Levi Strauss & Co.

Good day, ladies and gentlemen, and welcome to the Levi Straussen Company first quarter fiscal 2026 earnings conference call for the period ending March the 1st, 2026. 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 first quarter of fiscal 2026. 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 Harmee 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 allow others to have their questions addressed. And now I'd like to turn the call over to Michelle.

Thank you and welcome everyone to today's call. I'm pleased to share that 2026 is off to a strong start. In Q1, we exceeded expectations across the top and bottom line, driven by every region and channel, underscoring the continued momentum of our strategies. As we've highlighted over the past few years, the strategic choices we have made to narrow our focus and maximize the potential of the Levi's brand are enabling us to pursue our highest return growth opportunities. We are becoming a more DTC-first denim lifestyle company, and it is leading to more consistent and faster growth, a much larger addressable market, and higher profitability. Today, we're operating from a stronger foundation, we're executing with intention, and we have more ways to win than ever before. Before I turn to our Q1 results, I want to briefly note a leadership update. Earlier today, we announced that after a planned transition, Harmeet will retire following 13 years with Ellison Co. Harmeet has been an exceptional partner and leader, playing a central role in strengthening our financial foundation as we've accelerated growth, expanded margins, and evolved into a more diversified, direct-to-consumer business. The discipline, systems, and high-caliber finance organization he built have positioned us well for long-term success. We've initiated a comprehensive search for our next CFO with the support of a leading executive search firm, and Harmeet will continue to serve in his role until a successor is appointed. He will remain for a planned transition as an advisor to ensure continuity. Given the strength of our leadership team and the momentum in the business, we are confident in a seamless transition and remain firmly focused on executing our strategy and delivering sustainable, profitable growth. Let's now turn to the details of the quarter. As a reminder, all numbers Harmeet and I will reference are on an organic basis. We generated another quarter of high single digit organic net revenue growth, up 9%, and up 14% on a reported basis. We delivered double digit top line growth in both Europe and Asia, and 7% growth in the Americas. We drove 10% growth in the DTC channel with comp sales up 7%, reflecting strong underlying demand. Our wholesale channel exceeded expectations, delivering 8% growth, fueled by strength across segments. Growth in women's continued to accelerate up 13%, in addition to 7% growth in men's. Our evolution into a head-to-toe lifestyle brand is fueling accelerated growth in tops, up 13%. And while we drove significant top-line growth, we also exceeded our adjusted EBIT margin expectations and delivered double-digit earnings growth in the quarter. This strong early performance gives us confidence to take up our full-year guidance. I'll now walk you through highlights from the quarter in the context of our strategies. Let's start with our first strategy, being brand-led. The Levi's brand was up 9% for the quarter as we continue to keep the brand firmly at the center of culture. Few brands can authentically play across so many facets of culture, sports, fashion, and music in a way Levi's consistently does, and this was on full display during the Super Bowl. Leading up to the game, we turned the Bay Area into Levi's home turf with a full 360-degree activation, including exclusive product drops and live music, as well as hands-on workshops and in-store celebrity and athlete engagements. We also launched a number of exciting collaborations, including a new Nike apparel capsule and denim Nike Air Jordan 3s. We extended that energy during the game itself, launching our new global campaign, Behind Every Original, designed to unfold in chapters throughout the year. Premiering during one of the most watched moments of the Super Bowl, early results have been very encouraging, with strong awareness, brand equity lists, and more than 1.4 billion media impressions generated in February alone. Featuring global brand ambassadors, Dochi, Questlove, Blackpink's Rosie, and basketball superstar SGA, The campaign has been recognized among the top Super Bowl ads by outlets including Forbes, Ad Age, and Fast Company. Building on the strong momentum from our campaign, we announced a multi-year global partnership with Rosie, including new co-created pieces that will come to market later this year. And a prime example of Levi's showing up organically at the center of culture is Harry Styles wearing a pair of vintage 501s on his new album cover. and his backup dancers all wore 501s on stage at the BRIT Awards in February. Now turning to product, where we continue to see strong growth in men's and women's and across tops and bottoms, fueled by innovation and execution. First, let's start with our bottoms business, which was up 7%. We're infusing newness across the assortment with innovative fabrics, fits, and finishes throughout both our icons and fashion styles. Within Core Bottoms, we continue to introduce modern interpretations of our iconic 501, like our very popular 501 90s and 501 curve for her. And for him, the 501 Loose and 501 ThermAdapt, our new climate-adapting fabric innovation. Another great example of the organic strength of our core is the 25% increase in our iconic 517s, which were famously worn by Carolyn Bessette and prominently featured in the popular show Love Story. Our newer fashion forward fits across loose and baggy styles continue to deliver outsized performance. We're following the tremendously successful launch of last year's women's cinch baggy with an expanded assortment of cinch wide leg, barrel, shorts, and more. And for men, we introduced a new baggy barrel fit which continues to drive fashion relevance for him. Our push into categories beyond denim bottoms has expanded