Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company fourth quarter and fiscal year end conference call for the period ending December 1st, 2024. 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 fourth quarter and fiscal year end. Joining me on today's call are Michelle Goss, our President and CEO, and Harmeet Singh, our Chief Financial and Growth Officer. We have posted complete Q4 and fiscal year-end 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 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 for the year-ended December 1, 2024, 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. Reconciliation of non-GAAP forward-looking information to the corresponding GAAP measures, however, cannot be provided without unreasonable efforts due to the challenge in quantifying various items, including but not limited to the effects of foreign currency fluctuations, taxes, and any future restructuring, restructuring-related severance and other charges. This call is being webcast on our IR website, and a replay of this call will be available on the website shortly. Finally, please note that Michelle and Harmeet will be referencing organic net revenues unless otherwise noted. As described in our press release in 10K, organic net revenues exclude the impacts of foreign exchange rates, divested business acquisitions, and any 53rd week from the change in reported net revenues. 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 Michelle.

Thank you and welcome everyone to today's call. You'll hear from us today that we delivered strong Q4 results, including through the holiday season, that our strategies are driving momentum in the business, and that we are entering 2025 from a position of strength. In 2024, we took several bold steps to position EllisonCo for sustainable, profitable, long-term growth. We sharpened our focus on our core Levi's brand by exiting Denizen, announcing the exit of Footwear, and preparing for the sale of Dockers. We accelerated our DTC transformation, generating high single digit comp growth in 2024, while also expanding our store base globally. We stabilized wholesale channel trends, driving improvement in performance through the year. We advanced our evolution to become a true lifestyle apparel brand by rolling out a robust product pipeline. We launched our breakthrough campaign with global icon Beyonce, reaffirming Levi's place at the center of culture, which is driving demand across our business, especially in women. And for the year, we delivered solid mid-single-digit growth for the Levi's brand in the U.S. and internationally. We have done all of this while fundamentally changing the way we work as part of our hard pivot towards becoming a best-in-class omnichannel retailer. We have right-sized our organization, expanded our product pipeline, and and are streamlining how we work, including our go-to-market. As we look to 2025, this transformation will continue, enabling us to operate with greater speed, improved agility, and more responsiveness to consumer demand. While we are just one year into this exciting next chapter for the company, our fourth quarter performance demonstrates how this transformation is accelerating both the top line and bottom line. In Q4, net revenues increased 12% on a reported basis. On an organic basis, excluding the non-comparable items in the quarter of the exit of the denizen business and footwear, the impact of the 53rd week and FX headwinds, net revenue grew 8%. Our performance accelerated throughout 2024, resulting in organic net revenue growth of 3% for the full year. The continued strength of our brand is reflected in the all-time record gross margin of 60%, which helped drive 120 basis points of adjusted EBIT margin expansion, translating to a double-digit increase in earnings per share to $1.25 this year. In the fourth quarter, we saw strong growth across every aspect of our business. As a reminder, all net revenue numbers will be on an organic basis. The momentum we saw in Q4 continued through holiday. As we elevate our capability as a best-in-class retailer, we were extremely focused on winning the holiday season. We put a number of programs in place to ensure we had the right strategies to delight our fans and equip our stylists to deliver outstanding experiences during this critical time. We had a more comprehensive holiday assortment. We were well-stocked and replenished. we delivered traffic-driving marketing in-store and online, and we staffed to service consumer demand. This led to a robust 8% growth during the November-December holiday season, marking our highest revenue for this period in at least a decade. Across the board, this was a strong quarter, driven by consistent execution of our strategic priorities, which, as a reminder, are being brand-led, DTC-first, empowering our portfolio. First, we'll walk through the progress made against our brand-led strategy, which centers around how we're amplifying the power of the Levi's brand through an innovative and fresh product pipeline and culturally relevant marketing. For the quarter, the Levi's brand was up 8% driven by strong growth across categories and genders. Let's start with the women's business. The momentum we have seen in our Levi's women's business this year continued into Q4, growing 12% and delivering nearly 2 billion in sales for the full year. This was driven by continued share gains in the US, now firmly placing Levi's as the number one women's denim brand on a 12-month basis, a significant milestone for our company. And our Levi's men's business accelerated from approximately flat through Q3 to a mid-single digit growth in Q4 as we introduced more newness to our assortment, especially loose fits, and as the wholesale business strengthened. Our global marketing initiatives continue to help drive demand across all channels of our business. Before our last call, we launched the first chapter of Reimagine, our campaign with Beyonce. This partnership is having a significant impact on brand affinity within our target consumer demographics. while supporting our focus on growing our women's business and owning denim lifestyle. We're excited to launch the additional chapters of Reimagine throughout 2025, with the next iteration coming soon. A year ago, I shared my commitment to elevate our denim authority and evolve into a full lifestyle apparel brand through an