Levi CEO Says Company Is Meeting Challenges

Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube. Search Bloomberg clovel News. Shares of Levi. They are certainly an outperformer, up almost nine percent in two day's session, and this is after a third quarter sales top Wall Street expectations. The company also boosting its full year profit outlook,

authorized a two hundred million dollars share buyback program. So great to have with us, Levi Strauss and Company CEO Chipberg, Hey, Chip, so nice to have you here on Bloomberg. Um, how are you And it seems like you guys had a pretty good quarter. Yeah, it was a great quarter. It's great to be here with you, Carol, thank you very much for having me. We're really pleased with the quarter, especially when you consider the macro economic headwinds that we've

been facing, supply chain challenges and everything else. Our team around the world is just doing an exceptional job executing. We've delivered sales growth of versus last year. But importantly, UM, we were up three versus pre pandemic, and um you know we expect to be up versus in the fourth quarter as well. So really good quarter on strong profit delivery. But you know, we've we've just done a great job navigating all of the challenges that are facing the industry.

I can hear it in your voice. I think both Tim and I are looking at them. So tell us about the challenges. I mean, what is it that you can't get, What is it that you have to pay a lot more for? Tell us about that? Well, I think you know, supply chain challenges have been in the news and have affected really all of the soft line UH and apparel stocks over the last three three months or so. UH pork challenges are obviously an issue. COVID is impacting a number of countries in Asia. Many factories

are shut down. But what we've got going for us. Is I actually believe our global supply chain is a competitive advantage. UM. We have a huge amount of scale. UM. We source. We made a decision a long long time ago that we were not going to put all of our eggs in one basket. UM. We source from twenty four different countries. No country represents more than our total

volume UM. And we also cross source. About half of all of our volume is crosssource, meaning we could make that same product in different factories in different countries, which gives us an incredible amount of agility. So that if a factory shuts down unfortunately because of COVID, we've can quickly move that production h to somewhere else that's still operating. So that's given us a ton of agility. I mean, just to dimensionalize that, the vietnamsment in the news a

lot here lately. UM, we're importing less than four percent of our product right now from Vietnam UM UH and so that's that's big. We've also been really agile on the on the shipping front. In fact, we've locked up about sevent our shipping through the first half of next year of the compacity that we need UH. And we've been able to, you know, ship deliveries from the West coast to the East coast given the West coast court challenges. So our diversified supply chain and the team that we've

got really is a big competitive advantage. We left, you know, we did one and a half billion dollars of revenue in the quarter. We left ten million dollars of revenue on the table from unfilled orders. Really a great really a great job. Common prices have surge year of a year, according to Bloomberg in Intelligence, shipping prices I know for

you have increased. You did say yesterday, levis indicated that you have pricing power and you're able to pass on some of these increased costs that you face two consumers. How much pricing power do you have? How much more our customer is going to pay for their levis? Well, a couple of things to first of all, Um, you know, there's it's clear inflation is here. And it's not just cotton, it's everything. It's labor costs, it's shipping costs, it's truck costs,

it's it's really everywhere. Um. We saw it coming over a year ago and we took pricing. We've been taking pricing for the last year. Our au R s are up pretty significantly over the last two years, and it's because we saw inflation coming and we've been pricing ahead of inflation and have been successful. It's sticking and so a lot of that, and that's part of the reason you're seeing such high gross margins fifty seven and a half percent gross margins this past quarter. We've been in

the fifty seven's for the last three quarters, UM. And it's because as we've successfully passed on pricing. We don't buy cotton, we buy fabric from mills, and we've already negotiated our cost of good soul through the first half of two with a low single digit one percent cost inflation built into our cost of goods. We're in the midst of negotiating for the second half. I expect that's

going to be higher. Obviously, given what's happening to cotton, we're expecting it's gonna be somewhere in the mid single digit area. UM. If it's more than that, we may have to take additional pricing, but priced ahead of inflation, and feel that we're in a pretty good place right now. We're also confident in the strength of the brand that if we need to take more pricing, we can do that very surgically and and you know, and recover the

higher costs to maintain your margins basically exactly. Hey, listen, you said, I thought it was interesting to have you said, um, that you saw inflation coming about two years go. Are you saying that there were problems in the supply chain pre pandemic, because I think this speaks to we are trying to figure out inflation transitory or not. Right, it's the big big question of the day. What would you say someone who has to manage your supply chain so carefully?

