Levi Strauss & Co Class A

Q2 2021 Earnings Conference Call

7/8/2021

spk_0: the day ladies and gentlemen and welcome to levi strauss and company second quarter earnings conference call for the period ending may thirtieth twenty twenty one all parties will be any listen only mode until the question and answer session at which time instructions will follow this conference is being recorded and may not be re he produced 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 july fifteen twenty twenty one one week after call for a telephone replay please use the conference id three seven eight four five eight four this conference call also is being broadcast over the internet and a replay of the webcam will be accessible for one quarter on the company's website levi strauss dot com i would now like to turn the call over to i orphan senior director shareholder relations at levi strauss and company
spk_1: thank you for joining a from alcohol could have happened without for a second fiscal quarter twenty twenty one joining me and like collar kit bag president and ceo me levi strauss and harmeet thing or cfl a complete cute your financial results in our earnings really and are i are section of our website investors that levi strauss dot com a link to the webcast the place compact car can also be found on our site we would like to remind everyone that we will be making forward looking statements from the car which involved risk and uncertainty actual result could differ materially from never contemplated by are forward looking statements please if you are hiring for the fcc and particular the risk factor section of the quarterly report on for ten que that we filed for the factors that could cause our results to differ also note that the forward looking statements on his collar based on information available to us as of today and with him no obligation to update any of the statement during the car we will discuss certain non gaap financial measures reconciliations to the most directly comparable got financial measures are provided in today's earnings release on our i our website these non gaap measures are not intended to be a substitute for our gap get results finally this call in it's entirety of being webcast on our i our website and replay of the car will be available on the website shortly that if call scheduled for one hour approved limit yourself to one question at a time to give others the opportunity to have their question the guy and now i'd like to turn over the competent
spk_2: thanks i don't good afternoon everyone or second quarter performances better than we expected reflecting broad base dragged across our business as we continue to see recovery from the pandemic a results reflect the indoor in power about brandon a time when consumers are seeking out authenticity from companies that reflect the or own values in addition to seeing strong got him in casuals asian friends will also benefited from the ongoing execution of our strategic initiatives and we're excited to see consumers returning to our stores as markets reopen with sequentially improving traffic trends while the pandemic continues to impact our business we are encouraged by accelerated revenue recovery in the quarter with all regions and channels growing vs prior year and compared to two to twenty nine teen reported revenues are down only three points the recovery was led by the us in sales exceeded que to twenty nine teen levels and more than ten markets across the globe including china for the third quarter in a row we delivered a record gross margin which led to our highest second quarter just leave that margin ever despite continued investments behind advertising and our growth initiatives as we look ahead your continent the strength of our business will continue in fact you're now expected growth vs twenty nineteen levels one quarter earlier than previously anticipated with daughter structural economics let me share a few highlights from the second quarter demand for a brands remain strong globally and then spartans business continues to gain traction and as nearly returned the pre pandemic levels and are women's bottoms businesses now exceeded to two twenty nine teen revenue up nine percent
spk_0: the looser that's that we launched pre pandemic are continuing to drive growth and increases the percent of both men's and women's bottoms assortments now representing nearly half of each
spk_2: we launched our multi platform global marketing campaign by better were longer be partnered with leading influencers and change makers like jaden smith and the chamberlain marcus rush and more to raise awareness and be voices for change and implementing more environmentally sustainable apparel production and consumption rapids reaction to the campaign has been overwhelmingly positive generating strong growth in our average daily bread mansions across global social platforms and a significant left and brand consideration and purchase and ten after consumers experienced and engaged with the campaign ad they'll the up the success of our bible one lived series the levi's brand to a global virtual festival on may twentieth to celebrate the birthday of the levi's fiber one gene which has provided effortless cool style to working men and women rock stars and everyone in between for decades broadcast around the world from our official levi's instagram account the festival featured musical performances meaningful conversations and do it yourself that and personalization and repair sessions with in house tellers the celebration resulted in hundreds of pr stories and generated four billion impressions and we continue to bring energy to the market to a number of exciting high profile collaboration with valentino mew mew and denim tears yielding strong self brews and elevating the brand with distribution and premium doors and teachers across leading publications in our did you see channel will continue to accelerate our only child capabilities to ensure that our consumers can get product wherever and whenever they choose a company operated e commerce business group forty two percent on a reported basis a great result considering we're