Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company third quarter fiscal 2025 earnings conference call for the period ending August 31st, 2025. 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 quarter fiscal 2025. Joining me on today's call are Michelle Goss, our President and CEO, and Harmeet Singh, our Chief Financial and Growth Officer. We'd like to remind you that we will be making forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in our reports filed with the SEC. We assume no obligation to update any of these forward-looking statements. Additionally, during this call, we will discuss certain non-GAAP financial measures, which are not intended to be a substitute for our GAAP results. Definitions of these measures and reconciliations to their most comparable GAAP measure are included in our earnings release, available on the IR section of our website, investors.levisstrauss.com. Please note that Michelle and Harmeet will be referencing organic net revenues or constant currency numbers, unless otherwise noted, and the information provided is based on continuing operations. Finally, this call 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 Michelle.

Thank you, and welcome, everyone. What I'll share today builds on the themes I've been emphasizing this year as we pivot to become a DTC First head-to-toe denim lifestyle retailer. The consistent execution of our strategic priorities is driving a meaningful inflection in our financial performance. And today, I'm pleased to share that we delivered another very strong quarter with upside across the P&Ls, giving us the confidence to raise our full-year revenue in EPS guidance. In Q3, we delivered our fourth consecutive quarter of high single-digit organic revenue growth. Strength was once again broad-based across our business, including DTC and wholesale, international and domestic, women's and men's, and tops and bottoms. Our growth was led by continued strong sales and profitability in our direct-to-consumer channel, up 9%, fueled by strong comp growth as well as solid performance in global wholesale. Our largest market, the U.S., grew 3%, and our international business was up 9%, led by an acceleration in Asia. And we continue to see robust performance in our core, as well as outsized growth in our key focus areas like women's and tops. The results we've delivered this quarter against an increasingly complex backdrop are yet another proof point that our strategies are working. Looking ahead, there are several factors that give me even more conviction that our momentum will continue. First, our narrow focus enables us to maximize the full potential of the Levi's brand. We will continue to build momentum through impactful marketing campaigns, strategic partnerships, and innovative collaborations, ensuring that the brand remains firmly at the center of culture. Second, the total addressable market for denim is large and growing as consumer preferences continue to shift towards casualization. As the definitive market leader, we are well positioned to take advantage and drive growth. Third, our denim leadership puts us in a prime position to define and own head-to-toe denim lifestyle, further expanding our adjustable market. As we drive this momentum forward, we'll continue to deliver an innovative and robust product pipeline across genders and categories. Fourth, our DTC First strategy is bringing us closer to the consumer and generating consistent and significant growth, while we have also stabilized and grown our wholesale business. Both channels are seeing strong improvements in profitability. Fifth, While international already comprises nearly 60% of our total business, there are still untapped opportunities for us to grow, particularly in Asia where our business has momentum and the opportunity for continued expansion is considerable. Underpinning all of this is our culture of performance with a sharpened focus on operating with rigor and executing with excellence, from go-to-market efficiencies and more productive store operations to end-to-end supply chain improvements. I will now turn to highlights from the third quarter in the context of our strategies. All numbers that Harmeet and I will reference are on an organic, continuing operations basis. Let's start with our first strategy, being brand-led. Levi's had another strong quarter of growth. In the quarter, we launched the final chapter of the Reimagine campaign with Beyonce. This campaign delivered as intended, fueling momentum across the business, specifically driving growth in our Levi's women's business up 12% year-to-date. In August, we debuted our new global campaign starring Shaboosie, underscoring our relevancy and authenticity with men. The campaign showcases our most iconic products, the 501, the trucker jacket, and the Western shirt, and we're pleased with how this campaign is being received by our fans. In addition, we also cultivated enthusiasm for the brand through a broad range of collaborations, including a joint collection with Nike fusing Levi's heritage denim craftsmanship with Nike's athletic sneaker culture. Our collaborations generate brand heat and introduce Levi's to new consumers. And just this week, we launched a special collection with Toy Story in celebration of their 30th anniversary. Turning to product. Our evolution to a head-to-toe denim lifestyle retailer continues to gain momentum, all while strengthening our position as the global authority in denim. Our Levi's women's business continues to deliver outsized growth, up 9% in Q3, while our leading Levi's men's business grew a solid 5%. Driven by our diversified fit portfolio, we saw strong growth in our bottoms