expanded product pipeline and introduction of new innovative platforms. I am pleased to share it's working. In 2024, we delivered a significantly expanded product assortment with newness across categories, fits, and fabric. This innovation is fueling growth with consumers more willing to pay full price. And we continue to see strong performance in our core offerings as well, such as in our most coveted icon, the 501. In the quarter, our Levi's Bottoms business was up 8%. driven by strength in both men's and women's. We continue to see outperformance in loose and baggy fits, driven by new fit launches like the XL and ribcage wide leg for her and the loose 568 and relaxed 555 fits for him. This year, we made significant progress expanding our authority as a head-to-toe denim lifestyle brand. As the authentic purveyor of Western wear, we are continuing to drive the broader trend across genders, with our iconic denim western tops, shorts, jumpsuits, and dresses. We have also seen a strong response to the denim outerwear offerings which we launched in time for the holidays with styles like the super puffer and spade trench. And we continue to feel growth in one of our newer categories, dresses and skirts, with relevant fashion, newness, and expanded assortments. With respect to expanded lifestyle categories for men, we continue to see strength in men's non-denim bottoms fueled by our XX Chino series, as well as our TechCamp platform. Given the strong consumer response, we will continue to expand that platform in the coming year with new, elevated offerings. Over the last year, the product team has been hard at work to deliver an end-to-end reset of our Levi's Tops business, and we're seeing encouraging results with this business up 8% in Q4. Growth was fueled by elevated essentials, blouses, and button-downs. which we expect to sustain as consumers begin to see us as a destination for these categories. Looking to 2025, we will lead the trends with another exciting pipeline of newness and innovation. This spring, we will assert our denim leadership through the introduction of our latest innovation, linen plus denim, while building up our momentum in loose and baggy with additional launches to come. This will be complemented with an expanded assortment of lifestyle categories, such as tops, dresses, and outerwear, all rooted in denim. Now shifting to our strategy to be DTC first. Our global direct-to-consumer business delivered another quarter of double-digit growth, up 14%, and posting its 11th consecutive quarter of positive comps. Over the past year, we have been laser-focused on our retail fundamentals, which translates to an improved consumer experience. Along with broader assortment and better in-stocks, our enhanced retail execution is driving increased conversion and a mid-single digit increase in AUR. We are also seeing strong incremental performance from our new stores. In Q4, we opened 33 net new stores, including one in London's iconic Knightsbridge neighborhood. and two large format stores in India and Malaysia as we continue to expand our DTC presence in Asia. Our e-commerce growth was again very strong, up 14%, and importantly saw further margin expansion in 2024. For the full year, global DTC was up 11%, approaching 3 billion. This represents 47% of total global net revenues, four points ahead of last year. Our global wholesale business continues to be a critical part of our business and inflected to growth this quarter up 3%, exceeding our expectations driven by strong performance in the U.S. and growth in Asia. Within U.S. wholesale, the Levi's brands were up 4%. Retailers are responding to the significant amount of newness across our assortment, which is driving an acceleration in the men's business. And while we're encouraged by our performance in the quarter, we continue to approach this channel cautiously. As expected, Signature, our value brand, returned to growth in the quarter, driven by the success of some of our core fits, like the Signature men's athletic fit. Now turning to our third strategy, powering the portfolio. In Q4, our international business grew 9%, led by strong performance in our top four international markets, Mexico, France, the UK, and India. Dockers was up 5% in the quarter, reflecting broad-based growth across channels and geographies. Profitability exceeded prior year, driven by higher sales volume and gross margin expansion. Beyond Yoga was up 4%, on top of 19% growth in the prior year, and was up double digits for the full year. Our broadened product assortment is gaining traction, especially in fleece and outerwear. We are also excited to open our first East Coast store in Connecticut later this year. As we look to the year ahead, we are encouraged by the momentum that our strategic priorities are driving across the business. We are focused on accelerating our performance on both the top and bottom line by first continue to drive Levi's growth across genders and categories and create powerful brand moments. We will do this by broadening our brand relevant lifestyle assortment while maintaining our leadership and denim bottoms in our key markets. Second, Further accelerate our direct-to-consumer channels while reinvigorating our wholesale business. We will continue to hone our retail fundamentals, deliver relevant and innovative product assortments, and drive demand through engaging marketing. And third, accelerate growth across our geographic portfolio by generating profitable growth in our largest regions, North America and Europe, and leaning into the opportunities in fast-growing regions such as Latin America and Asia-Pacific, while stabilizing greater China. We will also continue to pursue a successful next chapter for Dockers as we explore a sale of the brand, and we remain confident about the prospects for Beyond Yoga to one day become a billion-dollar brand. We will deliver these priorities by focusing on operational excellence, improving the structural economics of our business, and optimizing our processes and ways of working. We have a talented and committed team in place to deliver these objectives. And we're encouraged by the progress we have achieved together in year one of this next chapter for Ellis & Co. With that, I'm going to hand it over to Harmeet to review our performance in the fourth quarter and expectations for 2025 in more detail. Harmeet?

