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All right, folks, Levi's strausshers. They are trading slightly lower today after dropping as much as fourteen percent on Friday. This is after the company's upgraded earnings guide and still fell short of hire investor expectations, following the stocks more than forty percent rally heading into that earnings print. Now. One key disappointment, at least according to analysts out on the street, is earnings growth failing to match the pace
of sales expansion due to tariff and distribution costs. Me time, gotta say, Bailey, you did have td cow and raising its price target on the stock to twenty six from twenty two a share, and they've got their by rating.
Yeah, staying bullish. And you look at the street thirteen analysts, ten of them buys. So is it a sell the news event? Price to perfection?
We see it's a really good part. So let's see what one of the companies members of the C suite have to say. Harmit Singh is with us, chief financial and growth officer at Levi Stras. He joins us from our San Francisco bureau. Harmy, it's so good to have you here here with us. How are you and how is the consumer doing well?
Thanks for having me, Carol and Billy, it's great to be here again. You know, we had a real strong quarder for consecutive quarters of high single digit growth and record gross margins, as well as the fact that we were able to raise up fully of guidance as well as gross margin and EPs expectations. Overall, as a company, we're a stronger and a higher performing company defined by accelerated growth, expanding margins, and higher return on invested capital.
To your question about the consumer, the consumer is largely being resilient. You know, our products are really well segmented. You know, we have Blue Tap, which we which is our premium high pinnacle product and that's doing well. We've introduced that in the US, so far, so good. We have a Redtap product that is basically marketed to consumers who earn between one hundred thousand and over and that's,
you know, based on our results, really done well. And then we have you know, a signature product sold through Walmart that again had a banner QURDA and that's for you know, a lower income consumer. So consumer strength really strong. That's where we were able to raise the fully guidance and our product pipeline hasn't been stronger now if you go outside the US and international business was up in the high signal digit and so Asia had a strong quarder,
consumers strong. Europe had a decent quarda consumer in a better place than so is Latin America.
Well, I'm just going to lay it after you. I think I bought my first pair of Levi's in a long time, just a couple of months ago. My daughter, who's twenty two, so much younger than me, has been buying Levi's for a while. So Bailly, I mean they're back. I go into the store in downtown in the village and yeah, it's packed.
Well, you get a partnership with Beyonce. All the marketing you guys are spent in terms of targeting both young and older generations. But Harmie, I want to ask about tariffs. So Levi expects tariffs from China about thirty percent, but increase expectations of twenty percent from the rest of the world. Where are you sourcing your genes materials? Is it more are you more exposed to that doubling in terms of are you getting materials from Vietnam in place of China.
Yeah, so, or we're taking a holistic approach as we are able to offset the tariff impact. You know, as you think about this year, we raise guidance in the top line and the bottom line and gross margin. So you know we've been able to withstand that your specific question, Bailey, we source about one percent we import into the US from China, a little over a percent from India most of and Vietnam is in the mid to high single digits.
So most of our imports are from the Southeast Asian countries think Bangladesh, think Pakistan and the rest of Asia. The way we think about our supply chain, it's fairly well diversified. We import from about twenty countries into the US. Sixty percent of our businesses outside the US, and so we're well positioned to mitigate and offset tariffs. And the way we are thinking about the holistic approach, given that volume is driving a big piece of our you know,
revenue momentum, and we have tenured vendor relationships. We're working with our vendors. We're looking at different cost efficiencies across our organization as well as you know, being very thoughtful about pricing.
So let me just ask you though you guys, did you know you mentioned you raised your full your outlook, you did warrant that tariffs are starting to bite profitability to measure by gross margins improves.
So these are.
The good stuff, but again that tariffs are starting to bite HARMI can you tell us what that means? What the bite of tariffs?
When? When?
How much you know any color around that?
Sure? So you know overall, you know, we were able to raise top line and bottom line guidance despite absorbing tariffs, and so we are able to mitigate it. To the question about tariffs, uh, you know, tariffs will introduced on Liberation Day. We normally buy our products you know, six months in advance, and so you know we are working through you know, our efforts and we've got different leavers, uh to kind of position its who you take. Quarter three,
the the Quarterbach has reported gross margins are record. So we're able to offset tariffs because we've got other things working for us, you know, as we grow our women's business, our direct to consumer business and international all of which are a creative to gross margins and allow us to you know, mitigate and offset some of the tariff exposure
a cord of four. We did guide gross margins to be slightly down versus a year ago, and had it not been for tatiffs, you know, we'd have grown gross margins. But overall, as we think about the year, we'll report again another year of record gross margins. So we're working on leavers for twenty twenty six. The good news is we'll end the year stronger and we believe a well position to have another strong year in twenty twenty six.
And Kara, we've talked with a good friend Peter Atwater for quite some time about that key shaped recovery where people who are well off are doing much better than those really in the bottom quintile Harmie. When you look at your goods, when you look at the ability to raise prices from the impact of tariffs, which products are you able to more easily raise prices where you aren't
going to see consumers push away? And how are you thinking about that strategy as it relates to say, the genes that you do sell through a Walmart where you don't have that gross margin going direct to consumer, and you do have likely at least when we look at the data consumer who's feeling the pinch of inflation.
