Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to Levi Strauss and Company second quarter earnings conference call for the period ending May 30th, 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 July 15, 2021, one week after call for telephone replay. Please use the conference ID 378-4584. This conference call also is 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 second fiscal quarter of 2021. Joining me on today's call are Chip Berg, President and CEO of Levi Strauss, and Harmeet Singh, our CFO. We have posted complete Q2 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 factors 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 certain 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 over the call to Chip.

Thanks, Ida, and good afternoon, everyone. Our second quarter performance was better than we expected, reflecting broad-based strength across our business as we continue to see recovery from the pandemic. Our results reflect the enduring power of our brand in a time when consumers are seeking out authenticity from companies that reflect their own values. In addition to seeing strong denim and casualization trends, we are also benefiting from the ongoing execution of our strategic initiatives, and we are 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 versus prior year. And compared to Q2 2019, reported revenues are down only three points. The recovery was led by the US, and sales exceeded Q2 2019 levels in more than 10 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 adjusted EBIT margin ever, despite continued investments behind advertising and our growth initiatives. As we look ahead, we are confident the strength of our business will continue. In fact, we are now expecting growth versus 2019 levels one quarter earlier than previously anticipated with better structural economics. Let me share a few highlights from the second quarter. Demand for our brands remains strong globally, Our men's bottoms business continues to gain traction and has nearly returned to pre-pandemic levels. And our women's bottoms business has now exceeded Q2 2019 revenue, up 9%. The looser fits 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. We launched our multi-platform global marketing campaign, Buy Better, Wear Longer. We partnered with leading influencers and changemakers like Jaden Smith, Emma Chamberlain, Marcus Rashford, and more to raise awareness and be voices for change in implementing more environmentally sustainable apparel production and consumption methods. The reaction to the campaign has been overwhelmingly positive. generating strong growth in our average daily brand mentions across global social platforms and a significant lift in brand consideration and purchase intent after consumers experienced and engaged with the campaign ad. Building off the success of our 501 Live series, the Levi's brand threw a global virtual festival on May 20th to celebrate the birthday of the Levi's 501 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 denim personalization and repair sessions with in-house tailors. The celebration resulted in hundreds of PR stories and generated 4 billion impressions. And we continue to bring energy to the market through a number of exciting high-profile collaborations with Valentino, Miu Miu, and Denim Tears, yielding strong sell-throughs and elevating the brand with distribution and premium doors and features across leading publications. In our DTC channel, we've continued to accelerate our omnichannel capabilities to ensure that our consumers can get product wherever and whenever they choose. Our company-operated e-commerce business grew 42% 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 as brick-and-mortar stores reopened in the second quarter. We're investing in leading technology and expanding our fulfillment capabilities, and earlier this month, our largest distribution center in Henderson, Nevada, became our first owned and operated facility to fulfill orders for e-commerce, retail, and wholesale channels. Over time, we expect to increasingly leverage our own DCs to fulfill e-commerce orders, which will drive more agility in inventory positioning, reduce lead times, and accelerate expansion of e-commerce margins. To ensure a seamless and frictionless experience across all channels, we continue to invest in our omnichannel capabilities. In the U.S., demand served by ship from store grew versus 2020. Internationally, we continue to expand ship from store in Europe, successfully launching in Belgium, the Netherlands, France, Spain, and Denmark. We're now accepting PayPal and Venmo in all of our U.S. stores as it extends our reach, especially for Gen Z. We've implemented pivotal improvements to our buy online, pick up in store 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. Shop the Store is expected to launch on our app in Q3. We continue to look for ways to enhance the consumer experience and have made significant progress in optimizing our return capabilities, including contactless returns, allowing consumers to easily return merchandise at more than 2,500 drop-off locations within the U.S., 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 enrollment. As traffic to our stores continues to increase, conversion and AURs remain strong, and we're seeing better full-price sell-throughs. As store productivity levels continue to recover, we are confident in the outlook of our DTC business, and we will continue to invest in growing all segments of this channel. We also remain focused on diversifying our business. Lapping one of the most unusual quarters in our history, all regions, channels, and categories grew significantly versus last year. The U.S. was by far our strongest market this quarter with growth of 4% versus Q2 2019 on strong wholesale and e-commerce performance. And China returned to growth compared to 2019. 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 remains strong. As was the case last fall, when Europe reopened in May, revenues bounced back quickly and posted strong growth versus 2019. Our global wholesale business neared 2019 levels and is much more profitable with a higher share of digital. Our wholesale strategy is working, and we saw robust results in the U.S., which saw sales up versus 2019. Demand for our premium products remains strong, and we continue to expand that business with premium retailers, including Nordstrom, where our men's and women's products can now be found in all stores. Our other brands, Dockers, Signature, and Denizen, all had strong quarters. Dockers grew over 100% versus Q2 2020, with a much higher gross margin. And the Signature brand even exceeded Q2 2019 by nearly 30% due to success with Walmart and continued expansion on Amazon with Signature Gold. We're using digital data and AI to dramatically improve the consumer experience and deepen connections, leveraging every touchpoint to better connect and engage our fans. We will continue to deliver compelling consumer experiences digitally We just launched our global TikTok channel, which generated more than 100 million views in the first six weeks since its launch. And we held our first shoppable live stream event on Levi.com in the beginning of June. Through data and AI capabilities, we've created a more cohesive and personalized consumer experience on our app and with our loyalty program. Our app continues to exceed expectations with a 20% increase in downloads compared to Q1. We're also seeing increases in average order values sequentially, and the app contribution to e-commerce revenue continues to increase. And in our loyalty program, consumer lifetime value of members remains substantially higher than for non-members, as is units per transaction. In terms of digitizing our own business, we are transforming the way in which we plan, with AI now forecasting initial demand for each product next season. Results from our first wave test show that AI-driven demand forecasting improved accuracy. So scaling it should enable more precise inventory investment, lead to less markdowns and clearance, prevent waste, and enhance sustainability, all of which will improve our margins. This will be powerful in combination with the ongoing work AI has been contributing to pricing and promotion. Before I turn it over to Harmeet, we know that in order to thrive in a digital-first 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, an immersive training in coding, machine learning, and agile ways of working, uniquely designed for Ellison Co. employees. After graduation, these practitioners, now data scientists, return to the business to apply their skills and create momentum around our digital agenda. By the end of the year, we will have upskilled more than 100 employees globally. Let me now hand it over to Harmeet for a review of our second quarter financials and our guidance outlook. Harmeet?