business, which was up 6%. We're continuing to inject newness into the looser fit trend with the new baggy utility silhouettes for him and the launch of our baggy dad barrel for her. And we're driving a revival in low rise with our low and super low collection of fits, which are delivering strong growth. As we evolve into denim lifestyle, we're making meaningful progress on our seasonally relevant assortments as consumers look for more buy now, wear now products. Following last year reset, tops continued to drive notable growth, up 9%, with strength across women's and men's. For the quarter, our shorts business delivered strong growth across genders. We continue to infuse newness into the assortment through fit and fabric innovation from our linen blend styles to the launch of the 501 curve. And with respect to our premiumization efforts, we began to roll out our elevated blue tab collection to Europe in early September, following a successful launch in Asia and the US earlier this year. Blue tab merges Levi's iconic aesthetic with the refined quality and thoughtful Japanese craftsmanship. Looking to the holiday season, we are well positioned with the right merchandise assortment and the right marketing campaign. We're expanding the range of occasions and amplifying the many ways that fans can embrace our denim lifestyle assortment through elevated fabrics, textures, and embellishments. We're excited to showcase Levi's through a fresh lens that reflects the season's full spectrum of style. Now shifting to our strategy to be DTC first. Global direct-to-consumer sales were up 9% driven by strong performance in both our stores and online. We generated high single digit comp growth fueled by higher UPT, AUR, and full price selling as our expanded denim lifestyle assortment continues to resonate with our consumers around the world. And as we continue to grow our DTC channel, we remain focused on doing so profitably with our productivity initiatives resulting in more than 400 basis points of margin expansion in the quarter. We're pleased with the strong results from our store optimization initiatives, which have improved both the consumer experience and store productivity. We've enhanced our in-store lifestyle merchandising to make the store environment more inspiring and shoppable, highlighting our broader assortment of head-to-toe looks. We've also been focused on improving our assortment planning and lifecycle management, resulting in lower promotions and higher full-price sellings. Additionally, we're in the process of rolling out a new global selling model for our store team, which, coupled with our enhanced labor scheduling system, is improving the consumer experience and delivering operational efficiencies. We had another quarter of very strong growth in e-com, up 16%, driven by an increase in traffic across all segments. We expect e-commerce to continue to be our fastest-growing channel on the path to comprising 15% of our total business, up from just 9% today. In our wholesale channel, net revenues were up 5%, reflecting growth across all segments. In the U.S., the Levi's brands were up 2% as we continue to invest in top doors and expand and elevate our assortments. Western Wear is core to who we are, and we're pleased to have recently expanded our product assortment with Boot Barn and gained a new distribution at Cavendish. We also see opportunities to increase our penetration with premium and specialty accounts as we broaden and elevate our lifestyle assortment. Now turning to our third strategy, powering the portfolio, our international business grew 9% in Q3. Asia accelerated in the quarter, driven by double-digit growth in key markets like India, Japan, Korea, and Turkey. I recently visited several stores across India, Korea, and Japan, And it is clear that consumers are responding to the work we've done to ensure the best expression of our denim lifestyle assortment. Japan in particular is a market with a very high bar for denim. We've been investing in Japan over the past decade, transitioning the market from primarily a wholesale business to now close to 75% DTC. Walking our stores in Nagoya, Shinjuku, and Harajuku, which are some of our highest volume stores in the world, you'll see the fullest and most premium expression of the Levi's brand. Up almost 50% since 2019, and continuing to gain momentum, we remain optimistic about future opportunities in Japan, and we will replicate our successful playbook in this market across the globe. Beyond Yoga was up 2%, and DTC was up 23%, driven by comps, new doors, and e-commerce. Growth in DTC was offset by a decline in wholesale as the team focuses on higher quality sales in the channel. Looking to Q4, we have additional stores opening in Boston, Houston, and two more stores in Northern California, bringing our total store count to 14. We expect Beyond Yoga to end the year up low teens versus prior year. In closing, we delivered another standout quarter with sales and earnings growth that positions us to increase our outlook for the year. We are fully prepared and well positioned for holiday as we enter the season with momentum. Despite an increasingly uncertain external backdrop, we have several tailwinds that give me confidence in not only delivering a strong finish to 2025, but also another strong year in 2026. Finally, I'd like to thank our incredible, talented, and passionate team for driving our transformation into the world's denim lifestyle leader and delivering outstanding service to our fans every day. And with that, I will turn it over to Harmeet to provide a financial overview of the quarter and our expectations for the remainder of the year. Harmeet?

