Levi Strauss & Co.

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Good day, ladies and gentlemen, and welcome to the Levi Strauss & Company fourth quarter and fiscal year-end earnings call for the period ending November 27, 2022. All parties will be in a listen-only mode until the question-and-answer session, at which time instructions will follow. This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. This conference call 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 Investment Relations at Levi Strauss & Company.

Thank you for joining us on the call today to discuss the results for our fourth fiscal quarter of 2022. Joining me on today's call are Chip Berg, President and CEO of Levi Strauss, and Harmeet Singh, our Chief Financial and Growth Officer. We have posted complete Q4 and full-year financial results in our earnings release on the 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 also like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could materially differ from those contemplated by our forward-looking statements. Please review our filings with the SEC, in particular the risk factors section of the annual report on the 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 certain non-GAAP financial measures. 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 the call will be available on our 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. Q4 concluded a strong fiscal 2022 performance. with the quarter delivering on the high end of our expectations for both revenue and EPS. This was driven by strong growth internationally and in our direct-to-consumer business, which saw record quarter performances across U.S. DTC channels and positive comp sales across the Americas, Europe, and Asia. On a constant currency basis, Q4 net revenues were flat with the prior year's record Q4 revenue, and we grew the business 6% above 2019's pre-pandemic level. For the full year, we delivered another year of strong growth. We grew reported revenues plus 7%, plus 12% in constant currency. We delivered strong market share growth globally. And despite facing a more challenging consumer environment in the second half, as well as currency headwinds, we grew adjusted EPS year over year by managing the factors within our control. We continue to diversify our business. Nearly 40% of our revenues came from outside of Denim Bottoms. We drove outsized growth on Women's, Tops, DTC, and International. We returned $350 million to shareholders, an 84% increase over prior year. And we charted the course for sustainable, profitable, long-term growth by introducing our new strategic plan and long-term financial targets. Let me go into more detail. Note that for the balance of our remarks, Harmeet and I will reference revenue growth in constant currency. Starting with our brands, focusing first on Levi's. In 2022, the Levi's brand grew 11% and grew global market share more than any other denim brand for the second year in a row. led by share gains in both men's and women's. Levi's is bigger than the next three brands combined, reflecting market share gains for five out of the last six years. According to Euromonitor, in 2022, the denim category grew low single digits globally, outpacing Total Apparel for the full year, and is projected to grow at a similar rate in 2023 and at a mid-single digit CAGR over the next several years. With exciting initiatives planned through the year, including rolling out a robust and innovative product pipeline and a powerful brand marketing campaign, we remain well-positioned to continue to grow market share and drive category growth in the year ahead. Levi's brand equity remains very strong, as evidenced by the 6% AUR increase and healthy 60% gross margin which was up another 20 basis points in 2022. Another barometer for the health of the brand is the success of our iconic 501, which grew nearly 30% for the year. Looser fits remain on trend and grew double digits this year, representing more than half of our total bottoms assortment for the year. And in 2023, we're celebrating the 150th anniversary of the iconic 501 jeans. This will be anchored in a powerful multimedia brand campaign that launches next week during the Grammys and will show up around the globe across TV, cinema, print and digital. We also have an exciting lineup of exclusive collaboration drops and continued product freshness and innovation hitting stores across the world throughout the year. Turning to our direct-to-consumer business. we made excellent progress in growing our global DTC business, which was up 18% for the year, driven by a 19% increase in our owned and operated stores and a high single-digit increase in e-commerce. Combined, DTC delivered solid mid-single-digit growth in Q4, plus 10% growth excluding Russia, and comprised 39% of total company net revenues, a fourth-quarter record. In both Q4 and throughout the year, we generated solid comp store sales growth while expanding our footprint with our global rollout of 136 next-gen stores. In the U.S., our DTC business broke a Q4 record with mainline and outlet stores and e-commerce, each delivering record revenue. We continue to see strong momentum in traffic across our fleet as well as strengthen AURs which increased high single digits versus last year. We opened 11 mainline stores in the US in Q4 alone, bringing total US mainline doors to 66. Early results are very encouraging, with most of them exceeding revenue and profitability expectations since their opening. And we have a great pipeline of mainline doors coming in 2023, including Nashville, Honolulu, and Miami. During the year, we grew our base of loyalty consumers to nearly 23 million, representing an almost 50% increase over last year. And our app is now up in 18 countries across the US, Europe, and India. As we look to the year ahead, we're investing in capabilities and talent to drive sustainable, profitable long-term growth in our digital business. Last week, we announced hiring our new chief digital officer. Jason Gowans joins us in early February from Nordstrom, where he was most recently SVP of Digital Commerce. Jason will focus on bringing together our engineering, data, AI, and digital product management to spearhead our digital efforts for both e-commerce and our digital go-to-market. We also made progress in wholesale. For the year, our total global wholesale business grew 9%. and is more elevated and digitally oriented. In the quarter against the 20% comp a year ago, global wholesale was down 4%, largely because we were unable to fulfill approximately $40 million in orders due to capacity challenges at our USDCs. Still within wholesale, we saw bright spots, particularly our Levi's women's business at our top 10 accounts, which grew mid single digits compared to the prior year. As we move into 2023, we are encouraged by healthier inventories in the channel and the work we have done to improve our own inventory dynamics and actions to improve capacity at our USDCs. Finally, we also achieved substantial progress on our diversification strategy. Nearly 40% of our 2022 revenue was beyond Denim Bottoms. including chinos, active leggings, tops, dresses, footwear, and accessories. These businesses grew 10% in 2022, and we expected sales penetration to continue to grow meaningfully over the coming years. Expanding our women's and tops businesses is a key priority in our strategic plan. And in 2022, we drove double digit growth in each category. Total company women's revenue grew 13%, surpassing $2 billion, and our tops business grew 12%, exceeding $1.2 billion for the year. We're expanding our offerings in both women's and tops and believe these areas still represent meaningful upside. International diversification is also a key strength in these times of macro uncertainty, and international now represents 53% of our total business. In 2022, our international business grew 13%, 15% excluding Russia, even as we navigated a more challenging consumer environment in Europe and lockdowns in China. This was driven by broad-based growth in Latin America, Asia, and Europe, excluding Russia. The Dockers and Beyond Yoga businesses are also becoming growth drivers with long runways that expand our addressable market opportunities. For the year, Dockers grew 27% driven by broad-based double-digit growth across all geographies and nearly doubled EVIT. Revenue continues to shift to a healthier mix with nearly half of sales now coming from outside the US and about a third in DTC. 2022 was the year of integration for Beyond Yoga and we're pleased with its $100 million revenue contribution. In Q4, We opened Beyond Yoga's first two brick-and-mortar stores, giving the brand an opportunity to showcase its full category offering. Approximately 50% of their sales are from customers new to the brand, and we believe brick-and-mortar will be a powerful catalyst for the brand. As we look forward to 2023, we have a lot to be excited about. We are the undisputed leader in the denim category and are driving its growth. Our brands are stronger than ever, resonating in the marketplace and driving strong AURs. We have exciting initiatives planned to continue to capture market share. And on top of our continued DTC momentum, we are driving even more excitement with the 150th anniversary of our most iconic product, the 501. Finally, I'm excited about the future leadership of this company. Michelle Goss joined us as president earlier this month and she has hit the ground running. Michelle brings deep Omni retail experience and strong brand building skills. As president, Michelle is responsible for the Levi's brand and the global commercial organization, which includes all go-to-market, wholesale, franchise, retail, and e-commerce. She effectively has about 85% of the company's P&L, and though it's only been three weeks, she's already making a difference. She and I have a well mapped out transition plan, and I'm confident she will become our next CEO within the next 18 months. I'm also pleased to share that Harmeet's role is expanding the Chief Financial and Growth Officer. You all know that Harmeet and I have had a great working relationship, and I cannot understate the role that he has played as my partner these last 10 years in turning the company around, taking it public, instilling financial discipline and driving accelerated profitable growth. In this expanded role, Harmeet will assume additional responsibilities for strategy and retail real estate. I'm certain with the expansion of his role, he will continue to be a key partner for me and Michelle in steering the company to our long-term goals. Congratulations, Harmeet, and over to you.

