LEVI STRAUSS & CO Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Brand-Led: Levi's brand grew 9% overall, with 6% growth in men's and 14% in women's. Launched REIIMAGINE campaign with Beyoncé, collaborations like Sacai and NIKE.
• Product Evolution: Shift to denim lifestyle brand; tops business grew 16% this quarter. Trend of quiet western, lightweight fabrics, and new product innovation.
• DTC-First: Global DTC up 10%, strong comps. Enhanced consumer experience, e-commerce up 13%, opened 16 net new doors. Loyalty program with 40 million members worldwide.
• Portfolio Powering: International up 10%, led by Europe's 15% growth. Beyond Yoga up 12%, DTC up 31%. Sold Dockers brand, focusing on Levi's brand.

Segment Performance

• Americas: Net revenues up 9%, operating margin increased 270 basis points to 20.5%. DTC up 10%, wholesale up 8%. U.S. business grew 7%, LatAm up 18%.
• Europe: Net revenues up 15% in Q2, operating margin 17.2%, up 210 basis points. DTC up 9%, wholesale up 23%.
• Asia: Net revenues flat to prior year. Took actions to improve structural economics, operating margins contracted 150 basis points. DTC up double digits in several markets. Year-to-date Asia grew 5%, expected mid-single-digit growth for the year.

Guidance

• Full Year: Raised organic net revenue growth to 4.5%-5.5%, reported net revenue growth 1%-2%. Gross margin expected to expand, EBIT margin 11.4%-11.6%, adjusted diluted EPS $1.25-$1.30.
• Q3: Organic net revenue from continuing operations expected up 4%-5%, reported net revenue growth 3%-4%. Gross margin flat to up 30 basis points, adjusted EBIT margin 10.8%-11.2%, adjusted diluted EPS $0.28-$0.30.

Risks

• Tariffs: Assumes 30% tariff on goods from China and 10% on others. Mitigation initiatives include promotion optimization, pricing actions, vendor negotiations, supply chain diversification.

Question and Answer

Q: Congrats on a great quarter. Drivers of demand strength, moderation of Levi's brand, market share gains.

A: Broad-based growth across channels and categories. Brand strength fueled by product, marketing, and collaborations. Market share gains due to strategy shift to DTC-first and denim lifestyle evolution.

Q: Walk through gross margin inflection. What's changed structurally?

A: Higher DC efficiency, narrowing focus (exit of Denizen, Dockers), productivity in assortments, reduced promotions, and full price sales.

Q: Organic wholesale revenues, 2H outlook.

A: Wholesale up slightly for the year, 3Q wholesale expected low to mid-single digits, driven by prebook and demand signals.

Q: Marketing activations, marketing spend, AURs.

A: Upcoming marketing activities including REIIMAGINE chapter for women and men's campaign. Marketing spend around 7%, AURs broad-based across geos, channels, and categories.

Q: Margin profile of DTC, SG&A trend.

A: DTC EBIT margins improving due to revenue per square foot, new product throughput, cost management. SG&A leverages with organic revenue growth.

Q: Tariff assumptions, price increases.

A: Assumes 30% tariff on China, 10% on others. Pricing targeted, AURs driven by both volume and price.

Q: Enhanced loyalty program, back half contribution.

A: Loyalty program expanded, but no specific back half contribution breakout.

Q: AUR lift, wholesale inventory, lifestyle assortment with retail customers.

A: AUR lift broad-based. Wholesale inventories in good shape. Lifestyle assortment enables new opportunities with retail customers.

Q: Asia performance, men's vs women's growth.

A: Asia resetting, expected mid-single-digit growth. Men's growth strong with innovation, women's underpenetrated with significant growth opportunity.

Q: Europe momentum, medium-term growth.

A: Europe performing well, strong leadership team, relevant product, and DTC strength. Medium-term growth in mid to high single digits.