Thanks, Michelle. In quarter three, we delivered strong financial results exceeding expectations across sales, gross margin, EBIT margin, and EPS. We remain focused on establishing a strong track record of consistent execution and results. The strategic transformation across our organization has enabled us to evolve into a higher performing company with stronger revenue growth, expanded margins, improved cash flows, and higher returns on invested capital. Given the outperformance in quarter three and continued strong trends, We are also raising our revenue and EPS outlook for the year, despite incorporating higher tariffs than assumed in our previous guidance. Now turning to our quarter three results. Net revenue grew 7%, reflecting the power of our diversified business model. International markets drove approximately 75% of our growth, and the U.S. contributed 25%. This international strength reflects our continued expansion and brand resonance in key markets globally, while our U.S. business maintained solid underlying momentum. By channel, growth was evenly balanced between wholesale and direct-to-consumer, each growing and contributing roughly 50% of our revenue increase. This balanced performance underscores the success of our ddc first strategy while maintaining strong partnerships in wholesale by gender women's contributed approximately 40 percent of our growth with men's accounting for the balance we continue to execute against our strategy to capture greater share in our under penetrated higher gross margin women's segment while a large men's business continues to generate solid growth as we fuel momentum in the category. Turning to gross margin performance, we delivered another strong quarter with a quarter three record gross margin of 61.7% of net revenues, expanding 110 basis points versus the prior year, more than offsetting 80 basis points of tariff headwinds. Three key drivers fuel the continued expansion. First, our structural business mix continues to evolve favorably with the accelerating shift towards higher margin DDC international and women's categories. Second, targeted pricing actions we have taken across our assortment as well as higher full price selling and reduce promotion levels in our direct-to-consumer channel as consumers continue to gravitate towards newness. Third, approximately 50 basis points of the upside in gross margin was driven by foreign exchange. While we are judicially approaching pricing opportunities across our business, in quarter three, we saw a significant increase in units demonstrating healthy underlying demand for our brand. I'm pleased to report that our adjusted SG&A performance came in line with our expectations, representing less than 50% of total revenue, over 150 basis points improvement from our first half run rate. The primary factors contributing to the increase in SG&A dollars include higher performance-based compensation given the momentum in our business, costs associated with our store opening, as well as expenses associated with the transformation of our distribution network. The combination of robust gross margin and our disciplined approach to SG&A management delivered an adjusted EBIT margin of 11.8% and generated $0.34 of adjusted diluted EPS, both ahead of our expectations. Our focus on profitability as we accelerate growth has enabled us to grow both adjusted EBIT and adjusted diluted EPS up approximately 25% to prior year on a year-to-date basis. Now let's review the key highlights by segment. The Americas net revenues were up 7%. Our U.S. business was up 3%, delivering our fifth consecutive quarter of strong growth. DTC grew 6% and now represents over 40% of the U.S. market. U.S. wholesale net revenues were also up despite the challenges posed by the transition of our U.S. distribution centers. Driven by broad-based trends across the region, Latam has seen several consecutive quarters of double digit growth, including Q3, which was up 23%. America's operating margin expanded 50 basis points, driven by gross margin and revenue leverage. Europe's net revenues were up 3%. All key markets delivered growth, led by very strong performance in the UK. While weather impacted footfall in June and July, we exited the quarter with strong performance in August and we continue to expect mid single digit growth in Europe for the year. Operating margin grew 80 basis points versus the prior year from strong gross margin expansion. Asia's net revenues accelerated to up 12%. The segment saw double-digit growth in both DDC and wholesale. Operating margin increased 50 basis points to prior year. Asia is up 8% on a year-to-date basis, and operating margin for the year is up 40 basis points to prior year. Turning to our shareholder returns program and the balance sheet. In the quarter, we returned 151 million to shareholders a 118% increase versus last year. We've also closed the first phase of the docket sale. And with the proceeds, we have implemented 120 million accelerated share repurchase program and retired approximately 5 million shares with the remaining shares to be settled by the first quarter of 2026. We have returned $283 million to shareholders here today, which is substantially higher than our annual cash payout target. And for Q4, we declared a dividend of 14 cents per share, which is up 8% to prior year. We ended the quarter with reported inventory dollars up 12% driven by purposeful investments ahead of the holiday and higher product costs than a year ago due to tariffs. In unit terms, inventory was up 8% versus last year. As of today, we have 70% of the product in the US needed for holiday. Before turning to guidance, let me briefly share our updated assumptions around tariffs. Our updated guidance reflects the latest tariff rates, which include 30% for China, and an increase to approximately 20% for the rest of the world. This is higher than our last assumption, and as a result, we estimate the full year gross impact of tariffs before mitigation to be approximately a 70 basis points headwind to gross margin compared to 50 basis points previously. However, given the Q3 results and after mitigation, we continue to expect only a 20 basis points impact to gross margin. This translates to a two to three cent impact to adjusted diluted EPS unchanged from last quarter's guidance. As respects to quarter four, this equates to an 80 basis points headwind to gross margin and a three cent impact to adjusted diluted EPS. Looking to 2026, we are continuing to take actions to offset the impact of tariffs. As a reminder, these mitigation initiatives include promotion optimization, targeted pricing action, vendor negotiation, and further supply chain diversification. Now, I will turn to our outlook for quarter four and then cover the full year. While we're taking a prudent approach to our outlook, given the complex macro environment and the absence of the 53rd week, which contributed four points to the top line in quarter four of 2024, we remain confident in the underlying strength and momentum of our business. In quarter four, we expect organic net revenue growth to be up approximately 1%. And on a two-year stack, this equates to 9% organic growth. Reported net revenues are expected to be down approximately 3% because of non-compatible items, including the 53rd week, denizen, and footway, which are no longer included in the revenue base. Gross margin is expected to contract approximately 100 basis points in quarter four driven by tariffs, as well as the impact of the 53rd week. And we expect adjusted EBIT margin to be in the range of 12.4 to 12.6%. We expect the tax rate to be in the low 20s, higher than a year ago. And adjusted diluted EPS to be in the range of 36 cents to 38 cents. For the full year, We are taking our revenues up by approximately a percentage point and EPS by 2 cents. We now expect reported net revenue growth of approximately 3% for the year. And we have increased our expectations for organic net revenues to approximately 6% up from prior year. We now expect gross margin to expand 100 basis points for the full year up from the 80 basis points stated in our prior guidance, including the incremental drag from tariffs. We continue to expect adjusted SG&A as a percentage of revenue to end the year at around 50%. An adjusted EBIT margin to be in the range of 11.4 to 11.6%. As we have previously shared, we continue to expect the tax rate to be about 23%. And we are raising our fully adjusted diluted EPS range by 2 cents to $1.27 to $1.32 for the full year. In closing, our four consecutive quarters of high single digit growth and raised revenue expectations underscore the strength and resilience of our business. As we accelerate profitable growth, we are transforming into a best-in-class DDC-first denim lifestyle retailer, unlocking new opportunities and delivering greater value for our shareholders. Our discipline execution and agility have enabled us to deliver 14 consecutive quarters of DDC comp sales, expand margins, drive cash flow, and return significant capital to our shareholders, including the recent ASR and our growing dividends. With our strategic focus on high growth segments, tops, women, international and DDC, we see a long runway of profitable growth ahead. Thank you for your continued trust and support. We are more confident than ever in our future. I will now open up the line 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 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. Our first question comes from the line of Laurent Vasilescu of BNP Paribas. Please go ahead, Laurent.

