Levi Strauss & Co.

Good morning, and welcome to the Levi Strauss & Co. First Quarter 2020 Earnings Conference Call. My name is May, and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. For those of you on the stream, please take note of the options available in your event console. At this time, I would like to turn the call over to Ms. Ida Orfan, Senior Director, Investor Relations. Ma'am, please go ahead.

Thank you for joining us on the call today to discuss the results for our first fiscal quarter of 2020. Joining me on today's call are Chip Berg, President and CEO of Levi Strauss, and Harmeet Singh, our Executive Vice President and CFO. We've posted complete Q1 financial results in our earnings release on our IR section of our website, investors.levistrauss.com. The link to the webcast of today's conference call can also be found on our site. We'd like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. In particular, at this time, the COVID-19 pandemic is having a significant impact on the company's business financial condition, cash flow, and results of operations. There is significant uncertainty about the duration and extent of the impact of this pandemic. The dynamic nature of these circumstances means that what is said on this call could change materially at any time, and that actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please review our filings with the SEC, in particular the risk factors section of the quarterly report on Form 10-Q that we filed today, for discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements as required, except by law. During this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being webcast on our IR website, and a replay of this call will be available on the website shortly. And with that, I'll go ahead and turn it over to Chip Berg.

Chip Bergman Thanks, Ida. Good afternoon, everyone, and thank you for joining our Q1 earnings call, which will be unlike most typical quarterly earnings calls, as while we will cover Q1 results, we'll focus more on updating you on where we are with the crisis at hand and how we are navigating the uncertainty that we're all facing. What is happening in the world around us is not just a human tragedy, but will likely result in a significant global economic tragedy. The biggest challenge we're all dealing with right now is uncertainty. How long will this continue? How deep of an economic crisis does the pandemic create? How will the consumer respond when the crisis abates? And ultimately, what is the shape, size, and scope of the apparel sector when it's over? Frankly, trying to forecast this is nearly impossible. No one can control the virus or even the economic fallout, but we can control how we react to the crisis. I am very optimistic about our prospects for the future, both navigating through the crisis in the short to medium term and in the long-term recovery. And I believe we are well positioned, if not better positioned than most companies in our industry. We had a great first quarter. Our business was humming coming into the crisis, again, reaffirming the robust strategies that we are executing and the momentum we had prior to the crisis erupting globally. But beyond the strength of our business and the underlying momentum, here is why I'm confident that we will emerge stronger on the other side. We have one of the world's most iconic, most loved brands in Levi's. And consumers will come back to brands that they love and trust. We haven't gone dark either. We're investing in strengthening our bond with our fans during these moments of isolation. We have a strong balance sheet and $1.8 billion of liquidity. We have an experienced management team that has a track record of making tough choices to cut costs, just as we did back in 2013-2014. We've aggressively cut costs before, and we're on it now. Inventories are down, and a significant majority of our inventory is core replenishment, which can be carried over to future seasons. We're focused on innovation. FLX will be an advantage during this time, as we'll be able to bring newness when stores reopen, regardless of when that is. And the innovation over the last month, leveraging digital tools throughout this organization, has been awesome. Our strategy to diversify the business, which we've been executing now for years, makes us less vulnerable to the shocks that may be felt in some countries and channels. Our DTC business is now more than 40% of our total business, up from under 30% five years ago. Our e-commerce business has more than doubled in the last five years and is our fastest growing business. Finally, we have something nobody else in this industry can claim. a company history of 167 years. We've been through other crises, some perhaps even more existential than what we're currently facing. We've seen it all, the Great Depression, two world wars, earthquakes, fires, and yes, even the 1918 flu pandemic. Not only did we pull through all of these, we used crisis to galvanize a path forward, and we will do it again. I also believe the crisis presents opportunities and we will be ready to act on those that make good strategic sense, whether that's taking back underperforming franchise businesses or upgrading real estate locations because other retail or bankruptcies or finding great talent in a decimated job market. The crisis gives us an opportunity to not just renew the business, but to reset it for the future. Matt, we are not managing through the crisis by playing defense. We will play to our strengths, leveraging the strength of the brand, our connection with our fans, and the digital capabilities and omni-channel capabilities that we've invested in over the last few years. At the same time, we don't have our head in the sand. We will also be aggressive on cost takeout in light of the impact that the crisis will have on revenue and our structural economics. But we will be deliberate and thoughtful about how we do this so we don't cut core capabilities and the things that have created our success over the