Thanks, Chip. I'm both humbled and excited to be taking on the new role, given the tremendous opportunity for our portfolio brand. I remain committed to this company and delivering on a long-term plan and working with you and Michelle to deliver for our stakeholders. Before I walk you through our Q4 results and the outlook for 23, let me start with three key points. First, we delivered a solid quarter with net revenues in line with prior year, highlighted by continued strength in our direct-to-consumer business. This quarter's performance reflects the benefits of the diversification of our business as our success internationally in Asia and Latin America both sustained incredible momentum in Q4, demonstrating the power of the Levi's brand around the world and helping offset declines in U.S. wholesale and Europe, largely driven by Russia. Second, the steps we have taken to emerge stronger from the pandemic have substantially improved the structural economics of our business, enabling us to deliver gross margin for the year 380 basis points ahead of 2019 and adjusted EBIT margins, excluding foreign exchange, of 12%. We have positive momentum entering 2023. Our global direct-to-consumer business is delivering strong growth, accelerating through the holidays, and positioning us to drive further revenue acceleration in the channel. Europe exited December with positive constant currency growth, which was broad-based across major markets. And we also expect to benefit from several tailwinds, especially in the second half, including improved commodity costs, foreign exchange, and the continued benefit of cost initiatives we have implemented. I will now walk you through the progress we achieved in Q4, then what that positive momentum means for 23. Net revenue was in line with the prior year, driven by strong growth in our DVC business. Our international business was up 3%, offset by a mid-single-digit decline in the U.S., which was primarily due to supply chain challenges impacting U.S. wholesale. Our DTC channel net revenue grew by 6%, driven by positive comp sales growth across all segments, including in the U.S. and Europe. Traffic, AURs, and UPTs all grew on a global basis. And despite consumers returning to our stores in large numbers, our e-commerce business grew 5%. Adjusted gross margin in reported dollars was 55.8%, up 150 basis points versus 2019, but contracting 230 basis points year-over-year partially due to an approximate 100 basis points unfavorable currency exchange rate impact. Price increases and a favorable channel mix partially offset the impact of higher product costs and lower full price sales. The decline in gross margin was greater than our guidance, owing primarily to the impact of foreign currency and lower full price sales than we anticipated. Moving to SG&A, adjusted SG&A expenses in the quarter was $745 million, down 4% from last year as we remain laser focused on controlling costs while continuing to invest selectively for the long term. Adjusted EBIT margin was 9%, contracting 300 basis points on a reported basis and 210 basis points on a constant currency basis. Adjusted diluted EPS was 34 cents at the high end of our Q4 outlook, despite a 4 cent negative impact from foreign exchange. I'll now take you through key highlights by segment. In the Americas, net revenues declined 5%, a strong growth in DDC, and double-digit growth in wholesale in Canada and Latin America was offset by a decline in U.S. wholesale. BTC growth of 8% was driven by positive store comps in the U.S., Canada, and Latin America, and e-commerce, as well as the addition of new stores. Overall, Canada was up mid-single-digit, and Latin America grew 15%, driven in part by strong growth in our second-largest market, Mexico. Europe outperformed our expectations, down modestly at 4%, excluding Russia, on top of 17% growth in the prior year. Overall, Europe's Q4 revenues saw sequential improvement relative to Q3, primarily driven by DEC and the strength in our core bottoms business. DTC was up 3%, excluding Russia, and we experienced momentum in key markets like the UK, Germany, and Spain entering Q1-23. In Asia, net revenues were up 17%, reflecting sustained broad-based growth across most markets led by India, ANZ, and Indonesia. DTC revenue growth of 17% was driven by strong Kong performance in company operated stores and wholesale also grew 16%. Our successful pricing actions also delivered double-digit AUR growth in the quarter. Overall, operating margin also expanded over 600 basis points to 11.4%. Turning to balance sheet and cash flows. As we discussed throughout last year, we have strategically built inventory ahead of our U.S. ERP implementation in the first half. Reported inventories increased 58% on a dollar basis over prior year in line with our plan. If we exclude the ERP bill and goods in transit, the increase is approximately 35%. The bulk of the increase was in co-products which can be sold across multiple future seasons and represents more than two-thirds of total inventories. We are confident that Q4 inventory growth will be the high point and have managed buys down for the first half of 23 by 25%. With the ERP preparation on the way, we expect to bring inventory back to normal levels by the end of Q2, which will provide a working capital tailwind in the second half. Cash and liquidity remain strong, with the end-of-quarter net debt of approximately $500 million and overall liquidity of $1.5 billion. Our leverage ratio remained at 1.1 times. Owing to investments in inventory, adjusted free cash flow was approximately negative 53 million in the fourth quarter. We remain committed to returning capital to shareholders, and in the fourth quarter, we returned approximately 82 million, bringing our 22 total returns to 350 million. In Q1, the company declared a dividend of 12 cents per share in line with last quarter, and we currently have approximately 700 million remaining under our share repurchase program, which has no expiration date. Before turning to our outlook for the year, I will touch on our holiday performance. DDC momentum continued through the holiday period of November and December, up almost 10% versus prior year. Growth accelerated sequentially from November into December. This reflects the continuing strength of the Levi's brand, generating strong results across the globe, led by continued strength in brick and mortar, including in the U.S. And despite operating in a largely promotional marketplace during the November-December period, gross margins remain robust, almost 200 basis points ahead. Now let's turn to our fiscal 23 outlook. As we look forward, we are confident in our strategies and continue to expect profitable growth in 23. That said, we acknowledge there's still a lot of macro uncertainties and have assumed caution in our outlook. We do, however, expect additional tailwinds in the second half as we lap higher product costs and the stronger dollar. For fiscal 23, we expect net revenues between 6.3 and 6.4 billion, reflecting reported revenue growth of 1.5% to 3% year-over-year, inclusive of 200 basis points of headwind split evenly from foreign exchange and the suspension of our business operations in Russia. In reported dollars, we expect low single-digit growth in the Americas and Europe, excluding Russia, and mid-single-digit growth in Asia. This includes a negative 100 basis points of FX impact in Europe and 500 basis points in Asia. For gross margin, we anticipate expansion of 20 to 30 basis points driven by the favorable accelerated shift of our business towards DDC, digital, women's, and international. Our SG&A rate is expected to deleverage 40 to 50 basis points due to continuous strategic investments to set us up for future growth, yet remaining disciplined on expenses. Overall, we expect adjusted EBIT margin to be down 10 to 30 basis points versus 22. We expect interest expense to normalize to approximately 15 million a quarter due to not benefiting from deferred comp interest as we did in 22 and a full year tax rate in the mid to high teens. Adjusted value to the EPS is expected to be in the range of $1.30 to $1.40. We continue to invest behind high ROI growth initiatives. Uses of capital in 2023 include full-year capex of around $280 million. We expect cash flow to be positive as inventory normalizes in H-2. In terms of DTC Britain model, we anticipate opening more than 80 net new company-operated stores globally. In the U.S., we plan to open around 15 full-price Levi's next-gen doors in 2023, taking our mainline door count to approximately 80 by the end of the year as we progress towards the goal of opening 100 full-price doors in the U.S. I will now share some color on H1 versus H2 and then some H1 quarterly details given the ERP implementation taking place in the U.S. in the second quarter following successful implementation in Canada and Mexico. Our guidance assumes that our business will strengthen in H2 versus H1 given more difficult compares in H1 as well as continued headwinds from foreign exchange and higher product costs. Therefore, we expect reported revenues in H1 to be down low to mid-single digits compared to prior year. We expect these headwinds to moderate in H2 and reported revenues to increase high single digits. Given the 150th anniversary kicking off in late Q1, we expect advertising as a percentage of revenues to be higher in H1 than a year ago by 40 basis points with no change on a full year basis. As we advance wholesale orders prior to the ERP implementation, we expect revenues to increase low single digits for Q1. Q1 gross margin is expected to be down at least 200 basis points. Conversely, for Q2, we expect revenues to be down high single digits due to the shift in sales to Q1. Q2 gross margin is expected to be slightly up due to a more favorable mix with higher DTC penetration. Before I turn it over for Q&A, I want to leave you with three key points. Our market share expansion, the diversity of our business, and December exit rates bolster our confidence in our ability to continue to deliver profitable growth in 2023. The investments we have made in DDC are driving strong and sustainable performance. We will continue to strategically invest in growing our store base, ensuring we drive com sales growth and accelerate e-commerce. Finally, our commitment to our long-term growth goals and strategy is unwavering. Although 23 will be impacted by the softer macro environment, the underlying momentum in our business and strength of our brand gives us confidence in our ability to deliver on a growth algorithm beyond 23. With that, I'll now go ahead and open the call for Q&A.

Thank you. The floor is now open for questions. If you have a question, please press star, then the numbers 11 on your telephone keypad. Due to time constraints, the company requests that you ask only one question. If you have an additional question, please queue up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 11. Again, that's star 1-1 to ask a question. Our first question comes from the line of Laurent Vasilescu of BNP Parivas.

Harmeet, congrats on the additional responsibilities. Harmeet, it's very helpful, the guidance. Thank you, Laurent. Oh, no, well-deserved. Question here, Harmeet. is on gross margins. There's a lot of debate out there. If you think about, if you compare your gross margins relative to 2019, you know, they're up 400 basis points. Harmeet, I think during the pandemic in 2021, you talked about three quarters of that is more structural. And then maybe 100 basis points is just the lack of promos. We did see the promos kick in in this fourth quarter. How do we, is that still the framework that we should think about going forward? And then, maybe just clicking down on 2023 guidance, this gross margin of 20 to 30 bits. Can you kind of maybe walk through like how much is ocean freight recapture, you know, commodities offset by increased promotions?