Is this a bigger deal that lasts that stays with us longer. Yeah, it wasn't really two years ago we saw coming. It was about right, kind of coincidental with the pandemic and the lockdowns. We knew that there was already going to be pressure from a labor standpoint. We were seeing that here in the US in particular. Um, you know, I know there's a lot of debate about whether inflation is transitory or not. I personally believe it's here to stay. And that's why we started taking pricing

action early. Is you know, instead of a big, huge leap and prices. It's it's better to get the consumer there slowly over a series of price increases, and and and so we got going on it early, and I think we're out ahead of the curve. Are a U R s are up kind of in the mid high single digit area versus a year ago and two years ago. Um, so I believe it's here to say. I mean, we're looking at higher labor cost. Wage wages are going up

pretty significantly around the world. There's shortage of of labor for different types of skills. So I think we're looking at this for at least the next couple of years. Really quickly, ten seconds, am I gonna troll getting my Levi's for Christmas? Now there will be Leavis underneath your Christmas tree. We're spending more on air freight this quarter than we'll we typically do in a normal year. We're gonna do everything we can to make sure we service

the demand that is out there. We're chasing inventory right now. And you know, I jokingly say we're spending so much on air freight, we could probably buy a seven board and seven Funny it's under your tree, and I hope you'll be giving lots of levives for others to under their tree. Got it, got it well here Sant has done well in the stock market, so he can afford to uh spend a little bit more to get it all here. Hey, listen, thank you so much to come

back soon, because your story is an incredible one. Levi Strauss and Company CEO Chipberg. This story, the story the stock also one of the outperformers of the day. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. So this week's cover story, it also happens to be today's Bloomberg Big Take on the Bloomberg Terminal. It is about tether. It's the world's

most popular stable coin. Is a type of cryptocurrency that is favored by traders to mainly because it's backed by really U S dollars. Yeah, but where maybe not? Is it backed by US real real U S dollars? That's the question. It's this week's cover story. Joining us now is Zeke Fox. He's a financial investigations reporter at Bloomberg News. He's with us in the Bloomberg Interactive Broker Studio is he.

I don't even know where the start. We have inspector gadget, a retired plastic surgeon, a star of the Mighty Ducks, all being characters in a story that trails multiple continents. Yeah, so it's it's been a mystery for years. There's always been this cryptocurrency called tether that's worth a dollar because each coin is supposedly backed by a dollar in the bank. But there have always been these critics who are saying, where are these dollars? Really? Does this company really have

the money it claims? And this year they've been printing like a crazy amount of tether's, so there's now sixty nine billion of them, which means the company is supposed to have sixty billion of real dollars somewhere, of real US cash. It needs to be backed by real US cash exactly. That's what they've promised. And I went out to try and figure out, all, right, where is this money, what have they done with it? On how much of

it did you find? Chill Webber, joining US editor about Business Week, was a little disappointed because I was hoping there would just be like a pile of gold somewhere, but I realized that that's not uh, that's not really how how money work. Yeah. Um. But it turns out that they're one of the biggest banks is down in the Bahamas, and I went and met with the chairman

of the bank. It's called Dell Tech, and he said that they hold about fifteen billion I think he said of the of the sixty nine, but he's not quite sure. He can't speak for He said that money safe, it's here with us, but he can't speak for the rest of it. Um. So I mean, the reason this is really important is that, uh, tether is sort of like at the center of the cryptocurrency world. You might think it's kind of like pointless, like why would you even

want a cryptocurrency that wasn't going to make you rich? Um, But this is the one that you use to send money from one exchange to the other to place your bets at the exchange. Essentially, if you think of the cryptocurrency exchanges as like giant casinos, these are the chips, and all the casinos make you get the same chips, which are tethers. So it's like the connection between all the different parts of the cryptocurrency world. And so if

these coins aren't worth one dollar. It could throw all these markets out of whack, would be like a huge deal for for all of crypto worth mentioning what he did before he was a Bahamed bahamaed binker. Yes, so very impressive, dude, Jean Chalapin, the chairman of Deltech. He actually the first big success was creating the cartoon about the cyborg cop inspector gadget or cyboards with my childhood. Yeah, um world. So he got he got very rich from

from that and making also some other cartoons. He uh sold his studio, moved to the Bahamas, where he bought this beautiful pink colonial mansion that you probably saw in the James Bond Foam Casino Royale. It was the it was the it was the villains. It was the villain's house in that and it's certainly nice enough to be that. And he then bought this bank in the Bahamas. And I mean, the whole thing is kind of is hugely hard to wrap your mind around, but essentially tether needs

to have it needs banks. It needs banks to hold money because people send tether real money to get the tether coins. And they've had a lot of trouble over the years finding banks that will do business with them, because a lot of banks have just not wanted to do business with cryptocurrency companies in general. And so he this Dell Tech Bank of the Bahamas was one of the few that would and really save them at a time when they were struggling to figure out what to

