Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company third quarter earnings conference call for the period ended August 27, 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, 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 third fiscal quarter of 2023. Joining me on today's call are Chip Berg, our president and CEO, Michelle Goss, our president, and Harmeet Singh, our chief financial and growth officer. We have posted complete Q3 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 you 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, this call is being webcast on our IR website, and a replay of this call will be available on the website shortly. Please note that Chip, Michelle, and Harmeet will be referencing constant currency numbers unless otherwise noted. 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.

Thank you, Ada. Good afternoon, everyone, and thank you for joining us. I'm delighted to have Michelle joining us on the call today. I'll start with some high-level comments overall on the business before passing it to Michelle, who will share her impressions and thoughts on the business after nine months. Armeet will then take you through the financials and guidance, And I will wrap up before Q&A. Overall, we had a solid quarter despite the challenging environment. Reported revenues were flat to prior year and down 2% on a constant currency basis as the strong double-digit growth of our direct-to-consumer business was offset by continued softness in the wholesale channel, particularly in the U.S. Gross margins exceeded our outlook even as we continued to make excellent progress on inventory with inventory growth now roughly in line with revenue on a comparable basis. Our disciplined execution combined with the margin upside enabled us to deliver EPS consistent with our expectations. There are three main points I want to make about the quarter and our business overall. One, the Levi's brand continues to go from strength to strength and arguably is the strongest it has ever been. This is backed up by several proof points. First, AURs continue to grow despite the pricing action we took in the U.S. wholesale at the end of Q3, primarily driven by mix. We continue to grow share with the higher-income consumer and see strength in our full-price mainline business with strong sales momentum of our Tier 1 and Tier 2 products. In addition, the Levi's brand continues to gain U.S. market share up in men's, women's, and our core 18- to 30-year-old age group. Finally, we continue to see strength in our brand equity metrics, growing our brand consideration and unaided awareness in denim across key markets. As we look forward to the holiday season in 2024, we have an exciting pipeline of product initiatives and collaborations to build upon the strength of the brand, including partnerships with Crocs, Kenzo, Denim Tears, the K-pop band New Jeans, and more. Our other brand segment also shows strength. Together, Dockers and Beyond Yoga are now generating nearly a half a billion dollars in annual revenue. Beyond Yoga had a very strong quarter, up 25% versus prior year. Despite the impairment charge we took on Beyond Yoga, which Harmeet will explain in more detail, we remain very bullish about this brand long term. We will finish this fiscal year with six retail stores, including our first store outside of California in Chicago. Two, our strategies are right. They're working and they're driving our results. I just covered our first strategic priority of driving our brands and being brand-led. Our second priority is to strategically focus on DTC, which both Michelle and Harmeet will discuss further. The DTC business grew 13% in Q3 versus prior year and comped positively in every region and across mainline, outlet, and e-commerce. Comp traffic was also up in every region and in every channel, underscoring the strength of the Levi's brand. Our e-commerce results have accelerated with 18% growth this quarter on top of the 16% growth in the prior year quarter. In the U.S., our DTC business grew 10% and U.S. Mainline, which sells our most premium product, Comp Double Digit versus year ago. While DTC is our channel priority and will continue to be a key growth driver for the company, our wholesale business remains important. It amplifies our brands, creates access for consumers, and contributes to the bottom line. However, wholesale will continue to be a smaller part of our mix over time as we drive outsized growth in DTC. Global wholesale was the drag on our business in Q3, down 10% this quarter compared to up 6% in the prior year. We're focused on the controllables to stabilize this channel, and wholesale is showing sequential improvement from the prior quarter. Early indications from the pricing actions we took in U.S. wholesale late in Q3 are positive. Exiting the quarter, we also began to see the impact of our lower inventories and improved fill rates. We expect sequential improvement in U.S. wholesale trends behind the impact of the surgical pricing actions in August and customer fill rates normalizing in Q4. This will also ensure greater newness on the floor as we head into the critical holiday period. Our third key strategic priority is to continue to diversify the company, driving growth in international, women's, and tops. Our international business continued to outpace the total company growing plus 5%, excluding Russia. Asia was again the standout, with strong double-digit growth in our three largest Asian markets, India, China, and Japan. Our women's business was up, driven by a 5% increase in Levi's women's bottoms. We continue to see a shift to low rise and ongoing strength in loose fits, where we continue to expand and evolve the assortment. Top's revenue also grew driven by strength in wovens, non-graphic tees, outerwear dresses, and polos. Finally, three, we have a strong team around the world to deliver on the strategy and our long-term goals. A big reason for my confidence in the future is my successor. I knew when we hired Michelle late last year that she was going to be a great leader for our company. as she brings 30 years of retail experience, including five years as a CEO. After working very closely together for the last nine months, I'm even more convinced that she is a great choice. One of my top priorities for this year has been to set us up for a successful and seamless succession. Michelle has been a quick study, and as you will hear, clearly sees the opportunities ahead of us, which will allow us to achieve our long-term goals. Now it's time you hear from her about her impressions and how she is seeing the future. Michelle?