Sure. Good question, Lorne. So to your point, when we started 22, you know, We had anticipated gross margin accretion three-fourths structural, a fourth potentially giving way to higher promotions. I think as we ended the year, the variables were broadly similar, but I think slightly different. So I think what probably happened, the accretion is largely structural. we had further promotion I said it was in a second I've got a little bit more promotional for the hundred probably you know I'm just thinking aloud here is probably 150 we also got foreign exchange headwinds in the second half which was different to what we anticipated now as you know we do hedge but we don't hedge every currency And so that was probably the third element that God introduced. But given the diverse nature of our business, I think we ended the year structurally from a gross margin perspective a lot better and a lot stronger company. So you think about 23 and our gross margin guidance that I gave. I'd say primarily driven by structural improvements, higher DDC is growing at a fast pace. I think our DDC business in 23 is going to grow at low double digits. International, definitely helping, and where we are really focused on, is growing women's, which is accretive to gross margin, growing beyond yoga, which is accretive to gross margin. So those are the things that are structurally helping. In terms of a couple of other changes that I think happened, yes, we do get some tailwind from ocean freight and air freight as the year progresses. FX probably helps us in the second half versus the first half. The first half, FX is going to be a bit of a headwind. And we're assuming probably 50 basis points for the year higher dilution relative to 2022. So, you know, we are being a little conservative. Largely, our view is probably it's the first half versus the second half. So that's how one is thinking through it. You know, the real growth is really going to come from structural improvements in a very diversified business.

That's very helpful. And if I could quickly sneak one more in. Harmeet, Chip, I think you've talked about the mass channel. You know, I think that was a source of pressure. Just curious to know how it performed in the fourth quarter, U.S. mass, and how do we think about that going forward into 2023?

Yeah, so our mass channel, which is really signature and denizen, was down, I think, 19% in Q4. As we are planning the next year, we are planning this down double digit. So if you think about global wholesale being down, you know, 4%, half of that was probably the mass channel. Half of that was red tab. And if you think of, you know, the fact that we were not able to fulfill $35, $45 million, that, you know, would say global wholesale would actually be in a positive. So the brand is really doing well. The other only point I would make as we get into January and exit December, we are seeing sell-through rates in U.S. wholesale actually turn positive, which is, I think, a good sign.

Very helpful. Thank you very much.

Thank you. Our next question comes from the line of Bob Durbel of Guggenheim. Please go ahead, Bob Durbel.

Harmeet, congratulations on the expanded role for me as well. And Chip, congratulations on bringing in Michelle Goss. I think she's going to be great. I guess a couple questions that I have. Sorry. A couple questions I have. As you look at the year, in terms of the year forward, just the revenue cadence that you expect, I don't know if you could maybe give us a little more color on you know, on that and the confidence around that piece. And then, Chip, the category growth that you assume for denim, I don't know if we could talk about that, and then I do have a denim question for you afterwards as well.

Okay, so let me get the tough question, but I'm glad you asked it, Bob, which is, you know, the first half, second half. The way we're thinking about the year, folks, is we're thinking about a tale of two halves. where the first half weaker than the second half, a tale of two channels, direct-to-consumer strong, wholesale kind of flattish, and a tale of two worlds, you know, the Western world probably growing low single digit, and Eastern world, which is Asia and Latin America, going, you know, low double digit. It's great to have a business that's so diversified. Thinking about revenue, and to your point, Because one would think, okay, this is a bit of a hockey stick. Actually, it's not. If you think about the cadence of the first half and the second half, the normal cadence is 47% of our total revenue is in the first half and 53% in the second half. Last year, you know, we saw real strong growth in the first half. We were up 19%, 20%. Second half was flat. So last year it was more 50-50. And so as you think about 2020, three, you know, it's a 47 in the first half, 53 in the second half. That's one way of looking at it. The other way of looking at it is how does it relate to 19, if 19 is what we call a good base. If you think of the first half, you know, our guidance assumes that we grow first half to 19, about 8% reported dollars, and the second half about 10%. So the real, you know, pickup is about two or three points of growth. And that's driven by, you know, a couple of things. One, FX headwind doesn't remain. And second, you know, just acceleration of the macro improvement, slight improvement in macroeconomic conditions. But we're not necessarily – it's not a hockey stick, and we're not banking a lot. We haven't built in any upside from China, which is a smaller business, and any major, you know, consumer demand swing. You know, if that happens, it's great.

Um, on the, on the denim market trends that you asked about, Bob, um, I'll stay real high level here, but, uh, globally, uh, Euromonitor data, this is Euromonitor data globally, the denim category grew low single digits in 2022. Um, that was actually ahead of total apparel, which was down low single digits. And, and, you know, on, on that basis, um, actually on account that's a calendar 22 basis. And for calendar 22, the Levi's brand was up 11%. So we did grow share last year, again, based on Euromonitor data. We grew more share than any other player in the category. We grew share on men's. We grew share on women's. It's also worth noting that we have grown share five of the last six years. So we consistently grow market share. And as the biggest brand in the category, you guys have heard me say this before, you know, we feel a certain obligation to grow the category. And part of how we do that is to, uh, uh, you know, grow share in the category. So, um, you know, specific to the U S you know, cause I, we shared some us data from NPD on the last call. The U S does remain pretty soft. It hasn't gotten any worse from the prior quarter. We're seeing it. It's largely a wholesale phenomenon. Harmeet is taking you through the numbers on our own direct-to-consumer business, and our U.S. DTC business was also very, very strong for the quarter. So we're in control of the brand. You know, we're growing. We're building share. The biggest challenge has been the wholesale dynamic here in the U.S. As we look forward into fiscal or into calendar 23, The outlook from Euromonitor is for a continuation of kind of low single-digit category growth. And, you know, we're confident. It's kind of in the range of where we've got our revenue outlook, kind of in line with our full-year guidance. And as I said, you know, if you go back even pre-IPO, for a five-, six-year period of time, the category was growing kind of low single digits. And we put up 6% compound growth rates during that period of time. So we've consistently outgrown the category. And that, by the way, was during a period of time when both Dockers was a drag and we didn't have Beyond Yoga. So we're really confident that we're going to be able to put good numbers on the board, even if the category continues to stay a little bit soft in our biggest market, the U.S., there are pockets of growth in the category as well. As Harmeet said, you know, we're seeing good growth in Asia and in Latin America. So the benefit of having a really diversified business, uh, uh, you know, whether that's geographically or from a product standpoint really matters. And, uh, and, and that's part of how we've been able to get through it. So hope that answers your question.

That does it. And Chip, if I could just jump in with two more quick ones for you. Um, Are skinny jeans over? You keep talking about the success of the loose fits, and are rises going up or down? Just curious from the trends perspective.

That's a good question. So a little fun fact, our top two women's items were the 311 and the 721, and they're both skinny jeans. So the news, as Mark Twain once said, the news of my death has been greatly exaggerated. Skinny jeans, I've been known to say skinny jeans will never die. Having said that, the looser jeans are still a thing. They're definitely the trend. Half of our revenues on bottoms this past quarter came from the looser, baggier fits. Our top two women's bottoms items were the 311 and the 721. The skinny jean is not going anywhere anytime soon. You know, for a long time, we were marching the rises up. We had the rib cage, you may remember, about 18 months ago. That was the look back then. Rises are now coming down. And we're not quite to hip-hugger territory yet, but the mid-rise gene is kind of the hottest item right now. And I think we're going to continue to see this shift from high to mid and maybe even mid to lower rises as we go forward. Thank you for that.

Thank you.

Thank you. Our next question comes from the line of Matthew Boss of J.P. Morgan. Your question, please, Matthew.

Great, thanks. So maybe two things. Chip, could you speak to pricing power for the brand into next year and also the overall health that you see for the brand in Europe today? And then maybe Harmeet, could you just outline the fundamental drivers as we think about over the course of the next year and more so the back half of the year, what level of visibility you have in the improvement in top line as we think about the back half?

You want to go first? Yeah. So let me just, you know, talk to the pricing power of the brand. You know, one of my favorite sayings is, you know, a brand has good brand strength when you don't have to hold the prayer meeting to take pricing. You know, our price, we've taken pricing over the last 18 to 24 months Our AURs were up 6% for the year, and that was driven fundamentally by pricing. You see it in our gross margins. Our gross margins are up nearly 400 basis points from 2019. The Levi's brand itself gross margins are over 60%, and we grew gross margins by about 20 basis points, and we were able to build share through all of that. The brand equity, as we measure it, we measure it very detailed every quarter in our top 10 markets around the world. Our equity remains really, really strong. We're not seeing any slippage as a result of pricing. And in fact, in some markets, we own the equity for worth the money I pay for it. So the brand continues to deliver a really strong value. In Europe, Europe revenues were down 4% in constant currency. If you exclude Russia, it was down eight overall, but Russia was four points of that. The good news is we did see substantial, you know, sequential improvement from Q3 driven primarily by DTC and strengthen our core bottoms business. And even through the holidays, December was positive for Europe. So, you know, we're, we're, you know, It's still challenging there. I don't want to mislead anybody, but we're very, very confident in the strength of the brand there. The consumer will ultimately come back, and we're seeing good broad-based growth across markets like the UK and Germany. So we have embedded a little bit of caution in our outlook relative to Europe, just reflecting the challenging consumer environment there, but it's It's not because we're seeing any slippage in the strength of the brand or the equity of the brand, and pricing seems to be holding up there.