do with their money. Might this be a Ponti scheme? So that's what some of the harshest critics have said. I mean, the information that I got is that, um, they are taking this money and investing it, and rather than it just being totally a giant scam, it's all made up. It's more about a conflict of interest where when you buy a tether coin, you really want it

to be safe. You really want to get your dollar back no matter what if you uh yeah, But if you're the it turns out that the the way it structured, the owner of the tether company, he's not sitting on sixty billion dollars. He can invest that money in different things, and any earnings on those investments go to him. So even if he earns like one that's six and ninety million dollars, and uh, there's not much expenses in running

this company. It's a really small operation, so his incentive is to invest in weird stuff to try and make some money. And what I found was that in fact, a fair amount of it billions was invested in Chinese commercial paper, which is kind of like, uh, something that people on Wall Street really avoid. Like there's a most commercial papers held by money market funds and they just basically will not buy Chinese commercial paper. There's very few of them have much of it. Um So this is

like a big risk. So what's at risk for crypto and maybe the rest of us if you can't trust tether? So all of the on some of the biggest exchanges to the trades are denominated in tether, and it's becomes so natural that people almost forget it. But like you're buying your bitcoin versus tether, and so if the if people no longer trusted tether, they would all, uh, I want to dump tether for to buy whatever they could with it before if they're worried that like it could

go to zero. Um. So it kind of bizarrely on those exchanges, it would probably drive up the price of cryptos in a short term, but it would it would be uh uh, at least in tether terms um, but it'd be like a huge disruption because still, even like almost a decade into this whole cryptocurrency boom, a huge part of the economy, the crypto economy rests on these weird stable coins instead of real dollars, and it's something

that the traders kind of take for granted. But like, well, stable coin like talk about the messaging there, and we think that there could be uh some news in the near future out of DC around stable coins, right just quickly. Yeah, so there's like uh Treasury Department commissioned a report about state bookcoins all. Basically every financial regulator has said somebody's got to do something about this, and it's not clear exactly what they're gonna do, but it seems unlikely that

they'll just uh let it ride. Where you have the whole cryptocurrency world relying on this unregulated sixty nine billion dollar quasi bank thing called tether well on the money trail from Taiwan to Puerto Rico, the French revie of mainland China and the Bahamas. He didn't go to all the places, but he didn't go to some. It is an amazing story. It's the cover story of Bloomberg Business Week magazine. Zeke Fox, financial investigations reporter here at Bloomberg News,

along with Joeld Webber, editor of Bloomberg Business Week. Check it out. It's the new issue of Business Week. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, we told you about some of the COVID headlines that were in the stories that we are following, specifically the story about heart damage and rocking COVID survivors a year after the

after they get infected. Joining us now is senior scholar from John's Hawkins Center for Health Security and the Bloomberg School of Public Health. Dr g g. Gronville joins us on the phone from Baltimore. Dr Gronvall, It's great to have you back with us. One thing that I've been thinking a lot about when it comes to UH, when it comes to where we are in the pandemic, is

testing and the evolution of testing. And we did hear from the Biden administration that they are making a significant push to increase the availability of home tests this week, and I wonder to what extent you think that that will help us get to the other side of the pandemic if we can easily get home tests. Yeah. So home testing is really important and I think, um it's been uh demanded by lots of people. Um that's why

you haven't seen them on the shelves recently. UM. So this move to increase manufacturing and to you know, get more than them a little bit more cheap so that people can actually afford to use them, um will be a really welcome change. And it's something that other countries been doing, so it's really good that the US is finally doing this as well. Okay, help me understand though.

These are not PCR tests that we will have access to at home, right, No, No, they these are a tests that um that look for the look for the amount of virus basically that you have in your nose at that moment. So you get a result umty minutes

depending on the test after you take it. And so it's really it doesn't have the amplification step that PCR has, so that it can't it can't detect like really weak signals and tell you that you might be infectious in two or three days, but it can tell you if you're infectious right now, which is really a key thing

for public health. I do think that's a challenge. Carol and I are, you know, traveling for the first time in a long time, and we have to get a PCR test within what a certain number of hours before we go to this event. I think it's like three days, two or three days. Well, And I have to say I was googling last night and this morning and looking at boosters and what the CDC says about who's allowed to it, and it says, you know, if you are likely to be around a population where you increase your

chance maybe if I think getting COVID. I was, I really was trying to understand because I have to say, I'm a little I'm coming to the six month point of my second vaccination and trying to understand. I really don't want to be one of those people who really aren't approved at this point to go get a third shot. But I am thinking about it. Do I need to

be concerned? And some of what I've read is said you've got immunity and your body has this great memory response that if you do get COVID, it will react and take care of you so that you won't be hospitalized. I mean, that's the science behind it. But nonetheless, I get a little nervous when people say, even if you get COVID there could be long haul UM complications. That freaks me out. What's your advice to all of us? Yeah, I think it's important for people to not overthink this.

