LEVI STRAUSS & CO Q1 FY2025 earnings call

• Brand-led: Levi's brand up 8% in Q1, partnership with Beyonce generated over 4.3 billion impressions and $65 million in earned media value. Expanded partnerships with local icons. Gained market share in men's and women's denim. Grew share with 18-30 year-old target consumer.
• DTC-first: Global Direct-to-Consumer business up 12% with 12th consecutive quarter of positive comp. AURs in DTC up mid-single-digits. Retail expansion plans with notable openings in Italy, Mexico, and India. E-commerce up 16% in Q1. DTC ended the quarter at 52% of total global net revenues.
• Powering the portfolio: International business up 9% in Q1, representing close to 60% of total business. Beyond Yoga up 10% in Q1. Wholesale business up 5% in Q1, with U.S. wholesale up 9%, and Signature brand up 19%.

The Americas net revenues were up 11%, fueled by double-digit growth across both Direct-to-Consumer and wholesale. Europe was positive for the third consecutive quarter with net revenues up 3% in Q1, led by double-digit growth in key markets like the UK and Germany. Asia net revenues increased 10% compared to prior year. Direct-to-Consumer net revenues were up 12%, and wholesale was up 5%. Women's business represents 38% of net revenues, tops represent more than 20% of the business, and newer categories like dresses, skirts, and outerwear continue to grow. DTC ended the quarter at 52% of total global net revenues, up 2 points from last year.

• Q2 organic net revenue growth expected to be 3.5%-4.5%.
• Gross margin expected to be up between 80 basis points to 100 basis points.
• Adjusted EBIT margin expected to be in the range of 5.5% to 6%.
• Adjusted diluted EPS expected to be approximately $0.11 to $0.13.
• Full-year outlook remains unchanged despite tariffs, with Q2 being seasonally the lowest volume quarter.

• Tariffs pose a significant challenge, with the situation being fluid and requiring assessment of various scenarios and mitigation levers.
• Macro environment uncertainties, including foreign currency fluctuations, Red Sea disruption, and potential impact on consumer demand.

Q: Could you provide a percentage breakdown of sourcing by key countries for the investors on this call? What are your suppliers saying about providing potential concessions? And then on passing some of the tariffs down the value chain, how much -- when do you think you can raise pricing?

A: Michelle Gass said they are in the early days of assessing tariffs, have a task force, will look at structural cost changes, work with stakeholders including vendors, and pricing will be surgical with consideration of brand strength and consumer behavior.

Q: How are you planning inventory levels going forward on wholesale orders? What are you seeing from the accounts? And how are you thinking of the denim market growing and what should we be looking at given the linen and denim and new things coming and how you're thinking about pricing?

A: Harmit Singh said inventory at end of Q1 was up 7% with healthy composition, prudent in inventory planning, and Michelle Gass said Levi's brand is strong with growth in men's and women's, women's up 12% overall, and pricing will be surgical considering consumer and brand value.

Q: Could you elaborate on key drivers of the 9% organic growth, maybe consumer demand and market share trends that you're seeing in the Americas? And, Harmit, could you speak to the cadence of gross margin in the second quarter relative to the back-half?

A: Michelle Gass said 9% growth driven by DTC up 12% and wholesale up 5%, with strong market share gains in men's and women's. Harmit Singh said record gross margins in Q1, driven by product costs, mix, and full-price selling, with Q2 margins expected to be up 80-100 basis points and back-half margins muted but still up.

Q: Can you give us a sense of that organic net revenue growth, how you see that by region?

A: Harmit Singh said U.S. low to mid-single-digit, Europe mid-single-digit with wholesale expected to return to growth, Asia mid-single-digit, DTC high single-digit, and global wholesale flat to slightly up.

Q: Just on the guidance for Q2. Can you give us a sense of that organic net revenue growth, how you see that by region?

A: Harmit Singh said U.S. low to mid-single-digit, Europe mid-single-digit, Asia mid-single-digit, DTC high single-digit, global wholesale flat to slightly up.

Q: Hey, thanks, guys. Can you tell me how you're thinking about the various macro backdrops of the major regions that you operate in and also how you're looking at the competitive landscape currently? If you're seeing any changes in terms of promotions either increasing or decreasing and just sort of what is the backdrop that you're thinking about by your major regions?

A: Harmit Singh said Q1 was a good indication of momentum with broad-based growth, consumer generally resilient, and promotions are being tightened with focus on full-price sales.

Q: Good afternoon, and thank you for taking our question. I was hoping you could talk a little bit more about your playbook should the macro-environment worsen? What's the cost structure of your business today? How much is fixed versus variable? And how much additional SG&A leverage can you drive this year to offset higher product costs if the macro-environment worsens materially?

A: Harmit Singh said they are planning, with cost structure having a mix of fixed and variable, and they are looking at all options including cost initiatives, stakeholder management, and pricing options to offset potential higher product costs.