lapping strong growth in the prior year we were particularly pleased that the growth rate remained strong even is brick and mortar stores reopened than the second quarter we're investing in reading technology and expanding our fulfillment capabilities and earlier this month or largest distribution center and henderson nevada became our first own and operate a facility that bob dole orders for ecommerce retail and wholesale channels overtime we expect to increasingly leverage our only sees to fulfill ecommerce orders which will god more jody an inventory positioning reduce lead times and accelerate expansion of the commerce margins to assure a seamless and frictionless experience across all channels we continue to invest in our army channel capabilities and the us demand served by ship them store group vs twenty twenty internationally we continue to expand ship them store and europe successful and lodging in belgium the netherlands france spain and denmark
spk_0: we're now accepting pay pal and benbow and all of our us stores as it extends our reach especially for gens eight
spk_2: them at a pivotal improvements to our by my pick up and still a program like the shop the store function and we saw an increase in both this volume and higher units per transaction after it was launched on the site store is expected to launch on or up and cute rate we continue to look for ways to enhance the consumer experience and have made significant progress of optimizing are return capabilities including contactless returns allowing consumers to easily return merchandise of more than twenty five hundred drop off locations within the us
spk_0: physical stores remain an important part of our business to build awareness and connect with consumers in a meaningful way including driving higher loyalty member and moment
spk_2: as traffic to our stores continues to increase conversion a day wires remain strong and we're seeing that a full price southwards a small productivity levels continue to recover we are confident in the outlook or dtc business and we will continue to invest and growing all segments of this channel we also remain focus on diversifying our business laughing one of the most unusual quarters in our history all regions channels and categories grew significantly vs last year us was by far stronger smarter first quarter with growth of four percent versus que to twenty nine team on strong wholesale and ecommerce performance in china return to grow up compared to twenty nine t as one of our largest growth opportunities we remain focused on maintaining this momentum in europe it's clear that consumer demand for the brand the main strong as was the case last fall when europe reopened in may runners bounce back quickly and posted strong growth versus twenty nineteen or global wholesale business dear twenty nike levels and as much more profitable with a higher share of digital or wholesale strategies working and we saw robust results in the us which saw sales up vs twenty nine team the mantle a premium products remain strong and we continue to expand that business with premium retailers including nordstrom were men's and women's products can now be found in all stores or other brands dockers signature and denizen all had strong quarters backers grew over one hundred percent versus que to twenty twenty with a much higher gross margin and a signature brand even exceeded que to twenty nine teams by nearly thirty percent due to success with walmart and continued exp on amazon with signature goals we're using digital data and ai to dramatically improved the consumer experience and deep and connections leveraging every touch points to better connect and engage our fans we will continue to deliver compelling consumer experiences digitally we just launched our global tick tock channel which generated more than one hundred million views and the first six weeks since it's launch and we held our first shop liberal live stream of and only by dot com and the beginning of june through data and ai capabilities we created a more cohesive and personalized consumer experience on our app and with our loyalty program or out continues to exceed expectations with a twenty percent increase in downloads compared to q one we're also seeing increases an average what about you sequentially and the op contribution to economist revenue continues to increase and then our loyalty program consumer lifetime value of members remain substantially higher than for nonmembers as as units per transaction in terms of digitizing around business we are transforming the way in which we plan with they i now forecasting initial demand for each product next season results from march first wave test showed that a driven demand for casting improved accuracy so scaling it should enable more precise inventory investment lead to less markdowns and clarence prevent waste and enhance sustainability all of which will improve our margins this will be powerful in combination with the ongoing work a i have been contributing to pricing and promotion before turn it over to her be we know that in order to thrive in a digital those future we need to invest not only in technology but in our people this quarter we launched a digital upskilling initiative which included the industry's first machine learning boot camp and immersive training and coding machine learning and agile ways of working uniquely designed for else and call employees after graduation these practitioners now data scientists returned to the business to apply their skills and create momentum around our digital agenda by the end of the year we were about scaled more than one hundred employees globally on the now handed over to her need for review of our second quarter financials and are guidance outlook honey