And we don't have a supply issue right now, so UM, you know there there if you get a shot, do you get a booster shot? It's not like that shot UM would have gone to somebody else who really needed it. There's really good data to support UM older people UH to to get the booster shot. That that's clear, that's UM. The science is there for that. It's a little murkier for people who are not seniors UM, whether or not

they need it. But these are safe and effective vaccines. UM. You know, if if if you think that you might UM at least give you a piece of mind, then go ahead and get it. Because because the guidance right now is so broad UM that you know, you probably are encountering people who you are being being put into positions where you might be UM at higher risk. Who knows UM, But you know, there's it's not like, it's

not like there's a supply issue at stake here. Is it a mistake that there's not more clear federal guidelines and guidance on who should get these and when they should? And I asked because I know people who are work in education who are in their thirties and doctors in the thirties who have or are getting boosters soon, But people in their fifties or sixties who don't haven't gotten any guidance about it. Right, Yeah, I think they left. So there's the science, and then there's a limit to

what you can say based on the science. And then there's the policy decision, which is that you know, right now the door is kind of open for people who want to have a booster to have it. So, yeah, it is. It is vague, but they have been as clear as they can about what the science supports. And I agree it's it's it's vague, but it's nobody is going to be, I think, prohibited from getting a booster as long as there's six months out from their second shot.

All right, that's good guidance because we were we were really wondering about it. Hey, how often do you there's been some great research that our team has done about the next wave, the fourth wave COVID nineteen. Uh, the immune escape variants. How many conversations are you guys having at Hopkins about that? And just got about forty five seconds? Sure, So, um, you know, every time the virus replicates with the chance to mutate, so you have to worry that there's going

to be additional variants. Um, right now, we can just need to do what we can to get transmission under control. So that means unvaccinated you need to get vaccinated. We need more testing so that people who are infectious can limit their possibility to spread. So, um, we just have to keep doing what we're doing, and globally it's not easy. This is the hardest pandemic I've ever been exactly. Hey,

Dr Gronville, thank you so much. We appreciate your time and everybody over at Hopkins for really helping create so much and clarity for us on this subject. She's Senior Scholar at Johns Hopkins Center for Health Security, the Bloomberg School of Public Health, supported by Michael R. Bloomberg, founder, Bloomberg ALP and Bloomberg Philanthropies. On the phone from Baltimore, So are you convinced you're gonna get a Yeah, you're

gonna do it and get that. I'm thinking about it getting that booster because it is kind of vague, and I'm thinking we're gonna be around a ton of I'm going to be around a lot of people in the next month. Did you get on a Fridays of Saturdays? You don't feel great? Okay, we'll talk about the suraday. You are listening to Bloomberg I'm road, yeah, but you let me drive? Oh no, no, no, no, this is not a twin home A right, please, I'll do good

riding revels. I want to drive? Which good question? Drive? This is the drive to the globe dawn on Bloomberg Radio. Isn't heed Friday's eve? The next stay at the beginning? Well, that's because your mind is still thinking that, you know, Thursday's go Friday. I'm working on that with the team Suggestion Box. Watching the market trade, your Charlie say that we are coming off our highs. We're definitely have moved down in the last hour or so, but still higher

when it comes to those major equity average. So let's get to it. Charles Lemonids is founder and chief investment officer at the investment manager Value Works. They focus, as you would expect, on a value to the plan. He joins us once again on the phone in New York City. How are you very good? Thank you very much for having me. Well, we have seen some interesting market gyrations. There's definitely a bit more volatility back into the market. But we have seen what three days of gains now

on the S and P five hundred. What's your outlook here, Charles. Yeah, we've seen three days of gains UM, but we've seen a really rough September coming into those three days of gains. So yeah, my view is that the past month and a half we've sort of consolidated UM the big upward move we had earlier in the year. Markets have been sort of churning at these higher levels UM gave giving back a little and now maybe making a push to new highs. Look, it was really important to have the

noise out of Washington toned down a little bit. UM. You know, as we get close to debt ceiling UM and these budget um crisis moments, you know, the markets tend to stall. We've pushed that off a little bit and our investors can start focusing on what's happening in the real economy, what is happening in the real economy, and we get the jobs for tomorrow, economists expecting five thousand um, that would be, that would be that would look pretty good, that's right, And you know that that's

a big number for for us. We're going to care about that a lot, and it means a lot um. And then right after that we're gonna start hearing a lot of earnings releases from companies. And the sum was very interesting because things were really percolating along very very well for the economy until the sort of mid late August and into September, when the impact of what was happening in the COVID crisis in the delta variant really hit the economy and you saw that in some retailers

results that have already come out so far. But we're gonna hear a lot more from companies, you know, as earnings releases come out next week in the week after.