our total addressable market and contributed to roughly a quarter of our top line growth, with still much more opportunity ahead. Tops continue to be an important growth driver as we build out a more complete lifestyle offering. In men's, we saw continued success in polos, button downs, and our newly launched quarter zips. And in women's tops, woven blouses and sweaters were standouts, along with our expanded selection of tees. Dresses also continued to perform well as a natural extension of our lifestyle strategy. We've sharpened our product strategy by shifting toward a more globally directive assortment. In our DTC business, we've increased product commonality to nearly 50% today. This shift has driven greater productivity through SKU reduction and enabled us to focus on fewer, bigger product stories showcasing our head-to-toe collections. As a result, we're showing up globally with more impact and consistency and with clearer storytelling and stronger alignment across markets. A great example of this was the Q1 global launch of our head-to-toe grunge prep collection. This new aesthetic combines preppy tops like cable crew knit sweaters and rugby tees with worn-in grunge textured bottoms across fits like our 578 loose and baggy loose cargo pants. Blue tab, which is the most premium expression of the Levi's brand, delivered robust growth in Q1, reinforcing our confidence in this business. We expanded the assortment, adding more women's product and lifestyle pieces while maintaining a solid foundation in premium denim. With just 1% market share of the $10 billion total premium denim market, this represents a sizable, long-term opportunity for the Levi's brand. As we look to spring and summer, our global product assortment will continue to deliver against our big ideas with a unified lens. We will build on the momentum we're seeing today by expanding lightweight and linen blend product across tops, dresses and bottoms, while also leaning into shorts, jorts, and other warm-weather lifestyle pieces. Now shifting to our strategy to become a best-in-class, DTC-first retailer. Our global direct-to-consumer business delivered double-digit growth, up 10% in Q1. Comparable sales were up 7% this quarter, on top of high single-digit growth last year. This marked our 16th consecutive quarter of positive comps as we continue to raise the bar on our retail execution. We've strengthened lifestyle merchandising and outfitting in stores, improved in-stock positions through better assortment planning, and invested in training our teams with a new global selling model. In the quarter, e-commerce delivered 17% growth, reflecting continued momentum as we elevate the online experience. Digital plays an important role in how consumers discover the brand and build a deeper connection with Levi's. Importantly, newer consumers engaging with us through e-commerce continue to skew younger. In Q1, 70% of new U.S. e-commerce orders came from Gen Z and millennials. This reflects our ability to connect with younger consumers as they enter the category, driven by product newness, lifestyle-led storytelling, and a more dynamic digital experience. Our loyalty program also continues to be a powerful driver of consumer engagement, reaching 46 million members globally, up 17% year over year, with more than 2 million new members added in the first quarter. Loyalty members spend about 40% more with higher transaction values and purchase frequency than non-members. Global wholesale continues to be an important part of our business to reach consumers around the world. Results this quarter were better than expected, up 8%, driven by strength across segments. The growth in wholesale reflects the momentum behind our lifestyle assortment, the strength of our partnerships, and our commitment to reaching Levi's fans wherever they choose to shop. Now turning to our third strategy, powering the portfolio. Our international markets continue to demonstrate strong momentum, up 12%. Europe grew 10% in Q1, with growth across most major markets. Having recently visited stores across Europe, I got to see firsthand how strongly consumers are responding to our elevated denim lifestyle assortment. One of the markets I visited was Italy, which plays a unique role as a premium halo for Levi's across Europe, shaping brand perception well beyond its borders. As a global center of fashion and culture, we have elevated our presence in the market and revenues in Italy have nearly doubled since 2021. Importantly, we have continued to strengthen our number one share in denim bottoms across both men's and women's in this market. In Q1, our value brand signature grew 16%, reflecting impressive performance in women. Over the past year, we have revitalized signature through a product and brand reset, introducing compelling newness and expanding into lifestyle categories. This is translating into share gains for the brand within key wholesale accounts, a clear signal that the revitalization is resonating with consumers. Beyond Yoga was up 23%, with DTC continuing to show solid momentum. The brand expands our addressable market into premium activewear, complementing our denim lifestyle portfolio. Our recently launched Seek Beyond marketing campaign and broader product offerings are gaining traction with consumers and fueling growth. While we continue to invest in the business, our operating loss narrowed in the quarter, driven by strong top-line growth and gross margin expansion, reinforcing our path toward profitability. In closing, the quarter reinforces the significant progress we're making against our strategies. We're seeing the impact of becoming a more brand-led, consumer-centric, DTC-first lifestyle company with broad-based strengths across our business. The work we've done to sharpen our focus, elevate the Levi's brand, and operate with greater discipline is translating into higher quality, more profitable growth, while building a stronger foundation for the business. While we remain thoughtful about the external environment, we're confident in the direction we're headed as we move through the year and beyond. With that, I'll turn it over to Harmeet to walk through the financials and our outlook. Harmeet.