spk_3: thanks ship good afternoon everyone i hope all of you your families and loved ones are returning back to the new norm as economy recover the vaccination fair accelerate globally and consumer demand five paddle improves the momentum of our business continues to accelerate as a significantly outperform our revenue and profit expectations in the corridor the structural economics off our business has sustainably improve versus twenty nineteen and i'm confident of achieving adjusted even margin target of twelve percent plus i'll share more and guidance in a few moments but the a true that the recovery is happening faster than we thought and in our boys to deliver total company growth was his two thousand and nineteen in caught at three a fourth quarter earlier than previous expected and that's even before we a firing on all cylinders given store traffic and tourism have not yet fully recovered as i walk you through a second quarter results my comments was reference constant currency comparison on a year over year basis the news dollars unless i indicate otherwise very meaningful i will also shared comparisons to twenty nineteen second gotten net revenues the one point three billion grew a hundred and forty eight percent compared to second quarter twenty twenty and adjusted diluted earnings per share was twenty three thin both exceeding our guide compared to second quarter of twinkie nineteen constant currency revenues were down only four percent a sequential improvement in thin an adjusted digested he appears was significantly ahead of twenty nineteen driven by improve structure economics off the business let me share some color on the details despite an increasing number of markets opening i ecommerce business which represents eight percent of our total revenues good thirty seven percent in the second quarter compared to pry yeah we're really pleased with this given we are laughing strong growth compared to second quarter twenty nineteen or economists business has grown seventy one percent doesn't digital ecosystem sales growth also exhilarated to sixty eight but then all of pry yo and represented twenty three percent of sales and gotta do and compared with second quarter twenty nineteen i totally digital business has nearly doubled did you see brick and mortar is still recovering given many markets have not fully reopen we're seeing traffic done and importantly of key performance metrics at retail remain strong compared to gotta do twenty nineteen global wholesale was down only two percent and us wholesale with up by six percent importantly us also gross margin and profitability is the strongest is being in a line i think gotta just leave it was a hundred and fifty million and and nine percent adjusted even margin was the second quarter record i'd despite hi advertising as the percentage your revenues showcasing i recall gross margins relative or twenty nineteen reported adjusted even margins were up two hundred and eighty basis point record adjusted gross margin of fifty eight point two percent the represented as six hundred and seventy basis points expansion compared to caught a to twenty two in a you are blue cross channel genders products and regions compared to second quarter twenty nine nineteen goes margin expanded four hundred and ninety basis points the bulk of the increase for both comparisons was driven by several sustainable attributes including a higher proportion of sales from our bbc channel the price increases we have taken across all channels and a number of geography a higher share of him and was now has sustainably higher gross margins than men and called saving from a globally diversified supply obliging the cortez gross margin expansion also reflected some other temporary benefits across all channels including wholesale like a higher share of denim bottom lower levels of promotion and other of price telling with collectively amounted to roughly hundred basis for once a benefit to gross margin these benefits did in the car down to a higher degree then be previously anticipated to reinforce the majority of the factors driving margin expansion or structural and sustainable did he says both brick and mortar and digital have our highest gross margin and strategy will drive did you see to a high up with scented a total business in the years ahead is also put in and do not that even after the price increases we have taken both in the past and for the second half of twenty twenty one we still have pricing power to not on the odds that causes inflation but to also improve or gross margins as well importantly we have negotiated most of our product cause to the first off of twenty twenty two at very low single digit inflation adjusted as yeah una was six hundred and twenty admitted as coding an unfavorable currency impact of approximately eight million adjusted as and was in line with you to twenty nineteen this is despite hi incentive as we are exceeding expectations and higher ottawa a good investment to of advertising vdc ai and technology as those increases was funded by saving that we have action lot feel not share a few highlights from my religion second quarter revenue in the americas increase the hundred and fifty percent compared to pry yeah compared to the second quarter of drinking nineteen america's revenue grew four percent led by wholesale and digital expansion of wholesale gross margin underscores the hell the of business be built in the region what is due to twenty nine game company ecommerce grew fifty one percent and the full digital ecosystem grew sixty one percent and represented nearly twenty percent of sales total revenues from brick and mortar stores in the region nearly reached twenty nineteen level despite the significant impact of tourism not having yet recover and the region's up any income was a hundred and fifty two million up fifty two percent against the second quarter twenty nineteen reflecting substantially strong gross margin an ongoing costs control within the american legion the a business is structurally a lot stronger today than it was prepare them for several reasons it has a larger digital business a higher share of revenues with financially healthier and more premium customers more food prices rising fall anna higher retail productivity specially critical as we open more fulbright doors we're confident we can continue to grow the us business over the long term going to europe revenues increased a hundred and sixty five percent was is twenty twenty reflecting strong demand as markets in the region