And, Matt, to your question on the fundamental drivers, you know, we are going to very soon celebrate the 150th anniversary for, you know, what changed everything in denim, which is the 501. And so, you know, and we're spending money against it. You know, it's been growing at a bent-neck pace, so I think that's going to fundamentally drive the category as well as our Levi's business. I think the other key drivers, I talked about direct-to-consumer, expected to grow double-digit. You know, women's and tops, we continue to accelerate growth. tops expected to be low double-digit, women's growth high single-digit. And then you think of the other brands that for a long time, you know, A, Beyond Yoga didn't exist, and Doctors was a drag, I think expected to both grow double-digit, you know, from that perspective. And as you know, through the year, supply chain, we've had supply chain challenges. We've not been able to fulfill demand. We think, you know, that becomes a bit of a tailwind in the second half. So that's, you know, overall the revenue growth, you know, and expectation geographically, you know, Asia, Latin America, low double digit, the U.S. and Europe, which as Chip said is exiting positively in December, growing low single digit. So that's what we're thinking about. We haven't built in any dramatic change in China. It's too early and it's a small piece of our business. And so that's how one is thinking through it. In terms of the P&L, you know, cotton headwind in H1, but a tailwind in H2 because, you know, we're just locking in purchases for H2 and cotton is, you know, back to about 80 cents. So that should help. Great color. Best of luck. Thank you.

Thank you. Our next question. comes from the line of JSO of UBS. Your question, please.

Hi, this is Jay. I don't know if you can hear me, but if you can, my question is on SG&A. And it looks like SG&A dollars are about down about 30 million year over year in the trend in terms of the growth rates improving. Harmeet, can you just talk about the source of the SG&A savings and how you think about the opportunity to continue to stay laser focused on costs as we get into the first half and then the second half of the year? Thank you.

Sure, Jay. You know, as you've seen both during the pandemic and when things turned tough in the second half, we, you know, went after controllable costs big time. And our focus and control of both costs starts with discretionary expenses. We slowed down hiring. We have slowed down hiring 423 through the year, you know, just being cautious. We are hiring where it matters. You know, we talked about the chief digital officer, Michelle, coming on board. So in areas where we think we can accelerate growth, we are still, you know, doing what is right, which is getting the right people. But generally across the board, hiring has slowed down. In terms of – and that's what led to Q4 SGN being down year over year. The guidance reflects SGN as a percentage going up, but that is largely driven by the volume deleverage. We're going 1.5% next year as against growth algorithm of 6% to 8%. And so we're keeping – you know, a fair focus on discretionary costs and keeping it low, you know, from that perspective. I think where you are going to see a little bit of spend is really in the opening of stores. We're talking about 80 net doors and growing e-commerce. And then first half, second half, I talked about spending a little bit more on advertising, but keeping the full year as a percentage constant.

Okay. Thank you. And then maybe if I can ask one quick one. on the EPS guidance for the year. Is there any buyback contemplated in that guidance?

Yes, there is. You know, we're going to start slow, but there is buyback, you know, contemplated as it will spread through the year as against happening on day one. You know, we've got probably a cent or two from an EPS perspective, not a lot.

Okay. Thank you so much.

Thank you. Our next question comes from the line of Omar Sayed of Evercore ISI. Your question, please, Omar.

Thanks. Great job on the market share this quarter. A couple quick follow-ups. Maybe you could dive in a little bit deeper on inventory. What gives you the confidence that you're going to get that down to a level where you're comfortable by the second half? And also, what is the ERP? Can we talk a little bit more about what the ERP implementation enables for you guys to do with your inventory? And also, any peaks on the 150th 501 product initiative? I'm sure you're going to do a lot of marketing around that, but are there some new product initiatives around the 501 that we can look forward to as well? Thanks.

Hey, Omar. I think I'll answer the first two questions in Mentory. So in Mentory, up 58%. If you exclude the buildup for the ERP and the early receipts, it's up 35%. The thing that we did very quickly early on is we cut the buys for the first half, and they're down 25%. And so I think that's an essential part of what we think gets us to normalize inventory levels by the end of Q2. The other piece is our inventory is generally healthy, you know, a large chunk. especially the stuff we built for the ERP, has largely stuff that we can sell through multiple seasons. The only other fact I think that's important to note, the buildup of the inventory for the ERP, which is largely oriented to U.S. wholesale customers, we have the orders for most of that, so that just flows through And so those are the things that make us believe that we can get inventory back to normal levels by the end of Q2. To your question about the ERP, and as you know, a lot of retailers are upgrading the ERP. The old ERP, the SAP ERP, was really something that was built for wholesale companies or brands. As the model is evolved into more a DDC model, the new ERP actually provides, you know, from an operational perspective, a lot of visibility in how, you know, that is run. You know, the one we are implementing is on the cloud. The big change in the ERP and what we're seeing in Canada and Mexico is Because I tell people it's not a technological solution. It actually has to lead to some real change in the business. It's really access to data and data on a real-time basis. So our commercial people, our operations people get access to data, and they can then leverage the data to actually drive business. And we haven't modeled all that in our algorithm, but those are the benefits we're really seeing. Inventory management gets a lot better. and handling direct-to-consumer gets a lot better.

I'll take the 501 just real quickly. We have a year-long plan kind of mapped out with product, marketing. It's very, very holistic. We're going to bring product freshness and innovation. We're going to pay homage to a number of items right out of the archives. So just to give you a flavor of some of those, We're going to do several limited edition drops. One of them includes kind of what the original 1873 XX waist overalls, which was the very first pair of Levi's blue jeans ever sold. We're going to be doing kind of reincarnations of those. That's going to be out there. We're launching the men's 501 1954 gene, the women's 501, the original women's 501, which launched in 1981. Both vintage fits in 100% cotton. The 54 501 is really trend right for right now. It's amazing. The 81 women's gene was the first women's 501. We've also got some innovative 501s that we're going to launch. We've got a plant-based 501 that is a real sustainability, ecologically-minded approach to the 501, which is comprised of 97% plant-based and bio-based inputs. It's dyed in plant-based indigo. You all have probably picked up the news that we've made an investment in Stony Creek colors. And that's also with 100% organic cotton made at Cone Mills, which is our oldest denim partner. So just a lot of good stuff there. From a marketing standpoint, lots of center of culture stuff, music events. We've got a deep partnership with Rolling Loud. celebrities, influencers, advertising kicks off at the Grammys next weekend or following weekend. I'm really excited about the ads. You know, more on that in a little bit. But, you know, we're putting all of our marketing muscle behind the 501 and celebrating the 150th. And everybody's got a great 501 story to tell.

Sounds great. Look forward. Thanks.

Thanks a lot.

Thank you. Our next question comes from the line of Dana Talsey of Talsey Group. Please go ahead, Dana.

Thank you. Good afternoon. As you think about AUR for this upcoming fiscal year, how are you planning AUR go forward? And embedded within the gross margin, how are you thinking about promotions versus in the channels, DTC and wholesale? Just one last thing. Chip, you had talked in the past about wholesale accounts, whether it's Target or the others. What are you seeing in terms of order trends from the wholesale accounts and how are you planning it? Thank you.

So in terms of, Dana, in terms of AURs, you know, we're not planning any major price increase. So the AUR, so if you think about revenue growth, Think about revenue growth being, you know, equally balanced between AUR and unit volume. For the AUR driven by mix more than pricing. If your question about promotion and dilution, I talked about a 50 basis points full year impact, higher in the first half, you know, much less in the second half. And most of that is largely, you know, wholesale versus direct to consumer. We are, you know, we're seeing, we're doing some smart promotions and, you know, in our own direct-to-consumer business and it's really resonating in terms of driving traffic. That's what driving traffic in our comp sales that I talked about. And, Chip, I think.

Yeah, what I would say on the wholesale trends is right now, you know, our assessment of wholesale inventories is that they're pretty clean and back to kind of normal levels. And as we alluded to in the prepared remarks and also during the Q&A, we're seeing sell-through trends strengthen over the last couple of weeks in wholesale, and that should bode well for replenishment orders. The other big thing that we've got coming up here, as Harmeet has talked about, in the U.S. is the ERP implementation, which is going to have a dynamic between the second quarter and the first quarter. as we ship customers ahead of the ERP conversion when we have to take the distribution centers down for a couple of weeks. And so, you know, that will have a dynamic between the first quarter and the second quarter.

Thank you.

Thank you. Our last question comes from the line of Ike Beruchow of Wells Fargo. Your question, please, Ike.

Hey, thanks, everyone. Hermi, congrats as well. I guess I'll just go back to the inventory. I guess, Hermi, I'm not trying to nitpick, but you're saying now that with the inventory of 58%, everything is in line with your expectations. And by Q2, you're expecting inventory to revert back to, I guess, normal. On the last call, you said you expected inventory to revert back to in line with sales growth in Q2. You're guiding sales growth down in Q2. I'm assuming that's not where you're expecting inventory to go. So it just seems like something's a little bit different than three months ago on inventory. And I'm just trying to figure out exactly if you could elaborate a little bit more on the pacing of inventory or if there's anything that's kind of changed a little bit that would be helpful to understand. Yeah.

I mean, we're just being cautious, Ike, given the macro environment. And so nothing dramatically has changed. Everybody's worried about holiday. Holiday for us is actually quite decent. And as I mentioned earlier, most of the inventory that has been built is inventory that's core, passes through season to season. And that's why I think you know, in our reflection of getting to normal levels by the end of Q2 is how we're thinking about it.

Got it. Thank you.

Thanks, Ike. All right. I guess we will wrap it there. Thank you all for dialing in. It's been a pleasure talking to you, and we look forward to speaking with you again at the end of our first quarter of fiscal 23. Take care. Thanks.