Thank you, Michelle. I wanted to take a moment to speak about the announcement we made earlier today. After 13 years with the company, I will retire following a planned transition. This company and our people have meant the world to me, and it's been a true privilege to work alongside Michelle, Abod, and all our shareholders and the extraordinary leadership team as we have transformed this company into a more diversified global direct-to-consumer business. I'm incredibly proud of what we've built together, from accelerating our growth, transforming the company into a DDC-first retailer, while expanding margins and returns. What gives me the greatest confidence as I look ahead is the strength of my team and the deep talent we've put in place. I'm so grateful for the support of me and the company. I'll remain fully engaged as CFO and Chief Growth Officer until a successor is appointed and stay for a planned transition. Ellison Core is stronger than ever and I have every confidence in the company's continued momentum and ability to deliver long-term profitable growth. Let's turn to quarter one. We delivered another strong quarter marked by high quality broad-based growth and stronger than expected profitability. Our first quarter results reflect the power of the AM. While our top-line outperformance this quarter was driven primarily by better-than-expected wholesale performance, DDC remains healthy. More broadly, every facet of our business has contributed to growth over the past six quarters. Wholesale and DDC, U.S. and international, women's and men's, tops and bottoms, units and AUR. Our focus on improving flow-through that is converting a higher percentage of revenue into profit enabled us to exceed our adjusted EBIT margin expectations and deliver higher earnings. As planned, we leaned into A&P earlier in the year to support the launch of our 26th global campaign. Normalizing for this timing, adjusted EBIT margin of 12.5% would improve 160 basis points to 14.1%. While we continue to take a prudent approach to planning for the balance of the year, our strong first quarter results and positive quarter-to-date trends position us to raise our expectations for revenue margins, both gross and adjusted EBIT margin, as well as adjusted diluted EPS. Turning to the details of the quarter, net revenues were up 9%, With broad-based trends across all segments and channels, our international business contributed to about 75% of our growth. Women's accounted for approximately 55% of total growth. DTC accounted for just over half the growth. By category, TOPS drove roughly a third of our growth in this quarter. And growth was driven equally by higher volumes and higher AUR. Given the ramp up of our distribution center in Europe last year, shipments moved from quarter one to quarter two. As a result, quarter one, 26 revenue growth benefited by approximately $30 million or about two percentage points. This will have an offsetting impact in quarter two. Excluding this timing shift, quarter one still delivered high single digit growth. I'll address the impact on quarter two in our guidance. Gross margin for quarter one was 61.9%, slightly better than external expectations, contracting 20 basis points year over year, primarily due to tariffs. The decline in gross margin was partially offset by pricing actions and lower promotional activity. We continue to closely monitor the consumer response to pricing actions, and to date, we have not seen an impact on demand. From an input cost perspective, we have locked in ocean freight rates and secured cotton at favorable levels for 2026. Adjusted SG&A grew 16% driven by higher ANP, the higher than expected sales volume, and foreign exchange. Excluding the 160 basis points impact of ANP, we delivered 90 basis points of leverage, across the balance of the business. We still expect marketing as a percentage of sales to be approximately flat year-over-year at around 7%. Improving flow-through remains a key priority, and we're taking deliberate actions to deliver it. Across the organization, we're leveraging our global talent hubs and accelerating productivity through expanded AI initiatives, allowing us to support a growing business while keeping overall headcount flat year over year. At our recent leadership summit, we aligned our top 250 leaders around tighter SG&A discipline and a sharper focus on converting top-line growth into consistent profitability. And importantly, our leadership team's incentives are directly aligned with driving both revenue growth and profitability. With respect to the status of the U.S. distribution network transformation, execution continues to progress, and notably, distribution expenses versus prior year improved as a percentage of revenue. We are working towards completing the transition by mid-year, and costs we expect to incur are factored into our updated guide. Longer term, this transition positions our network to support omnichannel growth and drive efficiency. Adjusted EBIT margin was 12.5% in the quarter. Excluding the A&P investment, adjusted EBIT margin would have been 14.1%, substantially higher than last year, and reflecting flows of approximately 40% from the higher revenue. Adjusted diluted EPS was 42 cents, ahead of our expectation, and up 11%. We ended the quarter with reported inventory dollars up 4%. We're comfortable with the quantity and quality of our inventory as we enter the spring season. Turning to shareholder returns, we took another important step forward this quarter with the successful closing of the Dockers transaction, which further simplifies our portfolio and sharpens our focus on the Levi's brand and Beyond Yoga. Our adjusted free cash flow in quarter 126 was also substantially higher than last year at $152 million. This, along with the net proceeds from Docker's sale, enabled us to return cash