reopen compared to the second quarter twenty nineteen europe's revenues were down twelve percent as directed consumer brick and mortar and franchise remain down given more than a third of those were closed during the quarter these declines were partially offset by growth in our economy business and visit a wholesale company as grew eighty percent compared to twenty nineteen wonderful digital ecosystem in europe has doubled and now represents over a third of the be saved importantly europe exited the quarter revenue in man growing hi single digit compared to made twenty nine p operating margin has expanded eighty basis points and skewed to twenty nine team despite the sales decline reflecting higher gross margin and caused discipline asia revenues go a hundred and thirteen percent compared to prior compared to the second quarter of twenty nine teen agers revenues with down thirteen percent as a pandemic continued to negatively impact several of us significant market roughly have a decline in the region attributable to india but missing growth in several important market and continued growth in digital fueling or optimism china good three percent was is due to twenty nineteen reflecting double digit growth in our direct to consumer store network and ecommerce which the expect to continue into the second half our markets in australia new zealand where another bright spot up strong double digits from due to twenty nineteen and company ecommerce doubled in size from second call to twenty nineteen while over the same time period the full digital ecosystem in asia glue seventy nine percent and now represents fifteen percent of the region same turning to balance sheet and cashflows in mentor is at the end of the cotto a twelve percent blood prior essentially driven by double digit declined in both america and asia and then tories remain healthy and primarily comprise the product that can carry into future seen compared to the end of the second quarter twenty nineteen inventory with down four percent dash and liquidity remain strong and at the end of a cordial net debt was negative forty six million and overall liquidity was two billion adjusted free cash flow through the first half of the over sixty million representing of fifty four percent improvement was the comparable period of twenty nine deep and we continue to return cash to us elements i'm pleased to announce that we are again raising the dividend to a senseless shares for the third quarter up from six cents per share and in line with pre pandemic live before sharing our second half outlook let me take a moment to provide an update on our sales of on two june as a reminder to improve compatibility with calendar reporting companies have decided to indicate read the performance to gallon accorded when irrelevant for the three month period of april through june revenues were up low single digits to the comparable period of twenty nineteen on reported bases with the month of june up mid to high single digits compared to june twenty nineteen now turning to the outlook for the second half and for leah twenty twenty one given the structure and sustainable improvement in the business and the momentum headed into the second half we expect a much stronger folio in both revenue and dps than previous
spk_4: lee and it's faded
spk_3: we expect reported revenues for the second half of twenty twenty one to grow twenty eight to twenty nine percent was his second half twenty twenty this equates to reporter revenue growth of four to five percent was his second half twenty nine games which include the currency benefit of two points from a result perspective relative to twenty nineteen we expect second half the revenues to grow in the americas by mid single digits and in europe by hi single to load double digits asia despite strong growth in china will still be blowed twenty nineteen you to the ongoing prevail and of the pandemic that from a godly perspective we expect ongoing sequential improvement in a quarterly growth rate was just twenty nineteen with cutesy good blow and cure for above a second half growth rate in terms of profit to be expects second half adjusted even margin of twelve percent and we expect to deliver adjusted diluted he be as of seventy two to seventy six and in the second half which would bring us to a dollar twenty nine two a dollar thirty three for the full folio compared to twenty nineteen this equates the second half it be a growth of more than twenty six percent and folio growth of more than fifteen percent a field goal of comments on a the second half a dozen beyond revenue we expect a second have gross margin in the range of mid fifty six percent an increase of nearly three hundred basis points above second half twenty nineteen
spk_2: as per usual be expect sequential quarterly improvement in gross margin so cute three lower and queue for higher than the second half average
spk_3: with a strong second have gross margin outlook combined with us you too gross margin outperform be nice fact to fully a gross margin of around fifty seven percent higher than a prior expectation of fifty six percent and more than three hundred basis points above polio twenty nine he and we're increasing i investment in adjusted es una second half adjusted as cnn will be about a hundred million higher than it was in the second half twenty nine nineteen about thirty to thirty five million reflects i estimate for unfavorable currency effects from a week i us dollar the remaining sixty five to seventy million splits roughly equally between advertising and selling
spk_5: the increasing i advertising investment to drive i initiative and market share gold as a few and elevate our brain we expect second have advertising dollars as seven point seven percent of second half revenues this is seventy basis points higher than second half to