last few years. Let me give you a little more color on a few of these areas. First, we are very focused on engaging with our fans during their isolation, cultivating a deeper love for the Levi's brand. Just when the music festival season was supposed to start, all festivals have been canceled or postponed. To help fill the void, we launched a month-long virtual music festival with our Instagram Live 501 concert series. Each weeknight at 5.01 p.m., artists such as Snoop Dogg and Brett Young are performing live in their Levi's, connecting with our fans while they're doing their part to stay home and curb the spread of the virus. Sentiment from this series has been so extremely positive that and we're finding more users viewing these live sessions every day. This is something that is authentic, truly something only Levi's could do. We're also replicating digital strategies that worked in China during and after their lockdown, like featuring do-it-yourself content on our website that inspires our fans to customize their Levi's products at home. Second, we're pivoting our marketing approach in response to the current environment, For example, our recently launched Super Mario collaboration with Nintendo is flying off the shelves in China, and it's also resonating in our e-commerce sites in Europe because we built excitement and demand through social media campaigns. The Super Mario collection will be dropping in the U.S. later this week. People are looking to connect these days, and Super Mario puts a smile on everyone's face. Third, as you know, we recently launched the Levi's brand mobile app, And we're building loyalty with fans around the world, giving them another way to engage with the brand and another option for them to shop in whatever format they prefer. We've seen early success with strong consumer acquisition and enrollment rates and monthly engagement with exclusive product offerings, like the recent launch of our authorized vintage collection, which has been selling through very well. We will continue to scale and ramp our loyalty program and the app throughout this year. The culture of innovation deeply embedded at Allison Co. is helping us evolve how we're working internally as a team and with our customers during this crisis. For example, we've accelerated the rollout of new technology we developed in our Eureka Innovation Lab, photorealistic 3D renderings of denim garments and samples. This allows us to digitize the sampling process, enabling us to sell to merchants from images rather than requiring physical samples. We leveraged this technology recently in our most recent line assortment meeting. Normally, this meeting brings around 100 merchants and marketers to our San Francisco headquarters from around the world and is followed by cascading meetings over multiple weeks as they engage with their regional and local counterparts. By leveraging this digital technology to hold the meeting virtually, we were able to engage everyone simultaneously and complete this process in one meeting, taking weeks out of our go-to-market cycle. The feedback was that this may have been the best assortment meeting ever, and we may never go back to live meetings. This technology and others like it will drive efficiency, speed the market, and reduce waste while improving our operations through and beyond the crisis. Finally, as we navigate this time of crisis, we will continue to be guided by our values and longstanding commitment to profits through principles. Supporting our communities through tough challenges is nothing new to Ellison Co. We have a legacy of leadership and of doing the right thing, and we're taking steps to fulfill that responsibility again. Our response to the COVID-19 impact will evolve as the crisis continues to play out. But to start with, we've announced a $3 million philanthropic program in partnership with the Levi Strauss Foundation, and we're working with the foundation to launch a three-to-one matching campaign for our employees' donations to community groups stepping up to meet local needs and organizations supporting COVID-19 efforts. From ensuring out-of-school students still have access to meals, to delivering needed supplies to homebound senior citizens. Additionally, the Red Tab Foundation, which supports our employees and retirees with short-term grants to help them get through trying times, is expanding its efforts. Hamid will review the aggressive cost actions we're taking in light of the situation, but I want to cover the compensation and furlough-related announcements we're making today. Our board members will forego their cash compensation, and we're announcing broad salary cuts for executives and leaders across the organization, including 50% for me. And effective April 13th, we're furloughing all U.S. hourly retail employees and our wholesale merchandise coordinators. In closing, I will say again, while this will be a challenging time with significant uncertainty, We will be laser focused on what's within our control to mitigate the impact to the degree possible as the world grapples with the virus and the economic fallout. We have many strengths on our side that I'm confident will bring us through the current environment. An iconic and beloved Levi's brand that has never been stronger. A solid balance sheet, a skilled, dedicated, and courageous leadership team that will take aggressive action on costs. a culture of innovation, and strategies that have transformed the business over the last eight years that will help us chart our course through the coming months. We're taking swift and decisive action to ensure we remain a winner in our industry and that we emerge from the storm as strong or stronger than going into it. The true character of a company is shown in a time of crisis, and as we have in the past, we will navigate this one by leveraging our strengths and seizing opportunities that will help us continue to thrive over the long term. I'll now turn it over to Harmeet to walk through the quarter in further detail. Harmeet?