Thank you, Michelle. We've closed out the year on a strong note with quarter four net revenues, profitability, free cash flow, and overall earnings exceeding our guidance. I'm particularly pleased with the sequential progression and improvement of our structural economics as we move through the year, enabling us to enter 25 with real momentum. Organic net revenues accelerated through the year, ending up 8% in quarter four. While DDC momentum continued through the year, wholesale ended the year strong, up 3% in quarter four. Gross margins accelerated from 59.3 in H1 to 60% in Q3 and 61.3% in Q4. Adjusted EBIT margin accelerated from 7.6% in H1 to 11.6% in Q3 and 13.4% in Q4. DDC productivity and improvement of the channel's margins by more than 300 basis points contributed to the company's overall margin expansion. For the full year, we also generated record free cash flow and improved return on invested capital that is now in the mid-teens. This momentum continued into December with a strong holiday selling season in both direct-to-consumer and wholesale, as well as a solid start to quarter one, 25. Let's briefly go through the results, starting with revenues. Revenues accelerated in Q4 and came in higher than our expectations. Outperformance in the quarter was driven by men's, U.S. wholesale, and Europe direct-to-consumer. Mexico and Dockers also returned to growth. Our references to revenues will refer to organic revenues, which, as you will hear, in 25 years overall organic revenue growth is expected to continue to accelerate turning to margins we saw significant year-over-year improvement in both gross and operating margins gross profit for the fourth quarter was 1.1 billion or 61.3 percent of net revenues an all-time record gross margin for the company gross margin expanded 350 basis points relative to last year ahead of our expectations, driven primarily by the continued benefit of lower product costs, including savings from fuel initiatives, the shift to DDC, as well as higher full-price sales. Adjusted SG&A expenses in the quarter increased 17% to $880 million, primarily reflecting the expenses associated with higher sales. SG&A deleverage was driven by increased investment in ANP, higher distribution expenses as a result of our DC transition, and higher compensation incentives given our quarter four performance, offset by leverage on selling expenses, which we achieved through greater focus on store profitability. For context, SG&A will end the year at 49.8% of revenues, and we expect the percentage to be broadly the same in 2025. Gross profit dollars increased by 19% and outpaced adjusted SG&A dollars growth, leading to EBIT leverage. Adjusted EBIT margin increased 120 basis points to 13.4% in quarter four, and 10.2% on a full year basis. Adjusted EBIT dollars grew 23% versus last year for the quarter and 17% on a full year basis. Adjusted diluted EPS of 50 cents was up 14% to prior year for both the quarter and the year. We ended the year with reported inventory dollars down 4% to prior year. Turning to dividend and share repurchases. For the full year, we returned $289 million to shareholders, which was up 45% to prior year. This includes $199 million in dividends, up 4% versus prior year, and $90 million in share repurchases. In quarter 1-25, we declared a dividend of 13 cents per share, an increase of 8% versus prior year. And we remain committed to returning capital to our shareholders in 2025. Now let's review the key highlights by segment. The America's net revenues were up 9%. Higher full price sales, improved traffic trends, And better in-stock positions led to 11% growth in U.S. direct-to-consumer. And Mexico returned to growth, supported by strength in wholesale. Strength in gross margin drove operating margin of 26.5% for the segment, improving 270 basis points versus prior year. Europe net revenues increased 6% in quarter four. with all key markets delivering growth. Direct-to-consumer accelerated in the quarter up 17% from discontinued performance in e-commerce, which was up 23%. Operating margin of 18.3% was up 130 basis points to prior year. Asia net revenues increased 9% compared to prior year. DDC net revenues increased 8%, led by strength in company-operated stores, in addition to wholesale net revenue, which were up 10%. We saw real momentum in key markets led by India, Japan, and Turkey, which were up double digits. In China, we have reorganized our leadership team and expect this market to return to growth over time. but with modest expectations for 2025. Operating margin of 8.4% contracted 360 basis points through last year, primarily due to the marginal loss in the China business, as well as from higher spend in DDC expansion and advertising. Now let's turn to our fiscal 25 and Q1 25 outlook. We are pleased with our Q4 results and the momentum into Q125. However, we recognize there continues to be a lot of uncertainty related to the macro environment, potential tariffs, changes in the tax code, as well as worsening foreign exchange. While we have a number of initiatives that we believe will help us to drive organic sales and earnings in the next few years, the best approach for us is to plan prudently. We expect fully organic net revenues to grow 3.5% to 4.5%. As a reminder, net organic revenue growth excludes FX, the exit of Denizen and Footway, and the impact of the 53rd week. Based on current FX exchange rates, currency is expected to be a 250% Basis points dragged to 25, revenues primarily driven by the euro, Mexican peso, and the Indian rupee. The impact of denizen and footwear exits and last year's 53rd week will collectively account for 300 basis points headwind. Incorporating all of these items, reported net revenues are expected to be down 1% to 2%. By channel, our expectations include high single-digit organic growth in direct-to-consumer for the full year, driven by positive comp sales, opening of the new doors, and continued growth in e-commerce. And in wholesale, while encouraged by recent results, we are taking a prudent approach to planning this business and expect the channel to be flat for the full year on an organic basis. Turning to gross margin, we expect fully expansion of 100 basis points to approximately 61%. This reflects continued benefits from lower product costs driven by project fuel savings, continuous structural shifts to DDC, international and women's, and the benefit from exiting a lower margin denizen and footway businesses. We expect the fully SG&A rate to be approximately 50% about flat to 2024. The continued expenses associated with growing DDC are offset by cost management initiatives as we continue to improve the structural economics of this business. This translates to an EBIT margin of around 10.9 to 11.1%, a significant expansion from prior year. We expect our full year effective tax rate to be approximately 23%. This reflects the normalization of our tax rate after realizing benefits from our strategic tax planning in the previous years. As a result of these assumptions, adjusted diluted EPS is expected to be in the range of $1.20 to $1.25. including an approximate 20 cent headwind from the higher tax rate and foreign exchange. On the CapEx line, we plan to invest approximately 260 million, primarily to support store openings, fleet improvements, and our digital business. After opening 100 net new doors in 2024, we expect to have 50 to 60 net new system doors this year, positioning us to exit 25 with around 3,500 stores. Now turning to the first quarter, we expect organic net revenue growth of 3.5% to 4.5%. This excludes approximately 3.5 points of foreign exchange headwinds and two points attributable to the exit of Denizen and our footway business, which implies being down 1% to 2% for the quarter on a reported basis. Gross margin is expected to be up between 150 to 200 basis points, and EBIT margin is expected to be between 10.2 to 10.5%, expanding 120 to 150 basis points versus prior year. This translates to an EPS of approximately 26 to 28 cents which includes a two to three cent headwind form for an exchange. Our 2025 guidance is grounded on a balance of both organic revenue growth and margin expansion. Over the last several years, we've made a concerted effort to become a leaner, more efficient, focused, and profitable company. This strategy is paying off in the form of faster growth, higher margins, and improved returns as evidenced by organic revenue growth progressing from flat in fiscal 23 to 3% in 24 to 3.5 to 4.5% expected in 25. Gross margins progressing from 56.9% in 23 to 60% in 24 and 61% expected in 25. Adjusted EBIT margins progressing from 9% in 23 to 10% in 24 to 11% expected in 25. Free cash flows moving from over 100 million in 23 to more than 600 million in 24. And ROIC has improved from 12.9% in 23 to 14.9% in 24. Overall, 2024 firmly established the foundation of our ongoing transformation to a DDC-first denim lifestyle company. We're exiting the year with momentum, and I'm confident that we're improving the structural economics of this business as we set our eyes on becoming a $10 billion company with 15% operating margins. And with that, I will open up the call for Q&A.

