate toward's relevant and you know, and you know, 0:14:05.920 --> 0:14:08.920 our view is if we can offer the right product 0:14:09.320 --> 0:14:12.120 and build a brand experience. And that's why we've got 0:14:12.520 --> 0:14:16.760 real focus on our direct to consumer business while complementing 0:14:16.760 --> 0:14:19.800 growth with our wholesale business. So this quarder, you know, 0:14:19.880 --> 0:14:23.000 both DDC and wholesale was up. We had in the 0:14:23.160 --> 0:14:27.720 US five consecutive quarders of high growth, and it's fueled 0:14:27.720 --> 0:14:28.760 by both the channels. 0:14:28.880 --> 0:14:30.840 All right, O, Harmie, when you talk with your design team, 0:14:30.880 --> 0:14:33.800 I like high waist buttons, kind of slim through the 0:14:33.880 --> 0:14:35.640 legs and then a little flare. I'm just gonna put 0:14:35.680 --> 0:14:37.280 it out there, a little stretch in there too. It's 0:14:37.360 --> 0:14:41.280 kind of my favorite, my favorite, my favorite, you were, Jeb, 0:14:41.520 --> 0:14:41.840 thank you. 0:14:41.960 --> 0:14:44.680 Yeah. And I'll take that feedback, Karen. I know, I 0:14:45.240 --> 0:14:49.480 sincerely believe feedback is a is a gift, and getting 0:14:49.560 --> 0:14:53.080 feedback from consumers like yourself is something that I'll take 0:14:53.160 --> 0:14:55.840 upon myself to feedback to our designers. 0:14:55.840 --> 0:14:57.480 All right, I'm going to hold you to it. All right, 0:14:57.560 --> 0:14:59.440 good stuff, Armie, thank you so much for me, It's 0:14:59.440 --> 0:15:02.160 saying Chief Antal and Growth Officer Vert Levi Strauss, joining 0:15:02.240 --> 0:15:05.200 us from our bureau in San Francisco.