Thank you. This concludes today's conference call. Please disconnect your lines at this time.

The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Hello. Thank you. Thank you. music music

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Company fourth quarter and fiscal year-end earnings call for the period ending November 27, 2022. All parties will be in a listen-only mode until the question-and-answer session, at which time instructions will follow. This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. This conference call 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 Investment Relations at Levi Strauss & Company.

Thank you for joining us on the call today to discuss the results for our fourth fiscal quarter of 2022. Joining me on today's call are Chip Berg, President and CEO of Levi Strauss, and Harmeet Singh, our Chief Financial and Growth Officer. We have posted complete Q4 and full-year financial results in our earnings release on the 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 also like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could materially differ from those contemplated by our forward-looking statements. Please review our filings with the SEC, in particular the risk factors section of the annual report on the 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 certain non-GAAP financial measures. 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 the call will be available on our 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. Q4 concluded a strong fiscal 2022 performance. with the quarter delivering on the high end of our expectations for both revenue and EPS. This was driven by strong growth internationally and in our direct-to-consumer business, which saw record quarter performances across U.S. DTC channels and positive comp sales across the Americas, Europe, and Asia. On a constant currency basis, Q4 net revenues were flat with the prior year's record Q4 revenue, and we grew the business 6% above 2019's pre-pandemic level. For the full year, we delivered another year of strong growth. We grew reported revenues plus 7%, plus 12% in constant currency. We delivered strong market share growth globally. And despite facing a more challenging consumer environment in the second half, as well as currency headwinds, we grew adjusted EPS year over year by managing the factors within our control. We continue to diversify our business. Nearly 40% of our revenues came from outside of Denim Bottoms. We drove outsized growth on Women's, Tops, DTC, and International. We returned $350 million to shareholders, an 84% increase over prior year. And we charted the course for sustainable, profitable, long-term growth by introducing our new strategic plan and long-term financial targets. Let me go into more detail. Note that for the balance of our remarks, Harmeet and I will reference revenue growth in constant currency. Starting with our brands, focusing first on Levi's. In 2022, the Levi's brand grew 11% and grew global market share more than any other denim brand for the second year in a row. led by share gains in both men's and women's. Levi's is bigger than the next three brands combined, reflecting market share gains for five out of the last six years. According to Euromonitor, in 2022, the denim category grew low single digits globally, outpacing Total Apparel for the full year, and is projected to grow at a similar rate in 2023 and at a mid-single digit CAGR over the next several years. With exciting initiatives planned through the year, including rolling out a robust and innovative product pipeline and a powerful brand marketing campaign, we remain well-positioned to continue to grow market share and drive category growth in the year ahead. Levi's brand equity remains very strong, as evidenced by the 6% AUR increase and healthy 60% gross margin which was up another 20 basis points in 2022. Another barometer for the health of the brand is the success of our iconic 501, which grew nearly 30% for the year. Looser fits remain on trend and grew double digits this year, representing more than half of our total bottoms assortment for the year. And in 2023, we're celebrating the 150th anniversary of the iconic 501 jeans. This will be anchored in a powerful multimedia brand campaign that launches next week during the Grammys and will show up around the globe across TV, cinema, print and digital. We also have an exciting lineup of exclusive collaboration drops and continued product freshness and innovation hitting stores across the world throughout the year. Turning to our direct-to-consumer business. we made excellent progress in growing our global DTC business, which was up 18% for the year, driven by a 19% increase in our owned and operated stores and a high single-digit increase in e-commerce. Combined, DTC delivered solid mid-single-digit growth in Q4, plus 10% growth excluding Russia, and comprised 39% of total company net revenues, a fourth-quarter record. In both Q4 and throughout the year, we generated solid comp store sales growth while expanding our footprint with our global rollout of 136 next-gen stores. In the U.S., our DTC business broke a Q4 record with mainline and outlet stores and e-commerce, each delivering record revenue. We continue to see strong momentum in traffic across our fleet as well as strengthen AURs which increased high single digits versus last year. We opened 11 mainline stores in the US in Q4 alone, bringing total US mainline doors to 66. Early results are very encouraging, with most of them exceeding revenue and profitability expectations since their opening. And we have a great pipeline of mainline doors coming in 2023, including Nashville, Honolulu, and Miami. During the year, we grew our base of loyalty consumers to nearly 23 million, representing an almost 50% increase over last year. And our app is now up in 18 countries across the US, Europe, and India. As we look to the year ahead, we're investing in capabilities and talent to drive sustainable, profitable long-term growth in our digital business. Last week, we announced hiring our new chief digital officer. Jason Gowans joins us in early February from Nordstrom, where he was most recently SVP of Digital Commerce. Jason will focus on bringing together our engineering, data, AI, and digital product management to spearhead our digital efforts for both e-commerce and our digital go-to-market. We also made progress in wholesale. For the year, our total global wholesale business grew 9%. and is more elevated and digitally oriented. In the quarter against a 20% comp a year ago, global wholesale was down 4%, largely because we were unable to fulfill approximately $40 million in orders due to capacity challenges at our USDCs. Still within wholesale, we saw bright spots, particularly our Levi's women's business at our top 10 accounts, which grew mid single digits compared to the prior year. As we move into 2023, we are encouraged by healthier inventories in the channel and the work we have done to improve our own inventory dynamics and actions to improve capacity at our USDCs. Finally, we also achieved substantial progress on our diversification strategy. Nearly 40% of our 2022 revenue was beyond Denim Bottoms, including chinos, active leggings, tops, dresses, footwear, and accessories. These businesses grew 10% in 2022, and we expected sales penetration to continue to grow meaningfully over the coming years. Expanding our women's and tops businesses is a key priority in our strategic plan. And in 2022, we drove double-digit growth in each category. Total company women's revenue grew 13%, surpassing $2 billion, and our tops business grew 12%, exceeding $1.2 billion for the year. We're expanding our offerings in both women's and tops, and believe these areas still represent meaningful upside. International diversification is also a key strength in these times of macro uncertainty, and international now represents 53% of our total business. In 2022, our international business grew 13%, 15% excluding Russia, even as we navigated a more challenging consumer environment in Europe and lockdowns in China. This was driven by broad-based growth in Latin America, Asia, and Europe, excluding Russia. The Dockers and Beyond Yoga businesses are also becoming growth drivers with long runways that expand our addressable market opportunity. For the year, Dockers grew 27%, driven by broad-based double-digit growth across all geographies and nearly doubled EBIT. Revenue continues to shift to a healthier mix, with nearly half of sales now coming from outside the US and about a third in DTC. 2022 was the year of integration for Beyond Yoga, and we're pleased with its $100 million revenue contribution. In Q4, We opened Beyond Yoga's first two brick-and-mortar stores, giving the brand an opportunity to showcase its full category offering. Approximately 50% of their sales are from customers new to the brand, and we believe brick-and-mortar will be a powerful catalyst for the brand. As we look forward to 2023, we have a lot to be excited about. We are the undisputed leader in the denim category and are driving its growth. Our brands are stronger than ever, resonating in the marketplace and driving strong AURs. We have exciting initiatives planned to continue to capture market share. And on top of our continued DTC momentum, we are driving even more excitement with the 150th anniversary of our most iconic product, the 501. Finally, I'm excited about the future leadership of this company. Michelle Goss joined us as president earlier this month and she has hit the ground running. Michelle brings deep Omni retail experience and strong brand-building skills. As president, Michelle is responsible for the Levi's brand and the global commercial organization, which includes all go-to-market, wholesale, franchise, retail, and e-commerce. She effectively has about 85% of the company's P&L, and though it's only been three weeks, she's already making a difference. She and I have a well mapped out transition plan, and I'm confident she will become our next CEO within the next 18 months. I'm also pleased to share that Harmeet's role is expanding to Chief Financial and Growth Officer. You all know that Harmeet and I have had a great working relationship, and I cannot understate the role that he has played as my partner these last 10 years in turning the company around, taking it public, instilling financial discipline, and driving accelerated profitable growth. In this expanded role, Harmeet will assume additional responsibilities for strategy and retail real estate. I'm certain with the expansion of his role, he will continue to be a key partner for me and Michelle in steering the company to our long-term goals. Congratulations, Harmeet, and over to you.