Oh, good afternoon, Michelle and Harleen. Thank you very much for taking my question. I wanted to ask about your European momentum. We had a major U.S. brand caution about the European marketplace the other week again around increased promotionality. Curious to hear what you're seeing in this important marketplace. How are your European pre-books look for next spring? And then Harmeet, just on the 4Q guide, the gross margin down 100 basis points, can you maybe just unpack that a little bit more? What's the 53rd week impact on the GM? And what are the positive offsets? Thank you very much. Sure.

Lauren, thanks for calling in. So Europe is up 3% for the quarter. You heard in my prepared remarks about the weather impact, but as soon as the weather cooled, we saw Europe accelerate to double-digit growth, especially as we exited the quarter. There was some shifting in July and August, but September remained strong. We've seen growth in the quarter across both channels. DC was up four, wholesale was up 2%. Some key markets really perform. UKIP is up, you know, high, mid-teen, and high single-digit growth in Germany and Italy. If you think across men and women, women continues to be strong in Europe, and the consumer is gravitating towards a broader assortment, loser fits, 501, tops, which is our fastest-growing category. So our view is, unlike the other major brands that you mentioned, We expect to end the year up mid-single digit, and this has accelerated substantially relative to a year ago. September is off to a good start. Our pre-book for spring is up mid-single digit. Having said all that, our operating margins are also up 80 basis points. So I think that's our perspective of Europe. A big shout-out to the team on the ground that is working its way through it. On your question, I can broadly talk Q4 guidance and then I'll talk gross margins in a minute. But on Q4, we expect the momentum of our business to continue and our view is that fundamentally the underlying trends remain strong. Our Q4 guidance overall is impacted by three things. The year we're lapping, which includes the 53rd week, which helps Q4 grow. last year by four points in revenue and 20 basis points in gross margin. We do have an incremental headwind on tariffs. It's impacting gross margin first, you know, unmitigated by 130 basis points and mitigated by about 50 basis, sorry, by about 80 basis points and EPS by 3 cents. Had it not been for tariffs, our gross margins in Cordova would have been up. I mean, it's pretty factual. And then we're just taking a conservative approach to the quarter, given the complex macros, you know, there's tariffs, maybe potential impact on demand. We are not seeing it as we close out September and the continued transformation of our distribution center. The way to think about it, folks, is we're raising our fully top-line guidance to 6% organic. And if you think of the last three years, 23 organic growth was flat, 24 was about close to 3%, and this year, 6%. So as I said in the prepared remarks, we're solidly on track to be a mid-single-digit growth company. And EBIT margins should end the year in the mid-11%, in 2023, they're close to 9%. So we've steadily improved that. Higher gross margin efforts on SG&A, and flow through until even March.

