Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to the lead by Strauss & Company first quarter earnings conference call for the period ending February 26, 2023. 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 at LeviStrauss.com. I would now like to turn the call over to Ida Orfin, Vice President of Investor Relations at Levi Strauss & Company.

Thank you for joining us on the call today to discuss the results for our first fiscal quarter of 2023. 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 Q1 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 like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Please review our filings with the SEC. in particular the risk factor section of our Form 10-K and the information included in our quarterly report on Form 10-Q that we filed today for the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today, and we assume no obligation to update any of these statements. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. Reconciliations of our non-GAAP measures to their most comparable GAAP measure are included in today's press release. Finally, the call in its entirety is being webcast on our IR website, and a replay of this call will be available on the website shortly. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now I'd like to turn the call over to Chip.

Good morning, and welcome everyone to today's call. Coming off 26% constant currency growth in our year-ago period, we're off to a solid start to the year. We grew first quarter revenue 9% in constant currency and 6% on a reported basis to $1.7 billion, while driving strong progress on inventory and advancing the key initiatives of our strategic plan. In our direct-to-consumer business, growth accelerated to 16% in constant currency, with record DTC sales representing 42% of global revenues, three points ahead of last year. We delivered strong growth globally. Our international business grew 11% in constant currency, accounting for 56% of our total revenues. and even excluding the planned acceleration of wholesale shipments to support our US ERP implementation, we achieved solid top-line results and exceeded our expectations for EPS. Our performance this quarter clearly demonstrates our strategies are working, driven by the strength of our brands, the growth of our direct-to-consumer business, and the benefits of a globally diversified business model. We continue to make progress against our three strategic priorities, leading with our brands, prioritizing our direct-to-consumer business, and diversifying our portfolio. Please note that for the balance of our remarks, Harmeet and I will reference year-over-year revenue growth in constant currency. Starting with our first priority, leading with our brands. Beginning with the Levi's brand, we grew market share again this quarter, achieving share leadership in the U.S. amongst the key 18- to 30-year-old target consumer group, and we continued to grow share in women's denim bottoms, closing the gap to the number one position. In the quarter, the Levi's brand was up 9%, with our men's bottoms business delivering a record Q1 and women's bottoms achieving its highest revenue of any quarter. Men's bottoms grew 9% with growth across all geographic segments, and we continue to fuel momentum in women's bottoms, which grew 18%. We're planning a steady cadence of newness through the year, and we continue to lean into trends, like with our newly launched Women's XL Balloon and Naughty's Boot, and the shift in rise from high to mid and wider leg openings, all of which drove solid growth in the quarter. 2023 is an important year for the company, marking our 170th anniversary and the 150th of our iconic 501, the blueprint for today's modern blue jeans. As we celebrate the heritage of our namesake brand, we're using this important milestone to cement the next generation of Levi's fans. In February, we launched our largest coordinated global marketing campaign, The Greatest Story Ever Worn. It kicked off during the Grammys where Bad Bunny also opened the show wearing a pair of vintage 501s and has helped drive nearly 3 billion impressions with consumers worldwide. After all these years, love for the 501 has only grown and continues to experience exponential growth, a solid proof point of the strength of the brand. Q1 net revenues were up 25% on top of 50% growth last year, and revenues for the 501 this year are expected to reach close to $800 million, which is nearly 70% higher than pre-pandemic on a reported basis. As we move through the year, we're infusing energy and newness into our iconic 501 through new launches for him and her inspired by historical fits. We also have a robust lineup of collaborations planned, like our recent drop with the iconic streetwear brand Stussy, which sold out in one hour, and an exciting partnership with New Jeans, the popular K-pop girl band, furthering our ambition to engage younger consumers. Our global BTC business delivered a record quarter, up 16% versus a year ago, driven by positive comp sales and traffic growth across brick and mortar mainline and outlet stores in all geographic segments, as well as e-commerce. Our U.S. BTC business also achieved another record quarter of revenue, with especially strong performance in our U.S. flagships and larger tourist destinations. We continued our store expansion in Q1, opening 25 Levi's stores globally, including five mainline doors here in the U.S. The investments we're making to elevate our consumers' digital experience and strengthen their digital connection to our brands are paying off. Even with consumers returning to our stores in large numbers, our e-commerce business grew 14%. driven by broad-based global growth and across all brands, including Levi.com, which was up double digits. We continue to expand the breadth of our offering online while improving the user experience. Our loyalty membership was also up almost 40% in Q1 to nearly 25 million members, and this continues to translate to a higher level of spend among loyalty members. Our direct relationships with consumers and continued strong performance in our international wholesale business helped mitigate the impact of softer U.S. wholesale revenue. Global wholesale grew 4%, driven primarily by Asia and Canada. In the U.S., we accelerated approximately $100 million of revenue from Q2 to Q1, primarily due to our Q2 ERP implementation. As a result, our U.S. wholesale business grew low single digits on top of last year's strong 25% growth. Additionally, while our core consumer has generally remained resilient, we continue to experience demand softness from the value-oriented consumers, most notably impacting our signature and Denison brands. As for our diversification strategy, we continued the strong momentum we have achieved in each of our major growth opportunities with international, women's, tops, and our other brands, Dockers and Beyond Yoga, each contributing positively to the first quarter growth. International revenues were up 11% or 14% excluding Russia. Europe saw 6% growth, excluding Russia, with most markets growing, including our largest markets of France, the UK, and Germany returning to growth. Asia continued its strong momentum, up 22%, as we experienced growth across all markets other than China. In China, after the zero COVID policy was lifted, we have seen a bounce back in traffic, with our latest results trending back to pre-COVID levels. Total company women's revenue grew 12%, led by strong double-digit growth in both the Americas and Asia. Our COPS business grew 4% following 16% growth last year, with strong performance in our DTC channel, up 12% for both women and men. And our other brands performed well in the quarter. Dockers continued to build momentum with net revenues up 29%, driven by broad-based double-digit growth across geographies and channels, with DTC especially strong. Docker's e-commerce remained robust, with over 30% growth, in part supported by increased repeat customers and the brand's loyalty program, which is now driving over 30% of sales in this channel across the U.S. and Europe. And Beyond Yoga continues to make solid progress with revenues up 11%, driven by DTC, AURs, and volume, and continued success with the brand's expanded line of dresses. Our first two stores are off to a good start with two more planned to open in Q2, along with several further openings through the balance of the year. finally michelle goss has now been with the company for a hundred days as company president responsible for the levi's brand and our global commercial and digital operations as i expected she and i are working together really well with both of us determined to make this a very successful transition she has not surprisingly landed great inside the organization establishing her leadership very clearly on her business Her deep retail and e-commerce experience is obvious to the organization, and she is already identifying both executional and organizational opportunities, which will help us accelerate profitable growth in our DTC women's and top businesses. I was excited and confident when we hired Michelle as my eventual successor, and I'm even more optimistic about this company's future today than I was before. And with that, I will turn the call now over to Harmeet. Thanks, Shep.