to shareholders through shares repurchases. In total for the quarter, shareholder returns were up 163% to $214 million. In quarter two, we declared a dividend of $0.14 per share, an increase of 8% year over year. Now let's review the key highlights by segment. The America's net revenues were up 7%, driven by 4% growth in the US and 14% growth in LATAM. This was fueled by strength across DDC and wholesale channels. US wholesale was up this quarter, even with our actions to rationalize certain customers. The acceleration in LATAM was driven by double-digit growth across every market, including Mexico. Operating margin contracted 260 basis points due to the timing of A&P and the impact of tariffs. Europe grew 10% with solid demand and strength across markets and channels as consumers continue to gravitate towards our head-to-toe offerings. Operating margin expanded 50 basis points driven by gross margin expansion. Given the distribution transition, we are lapping in Q1 and Q2 of 25, it is best to look at Europe on an H1 basis. We expect Europe to grow mid-single digits in the first half of the year, consistent with our guidance for the segment. And importantly, pre-book for the fall and winter season is up high single digits. Asia grew 12%, fueled by growth across both channels, led by DVC, which was up 16%. Key markets like India, Japan, Korea, and Turkey, deliver strong results across channels and categories. China was also positive, reflecting early progress and green shoots under new leadership as actions to reset the business begin to take hold. Gross margin expansion and SG&L leverage drove 150 basis points of operating margin expansion. The Middle East, which is part of Asia's segment, represents about half a point of total company revenues and is mostly operated as a distributed model. Now turning to guidance, 26 is off to a strong start, and as a result, we're raising our outlook across revenue, margin, and earnings while maintaining a prudent view on the macro environment. As a reminder, our guidance assumes incremental US tariffs on imports from China at a 30% rate and the rest of the world at 20%, and therefore does not contemplate the recently announced Supreme Court ruling or the administration's effort to reimpose the tariffs. While this has not been incorporated into our guidance, if the 10% tariffs currently being charged stay in place for the rest of this fiscal year, we believe there could be an incremental benefit to our current outlook of approximately $35 million to COGS and $0.07 to EPS. For the full year, We are raising our expectations for both reported and organic net revenue growth by half a point. We reported growth to be up 5.5% to 6.5% and organic revenue to be up 4.5% to 5.5% for the full year. The increase in our top line expectation is due to stronger than expected performance in the U.S. wholesale channel. And we now expect global wholesale to be up low single digits. Gross margin is now expected to be flat to slightly up versus our prior expectation of flat to prior year. Adjusted EBIT margin is now expected to be approximately 12% up from our previous expectation of 11.8% to 12%. And we now expect adjusted diluted EPS of approximately $1.42 to $1.48 up from $1.40 to $1.46. For quarter two, we expect reported revenues to be up 4% to 5% for the quarter and organic up 3% to 4%. As I previously mentioned, growth in quarter two would have been higher by approximately two points due to the timing of last year's distribution transition, which reinforces that there is no change in underlying demand trends between quarter one and quarter two. Gross margin is expected to be slightly down due to unfavorable foreign exchange. We expect to fully offset the impact of tariffs through our various mitigation efforts. Adjusted EBIT margin is expected to be in the range of 8% to 9%. This translates to an adjusted diluted EPS of approximately 22 to 24 cents. Let me provide some color on the margin cadence of our full year outlook. Given our Q1 results and Q2 guidance, we expect H1 EBIT margins to be in the range of 10% to 11%. And we expect accelerated margin expansion in the second half year driven primarily by four factors. First, the normalization of ANP effectively pulling a point of ANP out of H2 into H1 behind the launch of our campaign, which was primarily expensed in H1. Two, given the seasonality of our business, which is weighted more towards the second half, the incremental volume drives higher fixed cost leverage. Three, we will begin to realize the full benefits of our pricing actions, which had not yet been implemented in H2 of last year. lower distribution expenses as we rammed down the parallel distribution center. This positions us for an H2 EBIT margins to be in the 13% to 14% range, consistent with our full year guide of approximately 12%. In summary, we delivered our sixth consecutive quarter of mid to high single-digit growth driven by both our wholesale and DDC channels. DDC now represents about half our business and continues to be a significant growth driver. We reported 16 consecutive quarters of comp sales growth, and as you saw in this quarter's press release, we reported comp growth of 7%. We will continue to report comp sales as part of our regular disclosures. We raised guidance, reflecting our momentum and execution against our strategies while maintaining a disciplined, balanced approach to the full year. Michelle, I, and the entire executive team are committed to flowing a higher percentage of revenue to profitability, solidifying a clear path towards a 15% EBIT margin over time. And with that, 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 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 by pressing star 11 again. Our first question comes from the line of Laurent Vasilescu of BNP Paribas. Your line is open, Laurent.

