Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company fourth quarter earnings conference call for the period ending November 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 February 2, 2022, one week after call for telephone replay. Please use the conference ID 467-6203. 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, Vice President of Investor Relations.

Thank you for joining us on the call today to discuss the results for our fourth fiscal quarter of 2021. Joining me on today's call are Chip Berg, President and CEO of Levi Strauss, and Harmeet Singh, CFO. We've posted complete Q4 financial results in our earnings release section of our IR 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. 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 annual report on Form 10-K 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 over the call to Chip.

Good afternoon, and thanks for joining us today. At the beginning of the pandemic, we declared that we would emerge stronger from the crisis, and I can confidently say that we are now indeed a better, stronger company than ever before. After returning to pre-COVID revenue levels in Q3, momentum accelerated through Q4, and today's results reflect robust financial performance across the board. Our Q4 revenues were $1.7 billion, up 22% to 2020 and 7% to 2019, led by continued strength in the Americas and Europe, with Asia seeing a strong recovery despite COVID headwinds across the region. Consumer demand remained very strong and outstripped supply by approximately $50 million in the quarter, or 3% of revenue, due to supply chain constraints. The quarter punctuated a very strong fiscal 2021 performance, delivering our highest revenues since 1998 and achieving a 12.4% adjusted EBIT margin above our 12% plus target, while continuing to reinvest at a higher and accelerated level. We have been able to deliver these results despite well-known headwinds, as our diversified and agile supply chain is a source of competitive strength, enabling us to mitigate risk and outperform. Our performance demonstrates the strength and resilience of our brands and the increasing authentic connections we have with consumers on the foundation of trust and loyalty built over the past 170 years. The results we delivered this year are proof points that our strategies are working and we have greater conviction than ever in our future with several multi-year tailwinds. First, the total addressable market for denim is large and growing, and consumer preferences continue to shift towards casualization. As the global denim market leader, we are well positioned to take advantage of and drive growth. In the most recent quarter, the U.S. jeans growth outpaced apparel with both categories surpassing 2019 levels. For the year, the U.S. jeans category was up 8% versus 2019. We also continued to increase share in women's in the U.S., and we have achieved significant traction engaging Gen Z consumers through programs like Levi's Secondhand Recommerce Initiative and our Buy Better, Wear Longer campaign. Second, our strong brand equity is driving pricing power. 2021 pricing actions are sticking, best reflected by the company's 7% AUR increase over 2019, which is primarily driven by our pricing initiatives. We have plans to take additional price increases in 2022 and beyond, helping us to offset inflationary pressures. Even as we take price, our products provide an exceptional value to consumers. Third, the direct engagement we are building through our DTC business is bringing us closer to the consumer and allows us to showcase the fullest expression of our iconic brand and drive category expansion. In 2021, we continued the rollout of next-gen doors around the world, including 16 in the U.S. as we premiumized this marketplace. These stores are built with a digital backbone that supports our omnichannel platform, delivering an elevated, engaging, and brand-centric experience for our fans. We're also using AI to enhance and differentiate our loyalty programs and app, and both are seeing strong acquisition rates, meaningful growth and performance, and productivity of existing members. And fourth, the continued diversification of our business represents significant growth opportunities. Our performance this year reflects the strength of our diversified portfolio, yet we remain underpenetrated in women's, tops, and international, as well as product expansion further outside of denim. The acquisition of Beyond Yoga also provides an entry into the fast-growing and high-margin premium activewear category. Let me now shift to some highlights from the fourth quarter. Strength was broad-based across channels, brands, category, gender, and markets. The Levi's brand accelerated to 7% growth versus 2019, with even stronger growth in our top five markets. Men's bottoms were up 6% to 2019, reaching the highest revenue level since Q4 2015. Women's bottoms continued to outperform, up an exceptional 21% to 2019, as the trend towards high rise and looser fashion fits drove significant growth. And demand remained robust for our iconic 501, which was up 23% to 2019, driven by strong gains with both men and women. Overall, looser fits continue to increase in penetration, representing roughly half of both our women's and men's bottoms assortments, including for the year. Consumers can expect to see us iterate on this trend in future seasons. We're diversifying our Topps offering, and we're pleased to see the Levi's Topps business return to growth versus 2019, driven by solid performance in men's wovens and sweatshirts, while women saw momentum across wovens, dresses, and outerwear. Direct-to-consumer momentum accelerated across the globe and saw significant growth with the channel up 20% versus 2019 levels. Global brick and mortar also grew well above pre-pandemic levels, up 14% to 2019, driven by both our mainline and outlet stores. Higher conversion and a mid-single-digit increase in AUR, driven by the pricing power of the Levi's brand, have offset lower store traffic. We continue to roll out and enhance our in-store and omni-channel capabilities globally so that consumers can shop these physical points seamlessly, feeling the ease and convenience of our complete offering across all channels. Our owned and operated e-commerce saw continued strike despite the recovery in our stores and was up 22% year over year on top of 38% growth last year. In order to drive growth in this marketplace, we have accelerated investments to evolve our distribution network with plans to open two new distribution centers. As we shared earlier in the year, we successfully migrated the US West Coast e-commerce fulfillment to our owned and operated DC and Nevada and now have plans to build a new DC for digital on the East Coast. We are also building a highly automated, highly sustainable, owned and operated Omni facility in Germany. This multi-year project, scheduled to open in 2024, will allow us to realize our strong long-term opportunity in Europe, consolidate the region's DC operations, and deliver significant efficiencies. The global wholesale business grew 1% versus 2019, and is importantly a healthier business versus pre-pandemic. This reflects 2% growth in the U.S. for the quarter. For the year, U.S. wholesale was up 4% versus 2019, and is notably a more elevated, digitally oriented, and profitable market. I'll now provide highlights on Signature, Dockers, and Beyond Yoga. Signature saw continued momentum with another quarter of above 30% growth versus 2019, led by women's, The brand saw strong gains in AURs and continued success in digital wholesale. Dockers had a good year, and sales improved sequentially each quarter in 2021. The brand has a healthier, more diverse sales mix, and its updated California casual aesthetic is winning new and younger consumers, increasingly via DTC, digital, and international markets. For the full year, international comprised nearly 50% of Docker sales and grew at a higher rate than in the U.S. Nearly 30% of Docker sales also now come from digital channels. And what had been an almost entirely wholesale business just a few years ago now has almost 30% of its business in DTC and growing. And in the quarter, Beyond Yoga launched a men's pilot, and based on the positive response, We will be expanding that collection in 2022. Overall, we are entering fiscal 22 with great momentum around the world. We are a stronger company than ever before with an agile supply chain enabling us to outperform as Levi's drives increasingly more direct consumer engagement and denim category expansion while making meaningful gains with women and Gen Z. Longer term, our entry into the activewear market represents another strong runway for growth, in addition to the category diversification opportunities in our existing portfolio. Our company's potential has never been greater. I credit all of our teams around the world for delivering an outstanding year for the company and positioning us for an even better 2022. Let me now turn it over to Harmeet.