That's great to hear. Best of luck with the holiday season.

Thanks. Thank you.

Thank you. Our next question comes from the line of Matthew Boss. I'm JP Morgan. Your line is open, Matthew.

Great, thanks. So, Michelle, could you elaborate on the momentum that you cited entering the season? Maybe what are you seeing in the denim category or from the consumer broadly? And then, Harmeet, so have you seen any material change in demand trends in September or October globally, or is it just prudent planning for the remainder of the quarter that's driving the moderation that's embedded in your fourth quarter organic revenue guidance?

I'll answer your second first because I'm sure it's top of mind for folks. No, it's just being – the prudence guidance is just being – You know, conservatism on the macros. We're not seeing any underlying change in trends as I reflected. I think we're really well set for holidays. And Michelle can give you a perspective on the category and the consumer.

Sure. So, Matt, thanks for the question. First, let me talk about the category. We're really excited. I mean, the denim category is accelerating both here in the US and globally. And as the definitive market leader, we are very well positioned to take advantage of that. I mean, of course, as the leader, we help fuel the growth, and we're seeing that happen. You know, just to remind everyone, we are the market share leader across men's and women's globally, and we continue to maintain our number one share position in the U.S. as well for both men and women. I'd say most recently, we're really thrilled to see that we're gaining share in youth premiums and with our signature business. So when we think about our business from a segmentation standpoint, doing really well with Red Tab, and for those consumers who are more value-oriented, we saw our signature business up double digits this quarter. What's driving that? For our business in terms of market share gains, and again, as the leader, helping to feel the momentum on the category overall, I mean, it starts with product. We're bringing a lot of newness and innovation into our business through fits, fabrics, silhouettes, a lot of that still happening with loose and baggy, but we're really seeing strength across the board. And importantly, not only is it continuing to be the leader in denim bottoms, But we're really expanding our addressable market as we think about going from denim bottoms to head-to-toe denim lifestyle. And we're seeing that momentum in categories like tops. So when you take a step back, I mean, historically, we've been around many decades. We really built this business on denim, but we're building our future on denim lifestyle. So feel good about the category, our position. Now, more broadly, to your question on the consumer, I think kind of building on Harmeet's comments and mine, our consumer continues to be resilient and we're seeing that around the globe. I mean, it starts with the business, our fourth consecutive quarter of high single digit organic growth globally. And I think it's important to make note that this, for the quarter, this business was driven largely through unit growth, right? So it's unit growth that's really fueling that momentum. And we saw a broad-based strength across geographies, across categories, that's both men's and women's, tops and bottoms, and both DTC and wholesale. So consumers responding, our strategies are working. I mentioned the denim category accelerating. I mentioned really kind of being relevant across these various consumer cohorts. And we get that we're operating in a complex environment here in the U.S., We're staying close to it, but when you think about the Levi's brand, in times of uncertainty, consumers turn to brands that they know and trust, and Levi's is certainly one of those brands. We're optimistic as we enter the fourth quarter. We expect the health and the momentum of our business to continue. We've been planning for holiday all year, and I would say we have our most robust lifestyle assortment we've ever brought to the consumer with lots of seasonally relevant products across really all categories. And again, we continue to make progress on this head to toe. So you'll see lots of, you know, the fashion bottoms as well as tops and outerwear, third pieces. And I think products that really go sort of from day to night at work to evening events, especially during that holiday season. But there's a lot of newness And that will also be fueled by tremendous marketing. You know, we've had a great year of marketing with Beyonce. We've got Shaboozie right now. And you can expect us to continue to connect in a relevant way during the holiday season.

That's great color. Best of luck.

Thanks, Matt.

Thank you. Our next question comes from the line of Ike Borochow of Wells Fargo. Please go ahead, Ike.

Hey, thanks. Let me add my congratulations. Maybe, Harmeet, just to focus on margins specifically, can you comment on two things? One, within the SG&A cost line, you talked a little bit about it earlier, but the distribution line is running around 7% of sales right now. Can you remind us the moving pieces on the warehousing and DCs you have going on? A year ago, it was around 6%. I think, historically, it's been 5%. How quickly does that margin start to benefit you guys as you go into next year? And then to that point, are you comfortable beginning to lay out a timeline on the return to 15% margin you guys kind of put back on the table several quarters ago as the momentum picked up? Thank you.