Thank you. The floor is now open for questions. If you have a question, please press star, then the number is 11 on your telephone keypad. Due to time constraints, the company requests that you ask only one question. If you have any additional questions, please queue up again. If at any point your question has been answered, you may remove yourself from the queue. Our first question comes from the line. of Jay Soule of UBS. Your question, please, Jay.

Great. Thank you so much. I guess a couple questions. First, you mentioned that the first quarter data is good. Obviously, you gave some guidance talking about forgetting growth, I think, of 3.5% to 4.5% for Q1. Can you talk about how December went? Obviously, it's a key month in the holiday season. And at the same time, can you maybe dive into Q4 data? maybe give a little bit more color on the drivers, you know, quantifying if possible. And then on the tax rates, you know, if it's all about the tax planning, is there a global minimum tax impact? Those are the three questions that I have. Thank you.

Hey, Jay. This is Harmeet. So let me try and address, you know, your three questions quickly. We don't give December separately, but we do talk about November. which is November and December. And I'd say, you know, first we had a very strong holiday season. The U.S. continued its strength across both DDC and wholesale. So North Sember was up on an organic basis by 8%. And so, you know, and gross margin continued to improve. And so that's your perspective or your response to your December question. The second question I think you asked was SG&A. SG&A was up. We recognize that. We acknowledge it. It's higher than prior on our own expectation. But as we plan 2025, we're confident that SG&A will be in line as a percentage of revenue as where we ended 2024. So what drove the SG&A? increase. I would say half of that was volume and compensation incentives and the other half was probably Q4 specific items. The higher sales and higher comp was about half. The other specific items, first higher advertising, that's a combination of two things. The majority of the increase year over year was because in 23, you know, as we took pricing reductions to offset that. We did cut advertising. So we've normalized that in Q4. And the other piece was in the new Beyonce campaign. The other thing we did do, we did spend a little bit more on demand advertising because e-commerce, you know, as we enter the holiday season in November was fairly strong. And we just, you know, ensure that that trend continued, which was reflected in December. The 53rd week was about 25 odd million dollars. That's the extra expense. And then we had distribution expenses related to the cutovers from Canton and our distribution center in Germany. Overall, as you can see, we still grew EBIT margins by 120 basis points. So in 25, our expectation is is that this growth rate you've seen in SG&A will not continue. Our SG&A as a percentage of revenue will be around 50%, as I said in my prepared remarks. And we have already seen in December SG&A rate normalized. And so we're confident that SG&A in 2025 would be at normal levels. Your third question, I think, was about tax. The last few years, you know, we have largely, we had foreign tax credits that were expiring. So our tax planning strategies were undertaken to offset the expiring foreign tax credits and that, you know, made a difference to the tax rate. Given that the remaining foreign tax credits are not material, we believe the tax rate normalizes in 25 at around, as I reflected, in my script at about 23%, which still, you know, if you compare ourselves to a lot of our peers, still is, you know, relatively competitive.