Oh, good afternoon. Michelle, Harmeet, congrats on a great start to the year. And, Harmeet, I want to quickly say it's been a real pleasure working with you over the last few years. So, Michelle, can you talk about what's driving the momentum in the business and how confident you are in sustaining that momentum? particularly with the uncertain macro backdrop in Europe and North America, which I think everyone is really later focused on. And then, Harmeet, on SG&A, thank you for unpacking a little bit on the SG&A growth for about 16%. I saw in your 10Q tonight distribution expenses actually went down for the first time. How should we think about these distribution expenses and overall expenses for the balance of the year to get to that 1H, 2H operating margin that you laid out?

Thanks, Laurent, and thanks for the question. So I'll kick it off and I'll hand it over to Harmeet. So first off, we're really pleased to start the year so strong with, you know, of course, the beat on the top and bottom line. But the 9% organic growth, 14%, it was high quality and directly linked to the execution of our strategies. We saw the growth broad-based across segments, channels, genders, and categories. And just to, you know, share, like if we take one of our key strategies, which is this pivot to denim lifestyle, We saw outperformance in the women's business up 13%. We saw outperformance in tops up 13%, which really demonstrates that we can grow our addressable market. And while we did this, called the core of our business, the men's and bottoms, both still really strong at plus 7%. So, you know, strategy number one. Second strategy on this, we are becoming a best-in-class CPC retailer. CPC is continuing to fuel the growth. It was up 10%. 7% comp growth. We're very pleased to start sharing that number. And our wholesale business grew as well at up 8%. So again, this is about execution. And as we look ahead, we see a lot of runway ahead to the second part of your question in terms of sustaining the momentum. It's the cause and effect on executing our strategies and the consumer is responding. We are very cognizant of the environment around us. But, you know, our consumer is responding to innovation, newness, and Levi's is a great value. So we'll stay close. But given what we're seeing in the business and how we started this quarter, we feel very confident, and hence why we were confident enough to raise our guidance for the year.

And, Laurent, to your second question, first, I appreciate your remarks. I still have a job to do. We still have to deliver products. So I'm around for a while. But your question on SG&A, in essence, SG&A as a percentage of revenue was a little over 49%. We expect to deliver the year with SG&A as a percentage of revenue around mid to high 49%, lower than a year ago. Just unpacking this quarter, let's start with H&M was up 16%. The timing of ANP, because we are assuming that we spend only 7% of revenue by the end of the year, was approximately 5% of that 16% increase. Foreign exchange, it's interesting because of our global business, When the US dollar is weaker, which we have seen over the last couple of months, actually, when you convert that into dollars, it impacts SGN. That's about four to five points. And the remaining seven points were largely driven by volume, were driven by a little bit of inflation and what we call, as we expand DDC, we continue to open doors. Overall, SG&M, you know, we believe will continue to improve as a percentage of revenue. The other thing that we, you know, because we've taken this to heart, which is we have to convert a higher percentage of revenue into profitability. And I shared with all of you, you know, what we are doing as a team, you know, bringing the 250 leaders together, talking about why flow through is important. and how that acceleration of growth along with profitability really enhances and creates a lot of value for all our stakeholders.

Thank you very much.

Thanks, Laurent.

Thank you. Our next question comes from the line of Oliver Chen of TD Cohen. Your line is open, Oliver.

Thanks so much, Harmeet. Congrats on a really wonderful career. Regarding the guidance, it seems conservative given the two-year stocks decelerate and you've been posting better and solid numbers. Why wasn't the guidance higher in terms of all the momentum you're seeing? In the U.S. wholesale, which parts of that business were better than expected and do you expect that momentum to continue? As we look forward... Go ahead. As we look forward... On the margin side, what should we know about Nix as you continue to make so much lifestyle progress and or what's embedded for promotions? Because it's not an easy environment out there, but you're experiencing a lot of innovation and gas is on everyone's mind on a near-term basis as well. Thank you.

Sure. Oliver, two things. It's early in the year. We have a sizable beat. And while we haven't seen, even in quarter-to-date trends, any real change in trends, our view is that be prudent in the outlook as we think forward. So that's really what's driving what we call a more prudent outlook. The only other thing to think about is we haven't incorporated the reduction in tariffs. which may come to pass at some stage, right? We've quantified it, but we haven't incorporated that. That gives us what I call a contingency of cushion, should the environment change in any dramatic way. And so that's how we're thinking about it. The real focus of the company, as Michelle pointed out, is to continue the momentum on the top line while converting a higher piece of that you know, revenue into profitability. We have taken gross margins up for the year, you know, from what we said flat to flat to slightly up because we think we can fully offset, you know, the 19% increase in tariffs. We've taken EBIT margins up to the high end of the range and we've taken EPS. So, you know, we feel generally positive from that perspective. In terms of your mix, so your question about wholesale, what really drove know the the beat on wholesale uh you know and it is true that uh two-thirds of the beat was largely driven by wholesale uh and it was largely uh the us and europe uh and the art performance was really you know we're beginning to see you know what is showing up in ddc by driving denim lifestyle now get incorporated by our partners buying more women's. Women's, you know, growth in wholesale was really strong. They're buying more tops. That's making a difference. And, you know, the good news is there's still a balance between units and AOs, even in wholesale. So I think that's been the, you know, I would say the thought, which is start with DDC, prove it out, and then, you know, showcase that so that your partners buy. And I think we're beginning to see it. And it's still fairly underpenetrated. Women's in wholesale is underpenetrated. Tops in wholesale is underpenetrated. And so I think those are the factors that really, I think from our perspective, you know, we believe there's a long runway for growth, you know, a $6.5 billion company getting to $10 billion over time.