So let me, I'll start with gross margin and give you some color about what happened in Q3. so people and yourself understand. Then I'll go quickly into SG&N distribution. So think of gross margin in quarter three, up 110 basis points, higher than what we had expected when we talked about this a quarter ago. Three basic factors. One is the structural mix, which is higher women's DDC and international. That we think continues for a long, long time. The second is we have taken moderate pricing and we're driving higher full price sale. And the third is the FX benefit, which we call it about 50 basis points. This is more than offset about 80 basis points of headwind from the tariffs. And so that's why, you know, we were ahead of last year and over delivery was affected, difficult to predict. We haven't predicted effects for quarter four as an example. And full price is something we're focused on. It's difficult to forecast that. So that's gross margin. Then you think about SG&A. Our SG&A for the quarter was below 50%. You can think the first half of the year, it was higher than 50% of revenue, higher than So the run rate was lower than the first half of the year, which was higher. The way we think of SG&A, I mean, there are two ways to look at it. A, gross profit dollars growing at a faster pace than SG&A dollars. So if you think of year-to-date, our gross profit dollars are up $220 million, and SG&A is up $126 million. So clearly driving high flow through. If you look at it just as a revenue to SG&A, SG&A up 6% and revenue up 8%, so clear leverage. As we think we end the year, you know, if 6% is the revenue guidance organically, SG&A is probably in the mid-single digits, so there's clear leverage on that. And this quarter, you know, SG&A being up relative to a year ago. There's performance comp, which is a big piece. We're having a good year. Distribution costs, which I'll come to in a minute, so I'll answer your question. We opened on a gross basis 14 new stores, and that's really the trifecta factor in DDC as driving the result. Marketing expenses moved a little between Q4 and Q3, especially as we launched the Shibuzee campaign and some foreign exchange headwinds. To your question, Ike, about distribution. Overall, as you know, we are remapping our distribution network to more of a hybrid network built for omni-channel from a manual network that is built for wholesale. So there are clear benefits that we will see over time. In the short term, and transformations obviously have a short-term impact, over the short term, in the U.S., we've been running parallel DCs as we ramp up the new DC that's run by a third party. So if you think of distribution costs about 7% and they've increased from a year ago, I would say about half of that is the reclass and distribution expenses from selling to distribution for e-commerce. And the other half is equally split between volume, which is driving more This is very expensive and the cost of parallel running. Our expectation is that parallel running of DCs, because the good news is our demand is pretty robust. So as we make this transformation, we have to do it in a way that we not only fulfill the demand for our customers and consumers, but also ramp up and close this DC. So our view is And it's you know, it's art and science. So we're working through that but I think by the end of quarter 126 is When we probably ramp down the parallel running of the DC's early 26 And when we report results for quarter 4 in early 2026 will give you a perspective on this Expensive but over time long term we should reduce cost per unit and and the cost of running parallel DC. Does that help, Ike, answer your question?

Yes, and I'm just curious, timeline on the 15%, if there's anything you can share.

Yeah, I think, you know, you're asking for a quick preview on to Invest Today or a preview on that, but I think the way to think about that, Ike, is, you know, our EBIT margin should end the year about in the mid-11th, right? And, you know, and they've grown nicely over the last couple of years, I think the basic building blocks are the following. The gross margin expansion continues. I mean, our view is that the structural piece continues. And, you know, if you take probably a five-year period, you can say that 200 basis points, you know, that should help EBIT. The SG&A leverage, you know, as we get to mid-single-digit growth company, I think the SG&A leverage is about 200 basis points. We may... amp up advertising a little bit, you know, given the wonderful programs our chief marketing officer and the teams are invoking. I think that helps drive the band, make the band stronger, and importantly, drive revenue. I think that's probably a 50-odd basis points of Edwin, and that will come with revenue. So I think that's your building blocks. So you think of gross margin expansion, SG&A leverage, and a little bit of reinvestment in advertising gets you to 15%.

Thank you.

Thank you.

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

Thanks for taking my question. within the wholesale business growth, can you speak to how much was driven by maybe new points of distribution or expanded assortment versus like-for-like on stronger sell-throughs? And how would you categorize inventory levels within the retail channel setting? Thank you.

Sure, Paul. Thanks for the question. So, as we said in our earlier remarks, we're quite pleased with the continued growth that we're seeing in the channel. This is now four consecutive quarters with this quarter at 5%. We do expect the year to be slightly positive in the wholesale channel for the entire year, which was actually up from our prior expectation, which we had said previously flat to slightly up. We saw positive growth in this channel across all segments. We saw particular strength in U.S. wholesale. We saw in Asia, Latin America, and in the signature business which is more for that value consumer the growth is largely being driven with existing accounts as you know they their consumers are responding to our fashion fits women's women's especially is outperforming and lifestyle so while we yes we are bringing bringing in some new accounts like western wear we've got new distribution and cavenders we're expanding in boot barn The growth is largely coming from our execution with our existing partners.

Great. Thank you. Best of luck.

Thank you.

Thank you. Our next question comes from the line of Oliver Chen of TD Securities. Please go ahead, Oliver.