Got it. Okay. Thank you so much.

Thanks, Jay.

Thank you. Our next question comes from the line of Paul Kearney of Barclays. Please go ahead, Paul.

Hi. Good evening. Thanks for taking my question. Can you talk about your outlook for the wholesale channel into 2025 to be flat? What is driving the conservative outlook and anything that you can share on the order book by geography? And my second question is, can you talk about the drivers of improvement in the DTC margin and the potential to further expand that? Thank you.

Sure. Hi, Paul. It's Michelle. I'll take the first part of your question regarding wholesale and then Harmeet will talk about DTC profitability. So first in regards to wholesale, know and global wholesale i'll start there um you know we were pleased that we saw an inflection to growth uh in the fourth quarter we were up three percent globally up four percent in u.s wholesale for the levi's brand so that includes both red tab and signature and i'd say simply that was driven by better execution on our part better in stocks we actually had to chase some items that were selling through um so i felt good about that and then secondly In regards to our customers being excited about our fashion fits, especially loose and baggy, and then our broader lifestyle assortments. More women's, more tops, and like I said, overall, more fashion. To your point, we are guiding flat for the year as we look forward. Order books in Europe are positive. I will say that. But we're taking a prudent stance on this because we have over time seen some volatility. in the in the channel but like i said we're encouraged with the underlying health and the results we saw in the fourth quarter there's nothing unusual expected as we look forward it's just that we are like i said being being prudent given our experience with the wholesale channel over the last couple years and paul um first paul welcome to the levi's coverage um the your question on ddc uh profitability uh

Overall for the year, DDC Profitability, as I mentioned, was up 380 basis points. It's a combination of higher productivity on the top line as well as better management of the store. Let me talk to you about a few things that we're doing. First, we have really streamlined our selling model. by making sure our stylists and the store associate really focus on selling. We're really looking at our compensation incentive program so that people are geared around both the top line and bottom line. We also really refined our labor model and we're seeing efficiency across that line. And we're just getting started. We started with the US. We're taking it to other parts of the world. And we're really upgrading our systems for better forecasting and better inventory management. So those are the factors that have really driven better throughput and higher EBIT margins. And as we have this ambition to be a DDC-first-led company where DDC is going to be you know, 55 plus percentage of our business driving a higher productivity and profitability in DDC is important. So we're making a lot of progress there. The other thing that's happened beside improvement in stores is our e-commerce profitability, you know, as e-commerce has ramped up, has also dramatically improved. And e-commerce profitably fully loaded is now in the low double digits. So those are the, you know, two, things that are helping drive the profit on our direct-to-consumer business.

Thank you very much. You're welcome.

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

Great, thanks. So, Michelle, could you speak to health of the denim category, exiting holiday, maybe larger picture? in the U S and Europe and just your overall confidence in the three and a half to four and a half organic for 25, any new categories that you're prioritizing and what you're seeing from pricing power for the brand?