Thank you. And Michelle, one for you. Just what's ahead on your thoughts on denim momentum? Because One question is if we're at a peak place in the denim cycle, but you're doing a lot and things are changing with baggy and head to toe. And as you embrace loyalty, the loyalty program and AI and personalization, you know, how might you see that manifesting and what's happening with innovation? Thank you. Best regards.

You bet. I'll hit those quickly. You know, the denim category remains healthy. It's actually accelerating here in the U.S. It's outperforming overall apparel. Clearly, as the leader in the category, we are fueling that growth through all the innovation and fashion cycles we're bringing. So we sit here today, again, we've contemplated that in our guide that we expect the momentum for our strategy to continue. And loyalty, AI, our e-commerce business, again, up double digit, and we are now leveraging AI tools to help that consumer engagement. Loyalty, again, as we shared in our remarks, is up, again, acquired 2 million consumers in the quarter.

Thanks, Oliver.

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

Hey, thanks. Congrats, everyone. Harmeet, we'll miss you. But a question for you. Actually, two questions for you, Harmeet. Can you just clarify the commentary on Europe in the second quarter? So you're basically guiding Europe organic currency revenue flat. in the second quarter. Can you just quantify the wholesale, the dollars that moved into 1Q that are moving out of 2Q just so we can smooth that out? And then to Laurent's question on the DC side, what's your expectation for the remainder of the year? You're already getting scale on that line item and it feels like a lot of the initiatives haven't really kicked in yet that should drive leverage. Just what's the expectation for leverage on that line item the rest of the year? And then how quickly could you potentially get that line item back to 5% of sales? Is that, you know, four to five years or is that more like two to three years?

Okay. So to answer your first question, which is Europe, I quantified it. It's about $30 million and it's primarily wholesale. And so, you know, you can do the math, but that's really what, and you're right. Europe up 10%, primarily flat in quarter two, but for the first half, about mid-single digit. We're guiding Europe to be mid-single digit. The other pleasing fact in Europe is that our pre-book for fall and winter is looking at approximately high single digits. We're feeling good about the Europe business. The team in Europe is executing really well. And so that's really what's driving, you know, that's the amount and that's what's driving the shift. To your question about the transition of the DC, I mean, you know, just think of this broadly, I would say. Europe transition that began about a year and a half ago has stabilized. You're seeing it in their results. We're doing more omni-channel fulfillment and that's making a difference. It took us a little while, but distribution costs in Europe now are scaling down as a percentage really well. U.S., we continue to be committed to reducing the transition costs as the year progresses. And we'll do it in a way where we prioritize the incremental demand that we are seeing with the costs incurred, because we have seen volumes really pick up and fulfilling that has been great. As I mentioned earlier, we continue to expect the cost of additional DC to taper off as the year progresses, beginning in the second half. And, you know, our DC that is being run by Merck, by Merck's really stabilized. So to your question about when do we get to 5%, you know, distribution costs as a percentage, I won't comment on the timing, but what I will say is our new supply chain leader and the new distribution experts that we've got are committed to improve both the flow-through, so we drive higher volume throughput, as well as lower cost, you know, over time. And it's built into our plan to get from 12% to 15%. So, you know, we are committed as an organization. It's a big piece of, you know, what we're focused on. So stay tuned.

Thanks, Armin. Thanks, Ike.

Thank you. Our next question comes from the line of Jay Soul of UBS. Please go ahead, Jay.

Great. Thank you so much. Michelle, can you just talk a little bit more about what you're seeing in the U.S.? I think you mentioned quarter date was good. We've been through Easter, how it's been. And then also, it sounded like the Super Bowl was a big event for Levi's, but I think Levi's Stadium is hosting six games for the World Cup this quarter. Are there plans around that? Will that impact SG&A? And how should we think about that opportunity? Thank you.