Thanks. Hi, Michelle. Hi, Harmeet. Regarding Americas, the the low single-digit growth, is your expectation that that continues in Q4? And on wholesale side, it's been a little more challenging channel, but do you think it'll remain sustainably positive or will that be potentially volatile? Second, there's a lot of great initiatives and partnerships, but part of the thesis is also like Amplify to Simplify with inventory management and SKU rationalization. So how do we reconcile those two in terms of where you are in that journey?

Sure. Thanks, Oliver, for the question. As it relates to the Americas, or I can speak to the biggest part of the business, which is the U.S., we're really proud about how the team has been executing in that market. This is our fifth consecutive quarter of growth, and I think as you all know, it's our largest, most mature, most competitive market. And both channels, DTC was up 6%. wholesale up 2%, and we continue to see long-term growth opportunities in both those channels. So if I think about the DTC business here in the U.S., we have the potential to even double our store count and further accelerate e-commerce on the back of the momentum we have. And on wholesale, which I was just talking about more broadly, global wholesale, but wholesale in the U.S. remains strong and our key partners are responding and their consumers are responding to our expanded product pipeline across men's, especially women's, where we continue to be under indexed, in particular in the wholesale channel, and then that head-to-toe lifestyle. As we look forward, I'll just say that as we look to Q4 in the U.S. and in the Americas, we expect the business to remain healthy against executing the same strategies we've been talking about, leaning into DTC, driving units per transaction, driving conversion, driving greater full-price sell-through. As I was mentioning earlier, though, a lot of our growth is coming off of units. So while we are seeing that enhanced AUR, we're also driving a lot of volume growth. But I will say, as it relates to U.S. wholesale, while we expect continued positive growth in DTC, For the fourth quarter, we do expect the U.S. wholesale to be down, given that we're lapping a very strong quarter last year, and we had that 53rd week. So as we lapped last quarter's fourth quarter, strong results the 53rd week, and just frankly to be continuing to be prudent as we think about this channel, given the complex macro environment we're operating in in the U.S. So Oliver, did that fully answer? And then you had part two of the question. Let me answer that and then I'll come back and make sure I've fully answered. But then part two, I'm glad you asked the question about skew rationalization because we continue to make really good progress there. So while we talk about expanded assortment lifestyle, We are also at the same time reducing SKUs and we've decreased our SKUs by about 15% compared to last year and this has been an ongoing journey over the last 18 months or so. So we're continuing to raise the bar there and what's really enabling us to do that is through a tighter globally common or globally directed assortment. So just for perspective, if we think about The season we're in right now, the second half of 2025, 40% of our SKUs are globally common. That's up from a couple years ago where it was under 10%. So that allows us to make sure, again, that we can get the breadth and the lifestyle where we're getting significantly higher productivity per SKU. And that metric, just for fun, is up 20% on a SKU productivity scale. So it really speaks to how the team is leaning in with a much stronger merchant mentality and operating like a retailer. And, you know, that's helping us drive those tailwinds that we're seeing in the business overall and especially in DTC.

Yeah, thanks, Michelle. That's really helpful. This is quick. I think, Harmeet, are there any gross margin comparisons we should be aware of as we anniversary them this year and think about next year?

so last year was 53rd week this year I think the only piece will be you know we probably see tariff impact in the second half of this year next year in the first half the way we think about gross margin and I think you're asking for high-level framework for 26 and I and it's a good question let me just talk about it because as we build up plans for next year The tailwinds that we think probably help gross margin accretion, one is we're looking at pricing opportunities, again, targeted, not only in the U.S., but globally, given that 60% of the business is global, is outside the U.S. Structured improvements of DDC, International Women's, continues. We continue to focus on full price selling, and it's not anywhere close to 100%, so there's clearly opportunity there. The other piece is as we think about product cost, you know, Michelle talked about the simplification of SKUs. We're looking at a shorter go-to-market calendar, and cotton commodity is at a better spot today than it was a year ago. We've broadly locked in product costing for the first half. We're in the process By the time we report and guide Q26, we'll probably have locked in the second half. So stay tuned. And the headwind is largely tariffs. And so you've seen some impact in the second half of this year. We've offset the quarter three working to try and do what we can for quarter four, but I've guided you the appropriate numbers. And so those are the tailwinds and the headwinds as you think about it.

Thank you very much.

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

Hi. Good afternoon, everyone. As you think about the lifestyle offering, Michelle, with tops and with bottoms and jackets, outfits, what did you see in the growth rates of the different categories And given the marketing that you've been doing and the collaborations, how do you think of the AUR opportunities going forward? Thank you.

