Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to Levi Strauss & Company's first quarter earnings conference call for the period ending February 28th, 2021. All parties will be in a listen-only mode until the question and answer session, at which time instructions will follow. This conference is being recorded and may not be reproduced in whole or in part without written permission from the company. A telephone replay will be available two hours after the completion of this call through April 15th, 2021. please use conference ID 588-9497. This conference call is also being broadcast over the Internet, and a replay of the webcast will be accessible for one quarter on the company's website, LeviStrauss.com. I would now like to turn the call over to Ida Orfin, Senior Director, Shareholder Relations at Levi Strauss & Company.

Thank you for joining us on the call today to discuss the results for our first fiscal quarter of 2021. Joining me on today's call are Chip Berg, President and CEO of Levi Strauss, and Harmeet Singh, CFO. We have 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 would like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Please review our filings with the SEC, in particular the risk factor section of the quarterly report on Form 10-Q that we filed today, for 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, and we assume no obligation to update any of these statements. During this call, we will discuss non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in today's 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. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now I'd like to turn the call over to Chip.

Good afternoon, everyone, and thanks for joining us today. I'm very pleased with the pace of recovery in our business and our strong financial performance this quarter, particularly in light of a very strong pre-pandemic year-ago base. The actions we've taken during the pandemic are having a positive impact on our results. We exceeded our expectations across the board despite one-third of our stores in Europe being closed. Our strategies of leading with our brands acting with a DTC-first mindset and continuing to diversify our business are working. These strategies are driving record gross margins and significant EBIT margin expansion, even as we continue to invest for growth, resulting in a healthier, structurally stronger business. Wholesale is bouncing back faster than expected and faster than the overall results of our brick-and-mortar doors, reflecting the concentration of our store fleet in tourist locations as well as Europe's lockdowns. My confidence in the business is even higher than it was just a month ago for several reasons. We're seeing consumer demand increase given continued recovery in the U.S. and Asia, and demand signals for our wholesale business in Europe are even higher than they were in 2019. We're encouraged by the positive news of the progress of the vaccine rollout in many parts of the world. Consumer excitement and optimism is returning in ways it hasn't since well before the pandemic. And we're seeing a denim resurgence as more people are going out. Consumers are eager to shop the brands they trust and love while sticking to the more conscious consumption they embraced during the pandemic. These trends play to our strengths and are reflected in our strategies. Our strong first quarter performance combined with the strength of the brand around the globe, the improving consumer sentiment, and the momentum of our business as we head into the second quarter all fuel my conviction that we are emerging from the pandemic a stronger company. Let me share a few highlights from the quarter. Consumer engagement with our brands remains strong all over the world, demonstrating our ability to identify and provide assortments they want and capitalize on the ongoing trend towards casualization. Our men's bottoms business has strengthened significantly and was the best-performing segment in the first quarter. We are leading denim trends industry-wide and bringing innovative new products to market. Consumers are embracing the looser fit and wider silhouette trends that we launched during the pandemic and which are now being followed by the competition. These new silhouettes give consumers a reason to buy Levi's as we emerge from the pandemic. We introduced exciting products like our women's 501 crop and extended sizes, earning Glamour UK's endorsement as one of the best plus size jeans in the market. We launched new fashion fits, focused on Gen Z for both men and women, commanding higher AURs in Asia and Europe as we continue to premiumize the brand. And relaxed fits for men like the 550, 559, and our comfortable non-denim XX Chino line were up more than 20% over prior year. And finally, I'm excited to announce our upcoming global marketing campaign focused on sustainability and the quality and timeless style of Levi's. which encourages our fans to wear what they love and live with it longer. We're calling it Buy Better, Wear Longer, and it will be supported holistically through media, in-store, and online around the globe, launching in late April and early May. In our DTC channel, we've continued to accelerate our omnichannel capabilities to ensure that our consumers can get product wherever and whenever it works for them. Our own e-commerce business grew 25% in the first quarter and increased to 10% of total company revenues. An increasing share of consumer demand continues to be fulfilled by Omni capabilities we've rolled out in the last year. These include ship from store, associate ordering, focus, and two-day shipping. We initially launched these in the U.S. and are now expanding them globally. We recently saw our largest week of sales from associate ordering, a capability that helps ensure we don't miss a sale and caters to how younger consumers are shopping. Behaviors we expect will stick beyond the pandemic. We're just scratching the surface as these Omni capabilities scale, they're becoming increasingly more meaningful. Our next-gen store rollout continues around the globe. We've opened our first next-gen store in the Middle East an ultra-premium store in the Dubai Mall, one of the largest malls in the world, shopped by 80 million people annually. We're leveraging AI to continue to accelerate our digital transformation within direct-to-consumer. A new product recommendation engine on levi.com now personalizes the individual experience online based on consumer profiles and browsing and purchase patterns, showing increases in revenue and conversions. Loyalty program membership increased by 35% in the last quarter to more than 5 million members globally. And revenue contribution from our mobile app is exceeding expectations and continues to grow month over month. We are reaching a younger consumer who is engaging with us more times per month and longer per visit. We're using the app as a seamless connector for the online to offline experience and are piloting new convenience-oriented in-store features like contactless returns and self-checkout. And we continue to diversify the business. On the international front, our developing markets of China, India, and Russia all had great first quarters and represent significant growth opportunities. Despite the lockdowns, first quarter sales of women's bottoms in Europe exceeded Q1 2019 in net revenues. In our top 10 wholesale accounts, revenues from our women's business grew double digits as compared to a year ago. And our wholesale channel continues to transform and become healthier with a higher share of business in digital, mass, premium, and with financially healthy retailers. Our total digital ecosystem grew 36% and comprised 26% of total company first quarter revenues, up from 16% a year ago. The opportunity in digital remains huge, and we aspire to grow this over time to a third of our business. All these efforts are driving higher AURs, resulting from premiumization, product mix, and pricing. And we have additional pricing opportunities going forward on the back of the brand strength. Finally, before I turn it over to Harmeet, I'd like to take a moment to share some of the things we're doing on the ESG front. We continue to make progress on our goals for climate and water and in becoming a more environmentally resilient company. We recently rolled out new greenhouse gas emission targets to all our key suppliers. And three-quarters of our products are now made with our industry-leading waterless techniques, which have cumulatively saved over 4 billion liters of water and recycled an additional nearly 10 billion liters. On diversity, equity, and inclusion, we published our most recent representation numbers in February. We still have work to do, and we're putting our money where our mouth is. We've added DEI targets as a component of long-term compensation for executive leaders in the company. And we expanded our sustainable fabric collection with the successful launch of EcoEase, bringing our stretch platform and organic cotton together. and also driving premium AURs. You can find more details of how we're making progress against our sustainability goals in our recently issued 2020 annual report. Let me now turn it over to Harmeet. Thanks, Chip.