spk_3: nt ninety and will also have higher selling and verbal expenses related to raising our second half revenue outlook which is largely comprised of ddt the evidence the incremental adjusted as your name will support exhilarating profitable growth without impacting i just it either margin target given the associated higher gross margin and leverage from i read and finally we respect to taxes given the significant tax benefits we recorded in the second quarter when i expect a law of pull your tax rate of around ten or eleven percent this implies a second half tax rate in the very low key before we got to kill and and i like to leave you with three he thought first we be does second quarter expectation and are raising of fully or outlook achieving this will result in are fully or revenues nearly approaching twenty nineteen levels with second half adjusted even margin tracking twelve percent and fully adjusted diluted fps substantially higher than twenty nineteen
spk_6: and be getting to the improve profitability in a high quality way with higher revenue gross margin and discipline gosh management
spk_3: second structurally of business is stronger than it was in twenty nineteen driven by a higher share of digital revenues a healthier us wholesale business
spk_2: technology investments that of exhilarated d dc business while connecting directly with more consumers
spk_3: over the past two years we have reshaped up biennale with higher sustainable gross margin and cause cause which of fueling i n be and other good investments while delivering higher adjusted even margin this gives the great confidence to continue markedly the you abroad driven by the strength of our brand and our product specially as denim read surges and casual ization train accelerate
spk_2: we remain confident that we will deliver fully adjusted even margin of twelve percent plus in twenty twenty two
spk_3: and third we have a very strong balance sheet with ned dead below zero if given the through i renewed focus on gas which has improved that gas conversion cycle significantly as compared to twenty nine game
spk_0: as a result we continue to have substantial liquidity to grow this business both organically and in organically was returning dash to our shareholders would that will take your question
spk_7: thank you to ask a question please press star one on your touchstone telephone again that star one on your touched on telephone task a question to withdraw your question press the pound key we ask that you please ask one question then returned to the queue please stand by while we compile the key
spk_0: you in a roster
spk_8: our first question comes from the line of matthew boss of jp morgan your line is open thanks and congrats on another great quarter thanks matt so so maybe chip it in light of the global momentum could you elaborate on current trends in the denim category
spk_2: and just your confidence in sustainability of this strength as we think about pent up demand i know you've talked about side profile changes maybe that relative to the fashion and silhouette that drivers have a potential multiyear denim cycle that i think you point first on last call the well i think you know what were more quarter underneath our belt i thank god we are we can confidently say that we're in the early innings serve a new dunham cycle i've got a lot of confidence in the sustainability and our ability to to continue the momentum but we've seen through this quarter on the in other strong results reflect an industrywide denim resurgence that is being driven by several things one is you know the continuation of the casual was asian trend and i would say the bats are pulling more on a global basis than just inside us on you know as the pandemic fog lifts and more people get vaccinated return to social activities as lockdowns left you know people are now starting to go back to the office in many parts of the world all of this creates a new wardrobe opportunities and i have talked about the fact that this is us state of but about thirty five percent of consumers in the us have changed waste sizes and some of that is up and some of it is down but either way it is it it creates another reason for people to go out and and update their wardrobe but importantly i do think the new silhouettes which we've led i'm actually at before that the pandemic we launched our first kind of bag you fit it's and die it really took hold them then as the pandemic kind of started the happen we we just kept doubling down on it from one season to the next but we are seeing on both the men's and women's business that these are big drivers of our business on that the looser bag year feds are almost half of both men's and women's sales this past quarter on and that's a pretty significant change especially on women's from two to two years ago and you know as bottom silhouette changes it also has an impact on top and has been packed on foot were and it it really does present an opportunity to update people's wardrobes broadway beyond just the denim bottoms you know on top of all that we've also talked about the importance of extending beyond denim and we saw really good results there some of our new or styles such as good a xx to know that was up two hundred and forty six percent and our shorts off brings or up on the women's business we've seen really good results on dresses and and that has also helped quite a bit odd this this past quarter so i am i think it's you know i think we are in the early innings of a new dunham cycle driven by this new silhouette that's kind of a throwback to the early nineties on i think it is fundamentally being driven by the casual is a
spk_8: some try and it gives me i a great deal of confidence as we go forward into the next couple of quarters
spk_9: great congrats again
spk_0: thanks matt
spk_10: thank your next question comes from bob double of guggenheim security see your question please i am thanks and good guys who because well a couple questions about it off on a chip the i guess can we talk about be about pricing just from if you can elaborate on pricing you know or are they sticking our the recent pricing actions sticking on how much pricing are you taking in the second half and he really just totally to sustainability
spk_0: of these price increases and how you guys are protein thanks