Yeah, you bet. Thanks, Jay. So first, I'll take your question on the U.S. Pleased with the start of the year in the U.S. as well. We were at 4% in the quarter, and we saw both channels performing well. This quarter, especially reflecting the strong execution that we're seeing, both in our DTC channel, strength in stores, and online, driven by enhanced merchandising we're doing, expanded lifestyle assortments, and I'll get to the marketing campaign in just a minute, but clearly it was a Very unique way to start the year. We're very pleased with that. And U.S. Wholesale was up this quarter. Again, very strong performance with our customers. And to make note, not only in Levi's Red Tab, but in our signature brand, our value brand, that was up 16% in the quarter. So one of the things that we've really moved to with the whole opportunity to amplify the power of the Levi's brand is to segment. So you've got your core Red Tab, which is the core of our business. You have Signature, which is accelerating. They're bringing a lot of newness and relevance to that consumer, that value-conscious consumer. And then, of course, on the high end, early stages with BlueTab, but we're seeing nice consumer reception. And that new business was up 40% in the quarter. So we're obviously staying close to the dynamics in the macro environment. But in terms of our consumer, we're seeing a lot of resilience there. And then to your point on the Super Bowl, I mean, We couldn't be more pleased with how our launch of our new brand campaign resulted. So we had a very unique opportunity with Levi's Stadium hosting the Super Bowl. So we were on the world stage center of culture. We leaned in. We launched our new campaign. It was the first time in 20 years. It got watched in the peak of the watch of the Super Bowl, 1.4 billion impressions. We had measured that. We got a great return on it. And really, this is about the launch for the year. So it's a formula that works for us tapping into global and local influencers. And we will continue to activate, again, sports and music. So to your point on World Cup, we do have plans for that throughout the year, as well as music collaborations. And all of that is baked into our plan, which takes us to a 7% for the year in terms of spend. So, you know, call it the peak of our spend was actually in the first quarter. That normalizes as we go through the balance of the year. We're seeing the results. We're getting a nice tailwind from all the brand activations.

Got it. Thank you so much.

Thank you. Our next question comes from the line of Brooke Roach of Goldman Sachs. Your line is open, Brooke.

Good afternoon and thank you for taking my question. Harmeet, best of luck in your next chapter. It's been great working with you. I was hoping that you could unpack how you're thinking about pricing and the pricing power of the brand as you look forward into the rest of the year, did you see any elasticity in response to some of the recent price increases? And does this give you confidence to take even more pricing in what looks to be an even more inflationary environment, potentially offsetting that? What are your plans that are embedded in the guide for markdowns in the back half of the year? And how should we be thinking about opportunity for continued markdown reduction as you implement your initiatives? Thank you.

I'll take that question. You know, around pricing, and I'm glad you asked it because when we think about pricing holistically, it is about the premiumization strategy that we have on the brand. You know, mitigating tariffs has just been one component of it, but it is about our focus on full price selling, on less promotions, and pricing for innovation and newness. And I was just talking about even at the kind of pinnacle expression of the brand with Blue Tab, you know, we're pricing in the $200, $300 range. So very consistent with what we've shared in the past. We've been very thoughtful and targeted. We are monitoring consumer response. And to date, we have not seen an impact in demand. And you saw that in our Q1 results. And as a matter of fact, growth for us in the quarter is driven equally between AUR and Unix, which really does speak to the power of the brand right now. But we'll continue to be very thoughtful. We're clearly operating in a you know, an uncertain and volatile time. But given the strength of the brand, we feel really good. And our consumer is responding, especially as we take those opportunities to price, premium price for innovation and newness.

Great, thanks so much.

I guess the second part of your question would be around markdowns. The only thing I would say to that is as we, you know, rewire the company to truly operate at a best in class We have new allocation systems. We have new supply chain leadership. And our execution level is improving, which you see that again in our AURs, more full-price selling. So the capability of the team is really elevated around that front.

Okay. Thank you.

Our next question comes from the line of Bob Durbel of VTIG. Your line is open, Bob.

Hi, good afternoon. I guess, Harmeet, I have a question for you. First of all, congratulations again, and I echo a lot of the earlier comments and sentiment. You talked about ocean freight and cotton being locked through 26. Can you talk about just have there been sort of discussions around trying to, for your vendors, trying to pass through any increases away from your current locked rates. And I guess the other question is just on that is how far are you locked with, you know, ocean freight and, and cotton, you know, thanks.

So, uh, thanks, uh, uh, Bob, and you were great on CNBC earlier. Uh, but, uh, uh, what I'd say is, and thanks for your sentiment. Um, you know, uh, you know, um, what I'd say is that, uh, We are locked through the end of the year on base ocean and air freight rates. There are surcharges that are imposed. Our view on the surcharges is that our guidance reflects this. Oliver talked about why you're being modest in your guidance. We are taking into account a bunch of things relative to that. Your question about vendors asking for higher prices, When we reduced the product costs in 2026, it was a combination of a couple of things. First was rationalizing the SKUs, you know, moving out of unproductive SKUs. It was about driving higher globally directive assortments, which is, you know, having more of a common line which drives more leverage through volumes. And, you know, cotton, obviously lower than a year ago, you know, really helped. And so we're very thoughtful because we've got vendors who've been with us for years and we introduced some newer competition. So, you know, right now we are not seeing it. You know, if you think of the futures of cotton, as you look at 27, they're largely consistent with what we believe. And our view is that product costs over time because we are not rationalized all our SKUs. We haven't rationalized all our fabrics yet. We're driving to more of a tighter go-to-market calendar. It was 16 months. It's close to 13. We're trying to drive that. So I think all those are different levers that we have that over time can continue to drive product costs in the right direction, which is lower, not higher.

Great. Thank you very much. Good luck.

Thanks, Bob.

Thank you. Our next question. Comes from the line of Rick Patel, of Raymond James. Your line is open, Rick.