Great. Thanks, Dana, for the question. You know, we're really pleased with the progress and the acceleration in our TOPS business overall. And I like to say while we're pleased, we're not satisfied. And there's a ton of upside because TOPS represents just currently 22% of our business. You know, as we shared earlier, our tops grew 9% overall for the quarter, 10% year-to-date, and we're really seeing the strength across channels and genders. So, you know, if you double-click underneath that, men's up 10%, and we're really seeing popularity in things like western tops, button-downs, polos, wovens. You know, as we think about our top strategy and denim lifestyle, we do start closer to our core. So, you know, really injecting life into like the Western shirt, which is being advertised in our campaign right now with Shaboosie. But wovens, so wovens, things like our authentic button downs, that business for men's up 20%. Similarly, women's tops up 8%, seeing it across both channels. Denim tops, I'll start there, up 12%. Wovens, including things like blouses, Fashion, button-downs up 37%. And then the category we're really expanding in to expand her closet, dresses and jumpsuits up nearly 20%. I think importantly, as we drive all this newness and excitement and head-to-toe dressing, we're seeing both growth in newness and in our core, which is really important to continue to support both. Kind of back to the opportunity, though, if you think about our business today, again, while we're making progress, there's so much upside. Our ratio... bottoms to top is three to one now that's up significantly from years to go or from years ago where it was seven to one or five to one but our goal is to get to one to one and I'm very confident we will and as we drive tops it's a UPT driver it can be a traffic driver and it really kind of completes this mission we're on to have Levi's stand for head to toe denim lifestyle So hopefully that addresses your question, Dana.

Yes, thank you.

Great, thanks.

Thank you. Our next question comes from the line of Aditya Karkarni of UBS.

Your line is open, Aditya. Hi, I think this is Chase.

Hopefully you can hear me. But my question is that it sounds like you took some pricing in Q3. Harmeet, I think you said one of the gross margin drivers in Q3 was pricing. Was that in response to tariff in Q4? Sorry, before that, the consumer, it sounds like, responded well to those price increases. Did you see any resistance in Q4? Do you plan on accelerating the price increases? And therefore, do you expect the consumer to react differently if you increase prices in fourth quarter? Thank you.

So, Jay, we did. We took a little bit of pricing in Q3. It was not an MSRP because You know, the goods are already been ticketed. This was in the selling to our customers in the U.S. I'm talking about. And, you know, we do it thoughtfully. We have really great momentum, as we mentioned, driven by demand. But to answer your question, no impact on demand. We don't see any impact on demand either from the customer or the consumer. The other piece that's really working for us is our new products. And so as we think longer term pricing through innovation is one lever. We are also taking a hard look at our promotions and minimizing this as we focus on higher full price selling will also be something that probably continues into The way we're thinking about pricing, it's more important to think about what's the price value equation for our products relative to the marketplace, and that's an important consideration. The other piece that's important, Jay, is the segmentation of a product. So if you think of the value consumer in the U.S., we offer signature product. It's a great price point. It's offered through Walmart. and it had a great call, it was up double digits. We've just also introduced BlueTag, which is a premium product, it's premium position, it's one and a half times to two times the price of RedTag product, and offers rare value, even when you benchmark that. It's a limited offer, we hope to scale it, it's doing really well. So that's how one is thinking through it, and there's a little bit of pricing in other parts of the world, but it's not, you know, something that we've done globally. So when we talk about 26 and guide 26, we'll give you a perspective on the pricing actions we have taken or our teams have taken around the world.

Got it. I mean, thank you so much.

Thanks, Jay.

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

Thank you. This is Tracy Cogan filling in for Paul. I just had a follow-up on the last question. I think you said, from what I understood, that you only raise prices on sell-ins to your partners. So have you actually had time to see the consumer response to these higher prices, or were you only saying that your partners haven't had any hesitancy to buy at these higher prices? And then just more broadly, I was hoping you could comment on the U.S. wholesale business, how sell-ins are comparing to sell-outs. Thank you.

Generally, Tracy, good question. I think it's a combination of both, you know, because, you know, the pricing initiatives have been now there through the quarter. You know, A, the customers are not, we're not seeing any demand contraction, you know, given the marginal demand pricing that has been taken or a consumer reaction. The consumer genuinely resilient so far and that's how we're approaching the pricing. Plus the full price selling has been there for a while and given that the product is very relevant and hitting the mark, we're not seeing any consumer pullback. I think that was your first question. What was the second one, Tracy, again?

I was hoping you could just comment more broadly on how the sell-ins to your wholesale partners are comparing to the sell-outs. Are they being more cautious than maybe the end consumer might indicate or something like that?

The set-throughs have been fairly consistent with the sell-ins, and that's why we are optimistic about ending the year strongly and then maintaining the momentum as we begin 2016.

Gotcha. Thanks very much.

Thank you, Tracy.

Thank you. At this time, I'd like to turn the floor back over to Michelle Gosfer. Any closing remarks? Madam?

Yes. Thank you, everyone, for joining the call. And we will look forward to talking to you at the end of Q4.

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