spk_3: they are meet your on new i think and incarnate was a other your job area so so bad that on pricing i'm in i said in the past when the early innings uprising of the be more proactive on the back of a brand being hard and a products being relevant at chip talked about in our view is you take cry thing when the when the brand's resonating with the consumers not when you need to ah and dog that v have taken pricing during the pandemic it's digging if you look at ah our first top pricing probably had a lot of point on revenue
spk_11: and you think of the corner about a boy gotta to pricing is but a point of gross margins i'm thinking forward or the other pieces chip talked about the lose a bag effects of they are higher a you ours the better gross margins i talked about of him and be some a of
spk_3: the region defended and growing that has higher gross margins are because the did take some pricing
spk_4: in know last year especially in the us as relevant to wholesale salt in our the other piece in the pricing bucket is the reduction and marked down we're using a i did analytics as well as would mean and then toys that sell you know the making sure
spk_3: that a products are marked done appropriate you that's definitely helping a you are you think of a you are generally across a system in college do they were up by five percent and of the crowd geography the cross channels so our view down that dumb pricing it's digging ah we're also for paid for any cause inflation if it happens i talked about the fact that we've been able to negotiate i h one cost of goods at very low single digit inflation with a little higher relative to the fraud previous years by more than prepaid for inflation if it comes down that far and pp other pieces of think of the industry
spk_11: in a prices have largely been deflationary over the last two decades
spk_3: and as market leaders
spk_12: when then and the resurging i think it's an opportunity to lead the industry
spk_0: great thank you very much
spk_13: thank you i next question come from jay soul of you bs your line is open i got in on our to his knowledge of that my on behalf of case all ah i won't talk about europe know you mentioned that fails and may ah improved our vs may twenty ninth in ah i think i for like up double digit help don't understand how that number ah and all and profound
spk_14: throughout the the quarter and or if you could also like ah ah say it again or what you're saying for the third quarter bye bye week and i be very and
spk_3: sure i'm you know breed pandemic europe with a strong the stock market we were markedly the by mile getting value well going double digit the before the last resurgence the recovery in europe without some the strongest and dub unfortunately countries had to go to lock down and so during the quarter bought a third fosters were closed in europe as the exit the quarter in a lot of them have reopen as so when we talked about exiting the gordo are we talked about me sales in europe being a i believe in the high single digit you could take a market like the uk which a very good as open ah you know we have seen the glass two months missing double digit increase in sales as to the there is the bands of a strong and is largely of the performances in light only because stores have been close the open team done a great job also pivoting to making the business more digital so i talked about i the company commerce business some in the corner going close and a little and ninety percent and the full vigital ecosystem are becoming a third in the business aw the of the world is difficult to predict a when and how locked down to happen we all heard about ah japan this morning side of the of the world is our execution capability of our teams on the ground
spk_15: the in i've focused and driving agility on the back of and the consumer employs being safe and be able to recover pretty quickly
spk_0: in so that's how we're thinking about europe and other parts of the was over the next twelve to eighteen months
spk_16: i thank you thank you i next question comes from a moron vassal a scale of the same at bnp paribas yeah line is open
spk_2: good afternoon for take my question for me i think you've mentioned that june is up mid to high single digits and then if i remember correctly on the to age
spk_16: guide which i think apply them to your stock it's four to five percent but that three key would be a young a slower slower growth rate i just try to square way you know how do we think about june
spk_3: on it sounds like june would be the driver than is a sequential slowdown just try to understand the mechanics here and then any thoughts on of the to thoughts on the target our partnership of as we headed to back to school be very helpful thank you very much great i'll take the june and the second half question and then i'll pass on the second question on target chip about but your question a jeweler that's a good indication of a you know what happens when down lift and dab in a what we're seeing is consumers come back and back big especially to brands out that have relevant products as well as brands they can trust and and you're right the numbers in june we're pretty strong ah but he also feel in a part of that of pent up demand part of that is people getting back to the new norm says you think of the second half of the up in our our expectation clearly higher than a quarter ago clearly imposing that we already done to good relative to nineteen but we get to go think you'd treat which is a corner ahead of saw our expectations that i'll be thinking about it the other piece to know is they are very of the world as to close the mean the asia and i just reference japan today you know good night
spk_2: the won the battle against the wise yet there is still in a work to be done on that front and sell it's important to ensure that incorporated in our outlook as we think about the next six months yeah i'm on target moron in of headline thought as we continue to be really happy with that relationship and i think if he were to ask them they would say the same thing apparently in about three hundred doors with levi's read tab in about another almost fifteen hundred doors with that are we are expanding the five hundred target worse in time for back to school so that is already in motion so are cute three results will include some distribution expansion of levi's red tab to five hundred target doors