Yeah, you bet. Thanks for the question, Matt. Um, so first what I would say, if we look at the dish this year, the global denim market, um, the growth has been about one to 2% globally. And as you know, from our overall 3% growth, that was both organic and as it turns out reported thereabouts, we were ahead of the market. So we feel good about that. Relative to your question in the US, I would say apparel and the denim market continues to be under some level of pressure. And so it's paramount for us to continue to maintain and grow share. And I'd say overall, we feel good about that. I mean, as you know, in the men's area, we have the leading market share by a mile and we're holding steady to that. If you look at us and we generally look at a past 12 months and now for women's we are firmly in the number one position in number one in the US for market share. And that's, that's a big milestone for the company. So, you know, I would say there's not been a ton of change in the overall market. Maybe globally it has slowed just a little bit, but As we look out, the forecasts are generally the same. The global market is expected to grow in that mid single digit range. So I would say that about about the overall market share. One piece to note, and this will pivot me to 2025, is I think an important thing is we no longer just think about our opportunity as denim bottoms. Right. We think about expanding our total addressable market or TAM, as we call it. But this is really about this evolution from our business is denim bottoms to our business is total head-to-toe apparel rooted in denim. And so when you think about that, it really expands our lens of what's possible in terms of the bottoms business, tops business, and head-to-toe. We also see trends in the marketplace. So When you think about denim trends, that's one thing, but if you look at other categories like active, active athleisure, that category continues to grow. We're seeing, I'll get to this in a moment, around men's in total non-denim, but like in our new tech platform for men's, which is Levi's way of doing sort of this athleisure, we're seeing nice growth there and that will continue. It always has to be true to the Levi's brand. And then coupled with, of course, our Beyond Yoga brand, which is in its early days, but we do believe that has a lot of potential, a billion-dollar brand someday. And when we look at the long-term on the active category, those prospects continue to be very, very good. But within what we look ahead, within both the U.S. and globally, we see a lot of upside in core denim, in denim dressing, in denim lifestyle for men and women. And just as a side note, while We have a very stronghold lead market share in men. Women's, as you know, we're underpenetrated. So we're at 36% this year, which is a gain from last year. But over time, that should be 50% of our business, right? That's new customers. It's increasing frequency with existing customers. There's just a lot of upside. You know, as we close out the year, as we said just now in our remarks, you know, we're proud of how we ended the year. We had a strong finish. I mean, 12% reported, but really our core metric of 8% organic growth is really strong. And we saw that across all channels, all geographies and all categories. And so, and that momentum is being directly driven by our key strategies, which will continue. So we made, you know, this year was a pivotal year We made a lot of changes. You know, we've been doubling down on the Levi's brand. We've exited some businesses. You know, we're exploring a sale of Dockers, as you know. But with this focus, it allows us to really accelerate those core strategies that are driving the business. And I would say, well, you know, maintain and maintain leadership in men's, you know, ensure resiliency and stable, modest growth for wholesale. the real accelerations on the business are going to be these under-penetrated areas like women's, like denim lifestyle, call it tops, skirts, dresses, et cetera. And of course, direct to consumer, which is our overarching strategy. So as we look to the year in driving 3.5% to 4.5% organic, which is a step up from our 3% organic this year, it really is about executing the playbook that is working today. And then, you know, I just have to, you know, put out there that while we're confident in the continued strength, like I said, in women's and DTC, in non-denim bottoms, in men's and women's, in direct-to-consumer maintaining comp growth, econ, et cetera, that we're also doing this more profitably with, you know, expectation that growing EBIT margin by another just shy of 100 basis points. So, you know, speak for Harmeet and I, but we feel like we have very strong plans in place to achieve these objectives.

It's great, Paula. Best of luck.

Thank you.

Thank you. Our next question comes from the line of Brooke Roach of Goldman Sachs. Please go ahead, Brooke.

Good afternoon, and thank you for taking our question. Michelle, I was hoping you could contextualize the opportunity that you see for organic growth next year by region. Is there anything that we should be contemplating where you see more or less opportunity between the Americas, Europe, and Asia within the context of the 3.5% to 4.5% guide? And then for Harmeet, I was hoping you could help us contextualize the opportunity for margin expansion. Are there any quarters where we should be considering higher or lower margin rates either on gross margin opportunity or on SG&A leverage.

Thank you so much. So Brooke, I'll take the first one since you asked for color on that. I mean, you know, as we think about the three regions, as you said, the Americas, Europe, and Asia, say broadly speaking, we're expecting low to mid single digits in the Americas, mid single digits in Europe, Asia, mid single digits. And I think overall, you know, that really goes hand in hand with those core strategies that I was just referring to, around really betting on DTC in every region, having, you know, overall for the year, stable growth in wholesale, the women's opportunity, and then the denim lifestyle opportunity. You know, Harmeet may want to add a little color to that, but I think that's overall what you should expect.

Yeah, and Brooke, to your question on gross margins, first let me contextualize what is going to drive gross margins for 2025. You know, we have indicated 100 basis points of gross margin expansion. And just to reinforce, we've been growing gross margin now for a while. I think when I joined the company, it was close to 50%. 12 years later, it is 60%. Last three years, it's grown nicely. And next year, we believe it'll expand by 100 basis points. It's a combination of factors. The first, I would say, improvement in cost of goods sold. This is less about getting better rates from our vendors. It's a lot to do with what we're doing in Project Fuel and the transformation. Fewer SKUs, making sure that we use fewer fabrics, etc. Just thinking about this a little differently. And that's why we believe these benefits not only happen in 2025, but continue for a while. The second is the structural mix. You know, DDC growth, international growth, women's growth, all structurally helping gross margins. And the third is this real focus on full price, especially as a product at home and in making sure we're able to sell more on full price over time. So that's really, you know, why we believe gross margins will continue to improve. And as we ensure that the SG&A increase year-over-year at JRAS is modest that drops onto EBIT. SG&A also, the modest growth is also driven by, you know, we're not naming what the project fuel impact is in 2025 largely because it's embedded in each of these lines, but, you know, we're doing a lot to make sure our organic costs are under check and in service to a DDC-first enterprise. To your question about timing of gross margin, our view is that the first half, the gross margin expansion will be higher. Again, it's a question of what happened last year, but also with all these other things we're doing on fuel, I think the first half will probably be in the 150, 200 range, and the second half, quarter three is probably higher. you know, half of that. And quarter four is broadly flat, largely because we had a very strong quarter four. This is our expectation at this time. You know, and as the quarters evolve, we'll give you more information.