Thanks, Chip. I'm both humbled and excited to be taking on the new role, given the tremendous opportunity for our portfolio brand. I remain committed to this company and delivering on a long-term plan and working with you and Michelle to deliver for our stakeholders. Before I walk you through our Q4 results and the outlook for 23, let me start with three key points. First, we delivered a solid quarter with net revenues in line with prior year, highlighted by continued strength in our direct-to-consumer business. This quarter's performance reflects the benefits of the diversification of our business as our success internationally in Asia and Latin America both sustained incredible momentum in Q4, demonstrating the power of the Levi's brand around the world and helping offset declines in U.S. wholesale and Europe, largely driven by Russia. Second, the steps we have taken to emerge stronger from the pandemic have substantially improved the structural economics of our business, enabling us to deliver gross margin for the year 380 basis points ahead of 2019 and adjusted EBIT margins, excluding foreign exchange, of 12%. We have positive momentum entering 2023. Our global direct-to-consumer business is delivering strong growth, accelerating through the holidays, and positioning us to drive further revenue acceleration in the channel. Europe exited December with positive constant currency growth, which was broad-based across major markets. And we also expect to benefit from several tailwinds, especially in the second half, including improved commodity costs, foreign exchange, and the continued benefit of cost initiatives we have implemented. I will now walk you through the progress we achieved in Q4, then what that positive momentum means for 23. Net revenue was in line with the prior year, driven by strong growth in our DBC business. Our international business was up 3%, by a mid-single-digit decline in the U.S., which was primarily due to supply chain challenges impacting U.S. wholesale. Our DTC channel net revenue grew by 6%, driven by positive comp sales growth across all segments, including in the U.S. and Europe. Traffic, AURs, and UPTs all grew on a global basis. And despite consumers returning to our stores in large numbers, our e-commerce business grew 5%. Adjusted gross margin in reported dollars was 55.8%, up 150 basis points versus 2019, but contracting 230 basis points year-over-year partially due to an approximate 100 basis points unfavorable currency exchange rate impact. Price increases and a favorable channel mix partially offset the impact of higher product costs and lower full price sales. The decline in gross margin was greater than our guidance, owing primarily to the impact of foreign currency and lower full price sales than we anticipated. Moving to SG&A, adjusted SG&A expenses in the quarter was $745 million, down 4% from last year as we remain laser focused on controlling costs while continuing to invest selectively for the long term. Adjusted EBIT margin was 9%, contracting 300 basis points on a reported basis and 210 basis points on a constant currency basis. Adjusted diluted EPS was 34 cents at the high end of our Q4 outlook, despite a 4 cent negative impact from foreign exchange. I'll now take you through key highlights by segment. In the Americas, net revenues declined 5%, a strong growth in DVC, and double-digit growth in wholesale in Canada and Latin America was offset by a decline in U.S. wholesale. BTC growth of 8% was driven by positive store comps in the U.S., Canada, and Latin America, and e-commerce, as well as the addition of new stores. Overall, Canada was up mid-single-digit, and Latin America grew 15%, driven in part by strong growth in our second-largest market, Mexico. Europe outperformed our expectations, down modestly at 4%, excluding Russia, on top of 17% growth in the prior year. Overall, Europe's Q4 revenues saw sequential improvement relative to Q3, primarily driven by DEC and the strength in our core bottoms business. DTC was up 3%, excluding Russia, and we experienced momentum in key markets like the UK, Germany, and Spain entering Q1 23. In Asia, net revenues were up 17%, reflecting sustained broad-based growth across most markets led by India, ANZ, and Indonesia. DTC revenue growth of 17% was driven by strong Kong performance, in company operated stores and wholesale also grew 16%. Our successful pricing actions also delivered double-digit AUR growth in the quarter. Overall, operating margin also expanded over 600 basis points to 11.4%. Turning to balance sheet and cash flows. As we discussed throughout last year, we have strategically built inventory ahead of our U.S. ERP implementation in the first half. Reported inventories increased 58% on a dollar basis over prior year in line with our plan. If we exclude the ERP build and goods in transit, the increase is approximately 35%. The bulk of the increase was in co-products which can be sold across multiple future seasons and represents more than two-thirds of total inventories. We are confident that Q4 inventory growth will be the high point and have managed buys down for the first half of 23 by 25%. With the ERP preparation on the way, we expect to bring inventory back to normal levels by the end of Q2, which will provide a working capital tailwind in the second half. Cash and liquidity remain strong, with the end-of-quarter net debt of approximately $500 million and overall liquidity of $1.5 billion. Our leverage ratio remained at 1.1 times. Owing to investments in inventory, adjusted free cash flow was approximately negative 53 million in the fourth quarter. We remain committed to returning capital to shareholders, and in the fourth quarter, we returned approximately 82 million, bringing our 22 total returns to 350 million. In Q1, the company declared a dividend of 12 cents per share in line with last quarter, and we currently have approximately $700 million remaining under our share repurchase program, which has no expiration date. Before turning to our outlook for the year, I will touch on our holiday performance. DDC momentum continued through the holiday period of November and December, up almost 10% versus prior year. Growth accelerated sequentially from November into December. This reflects the continuing strength of the Levi's brand, generating strong results across the globe, led by continued strength in brick and mortar, including in the U.S. And despite operating in a largely promotional marketplace during the November-December period, gross margins remain robust, almost 200 basis points ahead. Now let's turn to our fiscal 23 outlook. As we look forward, we are confident in our strategies and continue to expect profitable growth in 23. That said, we acknowledge there's still a lot of macro uncertainties and have assumed caution in our outlook. We do, however, expect additional tailwinds in the second half as we lap higher product costs and the stronger dollar. For fiscal 23, we expect net revenues between 6.3 and 6.4 billion, reflecting reported revenue growth of 1.5% to 3% year over year, inclusive of 200 basis points of headwind split evenly from foreign exchange and the suspension of our business operations in Russia. In reported dollars, we expect low single-digit growth in the Americas and Europe, excluding Russia, and mid-single-digit growth in Asia. This includes a negative 100 basis points of FX impact in Europe and 500 basis points in Asia. For gross margin, we anticipate expansion of 20 to 30 basis points driven by the favorable accelerated shift of our business towards DDC, digital, women's, and international. Our SG&A rate is expected to deleverage 40 to 50 basis points due to continuous strategic investments to set us up for future growth, yet remaining disciplined on expenses. Overall, we expect adjusted EBIT margin to be down 10 to 30 basis points versus 22. We expect interest expense to normalize to approximately 15 million a quarter due to not benefiting from deferred comp interest as we did in 22 and a full year tax rate in the mid to high teens. Adjusted diluted EPS is expected to be in the range of $1.30 to $1.40. We continue to invest behind high ROI growth initiatives. Uses of capital in 2023 include full-year capex of around $280 million. We expect cash flow to be positive as inventory normalizes in H-2. In terms of DTC Britain model, we anticipate opening more than 80 net new company-operated stores globally. In the U.S., we plan to open around 15 full-price Levi's next-gen doors in 2023, taking our mainline door count to approximately 80 by the end of the year as we progress towards the goal of opening 100 full-price doors in the U.S. I will now share some color on H1 versus H2 and then some H1 quarterly details given the ERP implementation taking place in the U.S. in the second quarter following successful implementation in Canada and Mexico. Our guidance assumes that our business will strengthen in H2 versus H1 given more difficult compares in H1 as well as continued headwinds from foreign exchange and higher product costs. Therefore, we expect reported revenues in H1 to be down low to mid-single digits compared to prior year. We expect these headwinds to moderate in H2 and reported revenues to increase high single digits. Given the 150th anniversary kicking off in late Q1, we expect advertising as a percentage of revenues to be higher in H1 than a year ago by 40 basis points with no change on a full year basis. As we advance wholesale orders prior to the ERP implementation, we expect revenues to increase low single digits for Q1. Q1 gross margin is expected to be down at least 200 basis points. Conversely, for Q2, we expect revenues to be down high single digits due to the shift in sales to Q1. Q2 gross margin is expected to be slightly up due to a more favorable mix with higher DTC penetration. Before I turn it over for Q&A, I want to leave you with three key points. Our market share expansion, the diversity of our business, and December exit rates bolster our confidence in our ability to continue to deliver profitable growth in 2023. The investments we have made in DDC are driving strong and sustainable performance. We will continue to strategically invest in growing our store base, ensuring we drive com sales growth and accelerate e-commerce. Finally, our commitment to our long-term growth goals and strategy is unwavering. Although 23 will be impacted by the softer macro environment, the underlying momentum in our business and strength of our brand gives us confidence in our ability to deliver on a growth algorithm beyond 23. With that, I'll now go ahead and open the call for Q&A.

Thank you. The floor is now open for questions. If you have a question, please press star, then the numbers 11 on your telephone keypad. Due to time constraints, the company requests that you ask only one question. If you have an additional question, please queue up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 11. Again, that's star 1-1 to ask a question. Our first question comes from the line of Laurent Vasilescu of BNP Parivas.

Harmeet, congrats on the additional responsibility. Harmeet, it's very helpful, the guidance. Thank you, Laurent. Oh, no, well-deserved. Question here, Harmeet. is on gross margins. There's a lot of debate out there. If you think about, if you compare your gross margins relative to 2019, you know, they're up 400 basis points. Harmeet, I think during the pandemic in 2021, you talked about three quarters of that is more structural. And then maybe 100 basis points is just the lack of promos. We did see the promos kick in in this fourth quarter. How do we, is that still the framework that we should think about going forward? And then, maybe just clicking down on 2023 guidance, this gross margin of 20 to 30 bits. Can you kind of maybe walk through like how much is ocean freight recapture, you know, commodities offset by increased promotions?