Talking about whether that was a six weeks bump in the economy and whether things are already re accelerating, which I sort of think is the most likely case, or if that that little bit of a slowdown is broughtening out, My sense is that we're seeing past the worst of the of the delta variant disruption to the economy, and so I think you could be hearing from companies next week and the week after that earnings for the for

the last quarter. We're good, that inflation is picking up in their businesses, that there's a lot of demand and there's a lot of growth in front of us, of course, until the fourth wave happens and then we get those variants that the vaccines. Sorry, I don't mean to be such a bummer, but you are our San Fizzelli, really smart writing about this. I'm sorry, what do you I mean, do we need to think about that or just deal with it when and if it happens, and hopefully it doesn't,

we do need to think about it. But you know, two years ago when this all started, um, you know, there were people saying, hey, you know, sometimes these pandemics go on a couple of years. Um, here we are, and here we are two years in, and you know, maybe this is the end of it, you know, And I mean, look, I've been thinking it was the end of it for you know, six weeks in front of us, for the past two years, so you know, it may or may not be um contra done in six weeks?

Have be done in six weeks? Well, I do, though I do wonder. You know, we we talked a lot about the quote unquote new normal, and at least the way that I'm thinking about a lot of my friends are thinking about it. We're learning to live with it. And it's not great, like I don't like, you know, getting my son tested every week and you know, waiting in line to do that. But we do that and then we go on with our day and we continue to buy things, and we continue to go visit friends,

and we're careful. But we have adapted, and I think people have adapted and they've adapted their spending habits as a result. I think the question is do they get back to work? And do they go back to work? And that's where half a million jobs, you know, in the month of September would be an interesting data point. I think the answer is yes. The other thing that we've seen that's been very, very concrete is that economic demand,

demand for goods and services has been pretty robust. And it's not because we are aren't impacted by the COVID epidemic. It's because we've had a tremendous amount of stimulus from a federal government, both in monetary and fiscal policy. So you know, we've got dollars in our pockets and we

want to spend them. And you know, the challenge for companies is being able to deliver the cars that we want, the boats that we wanted over the summertime, um and and so you're seeing pressure on all sorts of costs and you're probably going to see a lot more of that in the weeks ahead in these earning results. So, Charles, if we get that five print on non farm payrolls tomorrow, that would be a strong indicator of the strength and

the economy and jobs coming back. At the same time, it would also lend more support to the FED easing back when it comes to asset purchases. And maybe you know, at some point they'll start to think, you know, get get more specific about when rates start to go higher. How might though, was strong jobs report translate into the equity trade tomorrow. Well, you know, your point is a very very good one, because that's exactly what is on

everyone's mind. Will the FED be as accommodative as they said they're going to be or will they again, you know, start tightening conditions a little too quickly. They've been telling us that they're going to stay loose for long, and I am inclined to believe them. I think the FED is likely to let this economy run really hot for you know, another year or so before they you know,

at all starts to pull in the reins. And and in my experience, it takes a couple of years before FED tightening actually hits the economy, you know, reacts to two news of FED tightening really fast. But what tends to happen is that the economy continues to to move aggressively um expanding, and so then the market catches up to the economy. And and it takes a couple of

years for FED tightening to slow economic growth. So I think we could have economic growth for four more years, s just real quick in the last thirty seconds that we have. How hot do you think the Fed is willing to let the economy run? Steve Minustian telling around David Weston earlier today that he's worried this is going to be ongoing inflation and we could end up with three point five percent ten year treasuries. Well, look, if that happens, you better not be a treasuries and you

better not be in cash. So I guess you better be in equities, you know, if that's the environment we go into, you know, I think you get a return on equities next year, and I think that's a very very real risk. Yeah, it's all timing and how this all plays. And as you said, uh, FED policy is a delayed impact. But certainly investor psychology about what the Fed may do, even if it's not actually happening, can certainly also impact the trade. We've seen that before. Hey, Charles,

thank you so much. Charles Lemonides, he's founder and chief investment officer at Value Works on the phone in New York City. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Search to Bloomberg Global. New was