Great. Thank you so much. I'll pass it on.

Thank you. Our next question comes from the line of Tracy Cogan of Citi. Your question, please, Tracy.

Hey, guys. It's actually Paul Legere. Can you talk about what square footage growth was in F24 and what you're planning it to be in F25? And I think you gave the store opening, so could you talk about that by geography? And also, if you could share what comp performance has been in the stores that have entered comp days in year one.

Thanks. Yeah. Paul, we don't necessarily give square footage. But I would say, generally, our new stores that we're opening are between 2,500 to 3,500, 4,000 square feet. Asia is more towards the 2,500. I think Europe is more in between the two, and the U.S. is more towards the 3,500, 4,000. We're trying to open stores in that range. We don't open a lot of flagships, so there's not a lot of, large stores and largely, and that allows us to drive productivity, you know, from that perspective. To your question, how many new doors did we open? And these are, you know, we're moving to more system doors, which is a franchisee as well as us. Franchisee, you know, we have of our three, you know, close to 3,400 doors at the end of 2024. I would say, you know, we operated about 1,200 or so doors and the franchisees, you know, largely operated the rest. And I think, so in 2024, we opened as a system a little over 100 doors. We also took back Columbia, which is not in the hundreds. And Columbia was a distributed market. That was close to 100 doors in 2013. I think we open close to 100 system doors. In 25, in our view, it's 50 to 60 at this stage, largely because we do want to focus on growing our comp sales and system sales as we've done in the past. And so that's why we're keeping a 50 to 60 number. Where are these doors opening? I think Asia, bulk of the doors are in Asia. and followed by Europe, followed by the U.S. U.S. are those mainline doors that we had opened over the last couple of years are really performing well. So over time, we'll step up the number of doors in the U.S. And so you'll see that progress. The other thing is the 50 to 60 for 2025 also incorporates two things. In the past two years, we opened Dockers doors as we intend to sell Dockers. We have completely shut that right now. And then we're going slower in China for obvious reasons. As the business underperforms, we want to really hunker down, make sure that our existing doors perform better before we start expanding. I don't know if that answers your question, Paul.

It does. And I guess the last one was about comps.

Yeah, so the comps, you know, I think Michelle in a prepared remarks talked about high single-digit comps for last year. And the fact that, you know, I love to say, you know, from a DDC perspective, you know, our performance is delivering a trifecta. We've been reporting... Positive comp sales now for 11 plus quarters. And the new doors are performing well. That's why we're opening doors. We also have a process here where we do a post-mortem and our hit rates, which is do new doors meet their expectation. Hit rates have dramatically improved as you build in a lot more discipline. The second piece of the DTC performance is e-commerce. E-commerce has been growing in the high teens. And the third is just the fact we're opening doors. The very few retailers I would submit to all of you that actually are delivering an improvement in all three metrics for a while. Thanks, Amit. Good luck. Thanks, Paul.

Thank you. Our next question comes from the line of Laurent Vasilescu of BNP Paribas. Your question, please, Laurent.

Thank you. Good afternoon, Michelle. Good afternoon, Harmeet. Thanks for taking my question. Harmeet, I wanted to ask on your 10K, you're now breaking out distribution costs, which I think we're up by 21% or even in absolute terms for the year, about $70 million, which I think most of that was the conversion from your own to third party logistics. How should we think about that line item for the full year in 25. And can you remind us when that happened? Was it in the fourth quarter, third quarter? Because I think we only have an annual number. And then the second question, Harmeet, you know, contour brands, I think 30% of their global productions in Mexico. Just love to get your take on how much of your sourcing comes from Mexico globally, but more importantly, into the United States. Thank you very much.

Yeah, so I'll answer the second quickly, which is and I'll also add China just for others. So as far as direct sourcing into the US right from China is less than a percent and from Mexico is about five percent. And so, you know, it's it's not material. And if there is a change in the tariff structure, we'll be able to address that because we cross-source, as you all know, from 25 countries. To your second question, Lauren, you get first prize for digging into our 10K in an hour. But to your question about distribution expenses, yes, the year was up 21%. It was a combination of two things. Maybe we should explain better in the 10K. One was we transferred distribution expenses, say, a year ago for e-commerce as part of selling. So we transferred that to where it should belong, which is in the distribution line. So that's about half of the 21%. And the second is the parallel run of the DCs, which is, you know, as we exit D.C., Canton here and transition D.C., you know, that was probably half of the, you know, so if you take the 21%, about 9% is this transfer, about 6% of the growth was the parallel running. And so the, you know, if you just look at distribution expenses, organic distribution expenses, I hate to use the word organic here, but it's about, you know, 6%. I think as we think about 20, Again, the comparable distribution expense will be probably 6% to 7% growth. There is the parallel running of the DCs, which continues for a little while in 2025. But as we said earlier, the remap of our distribution centers will drive savings beginning late 2025, early 2026, which then improves structurally the... distribution expenses, a percentage of revenue, helping us get to the path of 15% EBIT. Does that help you?