Sure. Good question, Lorne. So to your point, when we started 22, you know, We had anticipated gross margin accretion three-fourths structural, a fourth potentially giving way to higher promotions. I think as we ended the year, the variables were broadly similar, but I think slightly different. So I think what probably happened, the accretion is largely structural. we had further promotion I said it was in a second I've got a little bit more promotional so the hundred probably you know I'm just thinking aloud here is probably 150 we also got foreign exchange headwinds in the second half which was different to what we anticipated now as you know we do hedge but we don't hedge every currency And so that was probably, you know, the third element that got introduced. But given the diverse nature of our business, you know, I think we ended the year structurally from a gross margin perspective a lot better and a lot stronger company. So you think about 23 and our gross margin guidance, you know, that I gave. I'd say primarily driven by structural improvements, higher DDC is growing at a fast pace. I think our DDC business in 23 is going to grow at low double digits. International, definitely helping, and where we are really focused on, is growing women's, which is accretive to gross margin, growing beyond yoga, which is accretive to gross margin. So those are the things that are structurally helping. In terms of a couple of other changes that I think happened, yes, we do get some tailwind from ocean freight and air freight as the year progresses. FX probably helps us in the second half versus the first half. The first half FX is going to be a bit of a headwind. And we're assuming probably 50 basis points for the year higher dilution relative to 2022. So, you know, we are being a little conservative. Largely, our view is probably it's the first half versus the second half. So that's how one is thinking through it. You know, the real growth is really going to come from structural improvements in a very diversified business.

That's very helpful. And if I could quickly sneak one more in. Harmeet, Chip, I think you've talked about the mass channel. You know, I think that was a source of pressure. Just curious to know how it performed in the fourth quarter, U.S. mass, and how do we think about that going forward into 2023?

Yeah, so our mass channel, which is really signature and denizen, was down, I think, 19% in Q4. As we are planning the next year, we are planning this down double digit. So if you think about global wholesale being down, you know, 4%, half of that was probably the mass channel. Half of that was red tab. And if you think of, you know, the fact that we were not able to fulfill $35, $45 million, that, you know, would say global wholesale would actually be in a positive. So the brand is really doing well. The other only point I would make is as we get into January and exit December, we are seeing sell-through rates in U.S. wholesale actually turn positive, which is, I think, a good sign.

Very helpful. Thank you very much.

Thank you. Our next question comes from the line of Bob Durbel of Guggenheim. Please go ahead, Bob Durbel.

Harmeet, congratulations on the expanded role for me as well. And Chip, congratulations on bringing in Michelle Goss. I think she's going to be great. I guess a couple questions that I have. Sorry. A couple questions I have. As you look at the year in terms of the year forward, just the revenue cadence that you expect, I don't know if you could maybe give us a little more color on you know, on that and the confidence around that piece. And then, Chip, the category growth that you assume for denim, I don't know if we could talk about that, and then I do have a denim question for you afterwards as well.

Okay. So let me get the tough question, but I'm glad you asked it, Bob, which is, you know, the first half, second half. The way we're thinking about the ear forks is we're thinking about a tale of two halves. where the first half weaker than the second half, a tale of two channels, direct-to-consumer strong, wholesale kind of flattish, and a tale of two worlds, the Western world probably growing low single-digit, and Eastern world, which is Asia and Latin America, going low double-digit. It's great to have a business that's so diversified. Thinking about revenue, and to your point, Because one would think, okay, this is a bit of a hockey stick. Actually, it's not. If you think about the cadence of the first half and the second half, the normal cadence is 47% of our total revenue is in the first half and 53% in the second half. Last year, you know, we saw real strong growth in the first half. We were up 19%, 20%. Second half was flat. So last year it was more 50-50. And so as you think about 2020, You know, it's a 47 in the first half, 53 in the second half. That's one way of looking at it. The other way of looking at it is how does it relate to 19, if 19 is what we call a good base. If you think of the first half, you know, our guidance assumes that we grow first half to 19, about 8% reported dollars, and the second half about 10%. So the real, you know, pickup is about two or three points of growth. And that's driven by, you know, a couple of things. One, FX headwind doesn't remain. And second, you know, just acceleration of the macro improvement, slight improvement in macroeconomic conditions. But we're not necessarily – it's not a hockey stick, and we're not banking a lot. We haven't built in any upside from China, which is a smaller business, and any major, you know, consumer demand swing. You know, if that happens, it's great.

On the denim market trends that you asked about, Bob, I'll stay real high level here. But globally, Euromonitor data, this is Euromonitor data. Globally, the denim category grew low single digits in 2022. That was actually ahead of total apparel, which was down low single digits. And, you know, on that basis, actually, that's a calendar 22 basis. And for calendar 22, the Levi's brand was up 11%. So we did grow share last year, again, based on Euromonitor data. We grew more share than any other player in the category. We grew share on men's. We grew share on women's. It's also worth noting that we have grown share five of the last six years. So we consistently grow market share. And as the biggest brand in the category, you guys have heard me say this before, you know, we feel a certain obligation to grow the category. And part of how we do that is to, you know, grow share in the category. So, you know, specific to the U.S., you know, because we shared some U.S. data from NPD on the last call, the U.S. does remain pretty soft. It hasn't gotten any worse from the prior quarter. We're seeing it. It's largely a wholesale phenomenon. Harmeet is taking you through the numbers on our own direct-to-consumer business, and our U.S. DTC business was also very, very strong for the quarter. So we're in control of the brand. You know, we're growing. We're building share. The biggest challenge has been the wholesale dynamic here in the U.S. As we look forward into fiscal or into calendar 23, The outlook from Euromonitor is for a continuation of kind of low single-digit category growth. And, you know, we're confident. It's kind of in the range of where we've got our revenue outlook, kind of in line with our full-year guidance. And as I said, you know, if you go back even pre-IPO, for a five-, six-year period of time, the category was growing kind of low single digits. And we put up 6% compound growth rates during that period of time. So we've consistently outgrown the category. And that, by the way, was during a period of time when both Dockers was a drag and we didn't have Beyond Yoga. So we're really confident that we're going to be able to put good numbers on the board, even if the category continues to stay a little bit soft in our biggest market, the U.S., there are pockets of growth in the category as well. As Harmeet said, you know, we're seeing good growth in Asia and in Latin America. So the benefit of having a really diversified business, uh, uh, you know, whether that's geographically or from a product standpoint really matters. And, uh, and, and that's part of how we've been able to get through it. So hope that answers your question.

That does it. And Chip, if I could just jump in with two more quick ones for you. Um, Are skinny jeans over? You keep talking about the success of the loose fits, and are rises going up or down? Just curious from the trends perspective.

I'm going to ask a good question. So a little fun fact, our top two women's items were the 311 and the 721, and they're both skinny jeans. So the news, as Mark Twain once said, the news of my death has been greatly exaggerated. Skinny jeans, I've been known to say skinny jeans will never die. having said that the looser jeans are still a thing they're definitely the trend half of our revenues on bottoms this past quarter came from the looser baggier fits but our top two women's bottoms items were the 311 and the 721 so the skinny jean is not going anywhere anytime soon rises You know, for a long time, we were marching the rises up. We had the rib cage, you may remember, about 18 months ago. That was the look back then. Rises are now coming down. And we're not quite to hip-hugger territory yet, but the mid-rise gene is kind of the hottest item right now. And I think we're going to continue to see this shift from high to mid and maybe even mid to lower rises as we go forward. Thank you for that.

Thank you.

Thank you. Our next question comes from the line of Matthew Boss of J.P. Morgan. Your question, please, Matthew.

Great, thanks. Great, thanks. So maybe two things. Chip, could you speak to pricing power for the brand into next year and also the overall health that you see for the brand in Europe today? And then maybe Harmeet, could you just outline the fundamental drivers as we think about over the course of the next year and more so the back half of the year, what level of visibility you have in the improvement in top line as we think about the back half?

Bill, you want to go first? Yeah. So let me just talk to the pricing power of the brand. One of my favorite sayings is a brand has good brand strength when you don't have to hold a prayer meeting to take pricing. We've taken pricing over the last 18 to 24 months. Our AURs were up 6% for the year, and that was driven fundamentally by pricing. You see it in our gross margins. Our gross margins are up nearly 400 basis points from 2019. The Levi's brand itself gross margins are over 60%, and we grew gross margins by about 20 basis points, and we were able to build share through all of that. The brand equity, as we measure it, we measure it very detailed every quarter in our top 10 markets around the world. Our equity remains really, really strong. We're not seeing any slippage as a result of pricing. And in fact, in some markets, we own the equity for worth the money I pay for it. So the brand continues to deliver a really strong value. In Europe, Europe revenues were down 4% in constant currency. If you exclude Russia, it was down eight overall, but Russia was four points of that. The good news is we did see substantial, you know, sequential improvement from Q3 driven primarily by DTC and strengthen our core bottoms business. And even through the holidays, December was positive for Europe. So, you know, we're, we're, you know, It's still challenging there. I don't want to mislead anybody, but we're very, very confident in the strength of the brand there. The consumer will ultimately come back, and we're seeing good broad-based growth across markets like the UK and Germany. So we have embedded a little bit of caution in our outlook relative to Europe, just reflecting the challenging consumer environment there, but it's It's not because we're seeing any slippage in the strength of the brand or the equity of the brand, and pricing seems to be holding up there.