Hi, this is Suresh Malhotra on for Rick Patel. Thank you for taking our question, and Harmeet, thanks for everything, and best of luck. So, looking at the 4.5 to 5.5% organic revenue growth guidance for fiscal year 26, how should we think about the split between unit growth and AUR growth, especially given the pricing actions taken year to date?

Yeah, thanks for expressing that sentiment. Same here. You guys have been great. You know, the way we are thinking about it is an even balance between units and AURs. The reason, you know, the question is why are we selling more? It's largely because we are expanding our addressable market, you know, addressable market, which is $100 billion for denim. And you've heard me say before, we're trying to bust the myth that we're not only about denim. Now that addressable market is up 15 times, you know, because we're getting into things like non-denim bottoms, skirts and dresses for her, you know, expanding our tops offer. So that's where we feel selling more and we are adding a lot of new stores. So selling more along with higher AUR is probably, you know, what's going to happen through the year. Where does that balance go over time? I think it's something that we will, you know, reinforce as we guide annually. But that's how we're thinking about it. And that's what I would suggest, you know, as you model both that.

All right, Lateef, we can go to the next question.

Thank you. Our next question comes from the line, apologies, of Citi. Your line is open, Paul.

Hey, thanks, guys, and best of luck. It's been a pleasure working with you. If we go back to the first quarter, I'm just curious how things looked on a monthly basis, how much of the quarter was driven by December results versus the months that followed. And maybe if you can tie that into what you said about quarter to date. I think you said you haven't seen any signs of a change. Curious if you could talk about that by region, if there are any places that you might have seen an acceleration or deceleration relative to either the first quarter as a whole or the exit rate.

Yeah. Thanks, Paul. As you know, we don't get into the level of details. I'd say on the quarter-related trends, they remain positive and support the guidance that we laid out for you. In terms of, you know, trends in quarter one, I think, you know, we ended the quarter at 9%. January, February, largely in line, you know, with that. So it was not like, you know, it was way off, either higher or lower. Do remember that the trend acceleration in the quarter, as you think about timing, we had the Chinese New Year timing and then the Dorsten timing in Europe. That does impact it. So January, February, probably a little higher than December because of that. Chinese New Year is largely towards the end of the quarter. Dawson was largely a January, February piece. But, you know, our guidance for quarter two really reflects, you know, how we started the quarter.

Got it. And then any change to your macro view by region?

Asia started really strong, Paul. Asia really started strong, which is great. China, we didn't talk about China. I think I mentioned it. you know, was positive for the first time in a long time. We've got a new team there. They're resetting the business. So our view is, you know, and Asia, we under-penetrated, right? It represents about 20% of the business when half the world's population is there. And you've seen the operating margin in Asia, we take the last three, four years, improve as we drive more volume leverage. Outside that, Europe and US largely consistent, you know, and so on. Nothing apparent right now. I think the consumer continues to be resilient. Importantly, they continue to gravitate to newness. And our product pipeline is really strong, and Michelle referenced in her prepared remarks. And so I think if there's a way we can continue to bring newness in, which we believe we can, and drive that at good value price points, I think we can continue the momentum. And that's what's reflected in our folio guidance.

Got it. Thank you. Best of luck.

Thank you. Our next question comes from the line of Adrian Yee of Barclays. Your line is open, Adrian.

Great. Thank you very much. Let me add my congratulations on the quarter and also your future, Harmeet. And my question is, it remains on international and the strength that you're seeing there. I guess, where are you seeing kind of the most surprise in terms of growth acceleration And how does your go-to-market strategy differ by region, say like wholesale versus DTC? Thanks so much.

Yeah, so I'll just give you a quick perspective across the three regions. If you take the Americas and U.S. in particular, it was primarily wholesale, but now this balance is shifting to more of a balanced business between DTC and wholesale. And it's not coming at the cost of wholesale. It's that DDC is growing at a much stronger pace. And we're now opening. We have about 70, 80 full-price stores in the US. We're probably going to be opening 10, 12 stores a year for the next couple of years and doubling that. Asia is 60% direct-to-consumer and 40% wholesale. And that is primarily how we think the business grows. Most of our new stores are actually opening in Asia. And Europe is a little higher on DTC than wholesale, but the product is largely a tier one, tier two product, so very harmonious between the two channels. And I haven't spoken about Latin America, which is another big opportunity for us to grow. I mean, they've been growing double digit for a while, and the team there is doing a great job. So as we think about You know, different regions, that's the mix. I mean, our view is, you know, Asia, you know, you grow that in the high single digits, that's what's reflected in our guidance. Europe in the mid single digit, that's reflected in the guidance. And America is low to mid single digit, that's reflected in the guidance.

Great. Thank you very much. Best of luck.

Thank you.

Thank you. At this time, I'd like to turn the floor back over to the company for any closing remarks.

I want to say thanks, everyone, for joining the call, and we look forward to speaking with you again at the end of Q2 in July. Thank you.

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