spk_0: and then on top of the and a most of those wars will also have done isn't and man done and will be exclusively in another twelve hundred and seventy five or so door so total target distribution of about seventeen hundred and seventy five stores are so by on of we will be expanding revised red tap to the five hundred ta
spk_17: doors and time for back to school
spk_0: great to hear thank you very much
spk_18: that
spk_2: thank love thank you i next question come from partners you as of city group please go ahead thank you i road it has been filling and or paul i'm i'm wondering if you drive capita than any supply chain issue i you're currently being an immediate reply penis had affected your inventory levels are working stranger them on then when you think that it might improve thanks yeah we we have experienced some impacts although i would also be very quick to say that i think we are managing through this better than most i would say the impact to the quarter was about a half a point of growth for the total company so kind of in range of seven eight million dollars in the quarter on or expectation for the second half is there will continue to be challenges but we're going to be earth rating more i that's already built into our gross margin guidance which read get and on and i you know we are working around some of the biggest challenges you know there's still a challenge and long beach where now shipping most of our product into the us through the east coast only about twenty percent of our us rate is coming through the west coast right now with dealt that
spk_19: delays into our lead time so rude fully expecting that we're going to be able to manage shot back to school volume as that comes upon us and and holiday as well on the team is done merely a great job of contracting and getting very deep space on vessels you a lot of people are talk
spk_0: you're about not being able to get campaigners not being able to get onto a shut with the team has done an extraordinary job i'm getting us guaranteed space guaranteed pricing i as well which is helping us to control our costs so on the since a big challenge for the industry were tearing it from a lot of our customers
spk_20: we are all over it i think we are in part because we've got such a diversified supply chain i think we're managing through this better than most thanks how much you bet
spk_3: thank your next question comes from dayna tells a of tansy advisory group your line is open that afternoon and congratulations on the part that given the improvement in march and that you've seen you think about the dt see my to an ecommerce first it's stores easy answer than being seen in each of those channels and how do you think about tackling salad and then just lastly in terms of product inflation and raw material costs how you planning on going polite thank you thanks dinner and of thank you for the up inside done in bc today i'd say your question and goes margin a in a dd see on continues to be a tailwind are goes margin both and stores as well as ecommerce is higher than the company average and dog we have said strategically one of the pivots made during the pandemic gum was that we will axel accelerate that direct to consumer a business i'm in read about forty percent on of the bit of the business today dragged a consumer by in a we hope to get to about sixty percent so that clearly has some a gross margins on the also as i talked earlier i was selling a lot more full price product of we are also being very thoughtful a bar and disciplined bought promotions all these factors a will help in a we seen an increase in a you as i talked about that making a you not a big difference are there is a piece in the gross margin side in a day i think he may be temporary a minute small but it's is there and we called it out i think that's why gross margin the second half even though that three hundred basis points higher than twenty nine kilos slightly more moderate and then the in all six seventy five hundred basis points as nineteen that you've seen a hear your question about cause you know a given the scale that we have and down given that we have wonderful in a partner them and around the world we've been able to negotiate
spk_2: i would say costing creeds on product to lay low single digits afford the first off of fog twenty twenty two
spk_20: and day give this a confidence about continuing i'm intending gross margin growth as we get into twenty two and to an end up he be i see inflation on in media cause with the inflation
spk_0: and now i'm in a fulfillment cause with the inflation and media but manageable from our perspective and given that a brand has pricing power if we ever need to
spk_16: take more pricing that we think we can
spk_21: thank you thank you my next question come from my kimberly greenberger of morgan stanley your line is open
spk_3: okay great harmeet i wanted to ask about the gross margin i'm fifty seven percent for your gross margin this year obviously of really exceptional accomplishment am i know you're pulled out the hundred basis points of temporary benefits here in the second quarter and i can't recall if you if you gave adding que one on but if if you could just take a look at the full year ah i'm out of that fifty seven percent is there a twenty five basis points or a fifty basis points you know sort of or give back next year i'm just wondering what the a sustainable of if we were to think about the more structural benefits you're delivering and gross margin this year versus the of the temporary ones if you could help us understand the breakdown within the fifty seven percent target this year that would be great yeah definitely you know of are ready to give some a guidance for twenty two and to talk about a good algorithm good things us to stabilize the where we feel good about ensuring the gross margin continues to be creative year over year we demonstrated that even last year when in the heart of the pandemic i think your question of difficult to call out kimberly both in and is gonna be probably they would temporary benefits of what one hundred basis points which i only if you eat created by twenty twenty five basis points to be out of foot doomed as a fading product in the second half in the bacon that into a gross margin guidance you know i dumped in his long that dumb we will revert back to the or normal of in a shipping the products and human i need to have failure modes of the are some puts it takes it as we think about the your broadly i think of registering three quarters of in in conducted fashion of the called goes much just talked about you know how strong the brand is ah in so that's what i would tend of leave you with his