And, Matt, to your question on the fundamental drivers, you know, we are going to very soon celebrate the 150th anniversary for, you know, what changed everything in denim, which is the 501. And so, you know, and we're spending money against it. You know, it's been growing at a bent-neck pace. So I think that's going to fundamentally drive the category as well as our Levi's business. I think the other key drivers, I talked about direct-to-consumer, expected to grow double-digit. You know, women's and tops, we continue to accelerate growth. Top's expected to be low double-digit, women's growth high single-digit. And then you think of the other brands that for a long time, you know, A, Beyond Yoga didn't exist, and Doctors was a drag. I think expected to both grow double-digit, you know, from that perspective. And as you know, through the year, supply chain, we've had supply chain challenges. We've not been able to fulfill demand. We think, you know, that becomes a bit of a tailwind in the second half. So that's, you know, overall the revenue growth, you know, and expectation geographically, you know, Asia, Latin America, low double digit, the U.S. and Europe, which as Chip said is exiting positively in December, growing low single digits. That's what we're thinking about. We haven't built in any dramatic change in China. It's too early and it's a small piece of our business. And so that's how one is thinking through it. In terms of the P&L, you know, cotton headwind in H1, but a tailwind in H2 because, you know, we're just locking in purchases for H2 and cotton is, you know, back to about 80 cents. So that should help.

Great color.

Best of luck. Thank you.

Thank you. Our next question. comes from the line of Jay So of UBS. Your question, please.

Hi, this is Jay. I don't know if you can hear me, but if you can, my question is on SG&A. And it looks like SG&A dollars are down about $30 million year-over-year in the trend in terms of the growth rates improving. Harmeet, can you just talk about the source of the SG&A savings and how you think about the opportunity to continue to stay laser-focused on costs as we get into the first half and then the second half of the year? Thank you.

Sure, Jay. You know, as you've seen both during the pandemic and when things turned tough in the second half, we, you know, went after controllable costs big time. And our focus on controllable costs starts with discretionary expenses. We slowed down hiring. We have slowed down hiring 423 through the year. You know, just being cautious. We are hiring where it matters. You know, we talked about the chief digital officer, Michelle, coming on board. So in areas where we think we can accelerate growth, we are still, you know, doing what is right, which is getting the right people. But generally across, you know, across the board, hiring has slowed down. In terms of – and that's what, you know, led to Q4 SG&A being down year over year. The guidance reflects, you know, SCN as a percentage going up, but that is largely driven by the volume deleverage. And we're going 1.5% next year as against, you know, growth algorithm of 6% to 8%. And so we're keeping, you know, a fair... focus on discretionary costs and keeping it low from that perspective. I think where you are going to see a little bit of spend is really in the opening of stores. We're talking about 80 net doors and growing e-commerce. And then first half, second half, I talked about spending a little bit more on advertising but keeping the full year as a percentage constant.

Okay, thank you. And then maybe if I can ask one quick one. on the EPS guidance for the year. Is there any buyback contemplated in that guidance?

Yes, there is. You know, we're going to start slow, but there is buyback, you know, contemplated as it will spread through the year as against happening on day one. You know, we've got probably a cent or two from an EPS perspective. Not a lot.

Okay. Thank you so much.

Thank you. Our next question comes from the line of Omar Sayed of Evercore ISI. Your question, please, Omar.

Thanks. Great job on the market share this quarter. A couple quick follow-ups. Maybe you could dive in a little bit deeper on inventory. What gives you the confidence that you're going to get that down to a level where you're comfortable by the second half? And also, what is the ERP? Can we talk a little bit more about what the ERP implementation enables for you guys to do with your inventory? And also, any peaks on the 150th 501 product initiative? I'm sure you're going to do a lot of marketing around that, but are there some new product initiatives around the 501 that we can look forward to as well? Thanks.

Hey, Omar. I think I'll answer the first two questions in Mentory. So in Mentory, up 58%. If you exclude the buildup for the ERP and the early receipts, it's up 35. The thing that we did very quickly early on is we cut the buys for the first half, and they're down 25%. And so I think that's in an essential part of what we think gets us to normalize inventory levels by the end of Q2. The other piece is our inventory is generally healthy. A large chunk, especially the stuff we build for the ERP, is largely stuff that we can sell through multiple seasons. The only other fact I think that's important to note The buildup of the inventory for the ERP, which is largely oriented to U.S. wholesale customers, we have the orders for most of that. So that just flows through. And so those are the things that make us believe that we can get inventory back to normal levels by the end of Q2. To your question about the ERP, as you know, a lot of retailers are upgrading The ERP, the old ERP, the SAP ERP was really, you know, something that was built for wholesale, you know, companies or brands. As the model evolved into more a DDC model, the new ERP actually provides, you know, from an operational perspective, a lot of visibility in how, you know, that is run. It's, you know, the one we are... implementing is on the cloud. The big change in the ERP and what we're seeing in Canada and Mexico, because I tell people it's not a technological solution, it actually has to lead to some real change in the business, is really access to data and data on a real-time basis. So our commercial people, our operations people, get access to data, and they can then leverage the data to actually drive business. We haven't modeled all that in our algorithm, but those are the benefits we're really seeing. Inventory management gets a lot better, and handling direct-to-consumer gets a lot better.

I'll take the 501 just real quickly. We have a year long plan kind of mapped out with product marketing. It's very, very holistic. We're going to bring product freshness and innovation. We're going to pay homage to a number of items right out of the archives. So just to give you a flavor of some of those, we're going to do several limited edition drops. One of them includes kind of what the original 1873 double X waist overalls which was the very first pair of Levi's blue jeans ever sold We're going to be doing kind of reincarnations of those that's going to that's going to be out there. We're launching the men's 501 1954 Jean the women's 501 the original women's 501 which launched in 1981 and Both vintage fits in 100% cotton. The 54 501 is really trend right for right now. It's amazing. The 81 women's jean was the first women's 501. We've also got some innovative 501s that we're going to launch. We've got a plant-based 501 that is A real sustainability, ecologically minded approach to the 501, which is comprised of 97% plant-based and bio-based inputs. It's dyed in plant-based indigo. You all have probably picked up the news that we've made an investment in Stony Creek colors. And that's you know, that's with also with a hundred percent organic cotton made at Cone Mills, which is our oldest denim partner So just a lot of good stuff there From a marketing standpoint lots of center of culture stuff music events. We've got a deep partnership with Rolling Loud celebrities influencers advertising kicks off at the Grammys next weekend or following weekend and I'm really excited about the ads. You know, more on that in a little bit. But, you know, we're putting all of our marketing muscle behind the 501 and celebrating the 150th. And everybody's got a great 501 story to tell.

Sounds great. Look forward. Thanks.

Thanks a lot.

Thank you. Our next question. comes from the line of Dana Talsey of Talsey Group. Please go ahead, Dana.

Thank you. Good afternoon. As you think about AUR for this upcoming fiscal year, how are you planning AUR go forward? And embedded within the gross margin, how are you thinking about promotions versus in the channels, DTC and wholesale? Just one last thing. Chip, you had talked in the past about wholesale accounts, whether it's Target or the others. What are you seeing in terms of order trends from the wholesale accounts, and how are you planning it? Thank you.

So in terms of, Dana, in terms of AURs, you know, we're not planning any major price increase. So the AUR, so if you think about revenue growth, think about revenue growth being, you know, equally balanced between AUR and unit volume. The AUR driven by mix more than pricing. If your question about promotion and dilution, I talked about a 50 basis points full year impact, higher in the first half, you know, much less in the second half. And most of that is largely, you know, wholesale versus direct-to-consumer. We are, you know, we're seeing some smart promotions and, you know, in our own direct-to-consumer business and it's really resonating. in terms of driving traffic. That's what driving traffic in our comp sales that I talked about. And Chip, I think.

Yeah, what I would say on the wholesale trends is right now, you know, our assessment of wholesale inventories is that they're pretty clean and back to kind of normal levels. And as we alluded to in the prepared remarks and also during the Q&A, we're seeing sell-through trends strengthen over the last couple of weeks in wholesale, and that should bode well for replenishment orders. The other big thing that we've got coming up here, as Harmeet has talked about, in the U.S. is the ERP implementation, which is going to have a dynamic between the second quarter and the first quarter as we ship customers ahead of the ERP conversion where we have to take the distribution centers down for a couple of weeks. And so, you know, that will have a dynamic between the first quarter and the second quarter.

Thank you.

Thank you. Our last question comes from the line of Ike Beruchow of Wells Fargo. Your question, please, Ike.

Hey, thanks, everyone. Hermi, congrats as well. I guess I'll just go back to the inventory. I guess, Hermi, I'm not trying to nitpick, but you're saying now that with the inventory of 58%, everything is in line with your expectations. And by Q2, you're expecting inventory to revert back to, I guess, normal. On the last call, you said you expected inventory to revert back to in line with sales growth in Q2. You're guiding sales growth down in Q2. I'm assuming that's not where you're expecting inventory to go. So it just seems like something's a little bit different than three months ago on inventory. I'm just trying to figure out exactly if you could elaborate a little bit more on the pacing of inventory or if there's anything that's kind of changed a little bit that would be helpful to understand.

I mean, we're just being cautious, Ike, given the macro environment. And so nothing dramatically has changed. Everybody's worried about holiday. Holiday for us is actually quite decent. And as I mentioned earlier, most of the inventory that has been built is inventory that's core, passes through season to season. And that's why I think you know, in our reflection of getting to normal levels by the end of Q2 is how we're thinking about it.

Got it. Thank you.

Thanks, Ike. All right. I guess we will wrap it there. Thank you all for dialing in. It's been a pleasure talking to you, and we look forward to speaking with you again at the end of our first quarter of fiscal 23. Take care. Thanks.

Thank you. This concludes today's conference call. Please disconnect your lines at this time.