Very helpful, Harmeet. Thank you very much, and best of luck. Thank you.

Thank you. Our next question comes from the line of Jim Duffy of Stiefel. Please go ahead, Jim.

Thank you. Hi, Michelle. Hey, Harmeet. Hope you guys are doing well.

You too. Hope you're well.

As you shared, Denim Bottoms, trending well, but you know everything in the business is just Denim Bottoms. Michelle, specifically to Levi's brand, can you help us with an update on Tops, Bottoms, Mix, and update us on the size and trajectory of non-denim categories?

Yeah, you bet. You bet. So, first of all, you know, this is not an or, it's an and. And, you know, it starts with making sure that our Denim Bottoms call it authority or leadership, continues to be healthy. So it's really important that we always drive innovation in the core, like the 501, which again, for the quarter was up based on, you know, new evolutions of the 501 and fabrics and fits like the 501 90s, et cetera. And then driving the fashion fits, which right now it's all about baggy and loose, but At some point, we'll be back to tapered and skinny. I think as the designers would say today, kind of anything goes in the closet. But what we're really excited about is evolving the Levi's brand to stand for something much broader than a great pair of jeans. And, you know, as we look forward, we want to be an iconic apparel company rooted in denim. And what that means is that we have permission to go into tops and dresses and skirts and outerwear and non-denim bottoms. And we are seeing really encouraging traction on all those fronts. So if you take some of these categories, well, first, winning with women is a key strategy. We're under-penetrated there. I spoke to it earlier. We're at 36%. That business was up 12% for the quarter, 20% in DTC. And it feels like with that category, we're just getting started. Our tops business overall was up 8%. again, feel very good on the trajectory that we're seeing. We're seeing growth. I think importantly, it's not just in what we consider our traditional tops categories like batwing t-shirts and trucker jackets, but we're seeing it in essential tees, in blouses, in wovens, in button downs. And like I said, we had a great outerwear business this past quarter and into holidays. The non-denim bottoms category also doing very well, both for women and men. I think especially for men, our XX Chino platform, which we've had for a couple of years, that continues to grow and resonate. Our TechPant platform introduced first as a five pocket, now as a Chino, and we're introducing this year an elevated, call it tier two, and more to come. So I think what you hear from me is that, you know, we are really significantly broadening our addressable market for the total of Just to give you context, when we look at all things outside of denim bottoms, that's about now 40% of our business and growing. And, you know, I think especially for the top, if you just think about the tops piece, think about DTC. It's a great attachment purchase, drives UPTs, drives average ticket. And what years ago, you know, many years ago, our ratio of bottoms to tops used to be like seven to one. Right now, we're trending at two to one, you know, two tops to every one bottom. And at some point, that's going to be one to one or, frankly, even more tops to every bottom because we know from consumers they'll buy more tops than bottoms. So we're making really great progress on that front. Yeah. And so I think Q4 has many proof points, and that gives us confidence. Many of these strategies in place for 2025.

Super helpful. Thank you for that perspective.

Great. Thank you. Our next question comes from the line of Ike Burrusha of Wells Fargo. Your question, please, Ike.

Hey. Afternoon, everyone. Harmeet, I guess most of us have been asked, but just to clarify a few things. So on Dockers, so it looks like it's like a $325 million business. Can you just comment on the profitability as of last year? Is it making any money? Just so we know for when the sale kind of does go through, what to expect. And then on some of the headwinds you kind of laid out, can you just give a little bit more clarity on what's going on with Denizen? And you mentioned footwear. Maybe I don't Maybe I should, but I don't really understand what's going on with footwear. And then I thought Denizen had kind of been worked through at this point. So again, just trying to understand the sizes of those and what's going on.

Sure. So just for everybody's benefit, and I publicly say this, in our press release, we have given details of Denizen and the LFA and the 53rd week we've given it. um for the company we have given it by um segment and we're given it by channel so you guys should have it um and that's why you know we focus on the organic growth because to your question ike denizen the exit started uh in the beginning of 24 and we believe most of it uh we have exited uh we believe um there's there's about 30 million which will exit by the end of the first half of this year. Footway, we had a small footway business, really based out of Europe. And again, we felt it was not strategic. And so we have announced the exit. It'll impact largely 25. And the size of that is about a point in revenue, which is 60, 65 million, something like that. The exact numbers you'll have there. And that's why we felt it important to move to an organic revenue growth because that explains the intrinsic business that is left and will grow over time. To your question about Dockers, you're right. It's about $330 million in revenue. The gross margins are in the high 40s. The EBIT margins, you know, on an allocated basis is probably breakeven. And so that's the business that, you know, A, just for everybody's perspective, We are in a process. The process is going well, and we are confident that we'll be able to sell this business sometime in 25. Thanks, Armeet. You're welcome, Mike.

Thanks, everyone, for joining the call today, and we look forward to seeing many of you at our product preview event tomorrow evening. Thank you.

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