spk_1: the thinking that will probably continue to grow gross margin enemy how much that will be i'll probably talk to more in a couple of months on maybe early next year when you talk about twenty two and two both i think the the broader perspective also is a confidence have been delivering a to
spk_22: to sign up you know you did margin operating margin and growing from there
spk_0: in a big mean twenty twenty two so i think of i i'd say what you know obviously world is gross margin continues to be a creative we continue to invest on things that matter and be excedrin but that doesn't jive leverage and improve operating margins
spk_21: very clear thank you so much
spk_16: thanks family thank you and next question come from lorraine hutchinson a bank of america your question please
spk_23: both the deck and then i'm not a question about how you're thinking about future order on and and how you're trying to strike a balance between eating the outside the then you're seeing particularly elevated fashion item that parks
spk_2: with maintaining all this progress you've made on gross margin so i were you coming out in terms of
spk_3: planning your your production and your inventory levels for the coming season yeah the of you know return some a few things structurally that would continue to improve i mentally management and removing from two seasons to fall chip talked about
spk_2: you know implementing a i'd driven demand for costing that leads to better mentally management but also ensuring that i agree minimize the miss and sales
spk_3: i'm you know so that the the quite of you think delving the be doing is we are raising the percentage of communists augments around the world because it allows us to move inventory in a between countries in between if we had some the other much the be a big dog is the muscle of kids them in of times to the one who work of i supply chain folks in alberta the ground now i think we can change more into demand as against ordering everything and keeping his rallies to bed a mentor management and i was a low amount dance because you're not mislead mine fraud before you see those trends i the itself the way we think about it meant to a level
spk_0: in all lauren i think the twelve percent decline that you seem is not here to stay we probably have in manchuria are in cute three and as we start planning twenty twenty two in may two levels would probably be slightly higher mid to high single digit
spk_1: that the good news for us is as you've seen him and during the pandemic two thirds of a mentor is core award you can sell from see season so
spk_24: in our view of the world is dead down you know we have we will have inventory
spk_3: deadpool allowed to go this business the probably be chasing the recovery continue that the best that it will probably be choosing in demand and there's no place a bad place to be a chip is set a couple of times would rather lose the sale that have a lot more than the the have to down
spk_11: you
spk_25: thank you are next question comes from carla casella of jp morgan that your question please
spk_3: i am three he mention that lady it has a higher growth market is fine and one and what's that attributable to as the next door or something else at i'd i'd say couple of thing
spk_2: carlisle you know in a good old days where
spk_3: you know we will not going women's it is diluted dollar
spk_4: company margins then reintroduced up in a wonderful women product and had i don't have fifteen called of the double digit growth so pardon relevant it is resonating with her
spk_25: the a and then we continue to innovate introduce new styles we took pricing
spk_3: we had the volume and be leverage the volume to drive better cost of good so at all those factors are really contributed to hi i'm you know gross margins full of them and business is under penetrated to the thing this girl and i think as it grows it can continue to be creative
spk_26: and so we think the the gross margins are sustainable as we continue go
spk_3: the a women's businesses is today by the third a little or a third of our business in l and will be a stated publicly in i intention tensions too
spk_27: go this was nice
spk_3: ah in a half five total business over time the countries that do it effectively today i think australia has a very ill has them in business that that far with a men's business the the markets in europe's i think it's clearly possible okay great and then cast one on and on travel and where would you say you are in terms of travel if you look at today vs free pandemic at well how much more upside is there as as cavalry opens worldwide i are you talking about travel as and travel expense by yourself sales are a sale or or you're talking to a sense of i said to say though i love that ugly nonexistent debate early i think you'll see a little bit and you to by it's base small or if you think about our doors
spk_26: if you know
spk_0: what the team is teams around the world adding a wonderful job is reaching out to more local consumers so i think you're not ugly reaching out to a lot more younger consumers around the world to try an offset some of the to his decline
spk_2: in a difficult to predict but i did in i really like country every country has a different
spk_0: the ruled for lying tourist you probably see things get back to normal probably a year year and a half from now but i but our viewers the be able to me to give a weekend
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