Broadly speaking, Yeah, and so the first thing barely to your question is our products are well segmented depending on the income profile of different consumers. I talk blue tab, red tab, and signature Signature is what's sold into the lower income consumer. We've been very thoughtful about pricing. We're leading with product innovation rather than price, and so we're
doing what we can to maintain a price point. It is evident in quarter three Signature, for example, I think is up in the load double digits for the year. As we think about, you know, our other products. The good news for us is our product pipeline has never been stronger. You know, we're leading with loose and baggy while at the same time selling a lot of slim and skinny both for him and her. You know, we've got wonderful you know, waste up products, think trucker jackets,
think linen shirts, et cetera, et cetera. And so as a company, we're making this pivot to be more of a denim lifestyle retailer going forward. Our past was all about denim. Our future is going to be about denim lifestyle.
I just want to know, do you really have a pair of baggy barrel jeans. I can't get my head around them. I'm trying, I'm trying. I'm just I.
Haven't done it.
I haven't done it, Armie. What I do want to ask you to is you guys have had kind of a mission, a goal to get to ten billion in sales by twenty twenty seven. I think you may have adjusted a little bit. I think also a fifteen percent EBIT margin. Could you reach fifteen percent in the next few years even if sales have not hit that ten billion, you know, talk to us little bit about that mission.
Yeah. No, you know, we gave out the expectation of ten billion and fifteen percent on I invested Day in the middle of June twenty twenty two. Since then, you know, there's been a lot of change and a lot of un certainty. As a company, we've kind of, you know, navigated our way through uncertainty. We haven't given a new date on the ten billion and the twenty and the fifteen percent. Our thinking is we'll probably do that sometime
next year. But your question, the company that we are building and the company that has got the foundation, given where we're ending this year, so you take twenty twenty five, we'll end about six percent organic growth. Last year it was three percent. The year before that it was flat. If we're thinking EBIT margins, this year, we'll end about mid levens. Last year it was in the mid tents.
The previous year it was about nine. So we've seen a steady progress and our view is we probably get to the fifteen percent faster than we get to the ten billion. But really a company that is steadily delivering mid single digit growth in a category that probably grows a little, you know, south of that. So our view is that we will. We are market leaders now in the US, number one in men's, number one in women's,
and rarely resonating with the youth. And so the question is if you're able to stay at you know, and implement our strategies our views, we can continue to be a market leader and probably pick up a little bit of share, especially because the denim category is accelerating. We've seen the acceleration in the US, we've seen the acceleration outside and that's largely driven by the world becoming more casual.
Yeah, I have more genes in my wardrobe than I've ever had in like since high school. Like it's really kind of wild. Anyway, Billy and I can get another question.
I was just gonna ask in terms of geographic expansion. When you think about China, what's going on with China and also what products do the Chinese consumers want? Is it that high end good or is it more of a bargain purchase.
Yeah, so China for US is still underpenetrated. China represents about two or three percent of our business. You know, our business in China has been slow and soft. The Chinese consumer right now is going through a bit of a macro on certain climate. But the good news for us is they love the brand. Our brand equity scores are really solid. We think China can be, you know, a business that grows double digit over the long term. But your specific question, the Chinese consumer is fairly discerning
on the brands he or she gravitated to. There is a high end consumer as well as a consumer that lies the mid market consumer, what we call the coproducts. So if we think about our Asia strategy, we really you know, our products are relevant for the mid market consumer, while we also offer products for the higher premium end consumer. Thirty percent of the Asian denim category is premium. Uh
and you know premium. For example, a high Spinnacle product is largely Japanese uh uh, you know, fabric Japanese denim and inspired by Selvision. So that's what we are selling. And I think over time we'll be able to start growing a China business back in in the load double digit.
Rainy interesting seth, I will say, Carol, I know you mentioned you have more jeans than ever. I have been buying the Sherpa jackets, the denim jackets like crazy. I don't know why. I have three of them in different colors.
I've brought a bunch of denim jackets.
That's what I'm in. I'm like, I don't wear jeans, I wear chinos, but I wear the denim jackets like crazy.
I know, I just I don't know.
I love it.
I love it. Ebody. I works every morning. Yeah, and Bailey and Carol. Now we've got the blue tab. It's it's it's a full of jacket. You can definitely wear two off it depending on the on the on the uh you know, uh. Dress environment at Bloomberg walked in here fairly casual, so you know it's something that we are not bringing to offer. We should make your wardrobe at some stage.
Hey, one last question, does it feel like God HAMI the It's been a crazy year and a lot of stuff coming at everybody, investors, the world at large. Does it feel like things are starting to calm down on a day when we've talked about what seems like progress in a ceasefire between Israel and Hamas.
Yeah, you know, as I mentioned earlier, you know, we have lived through uncertainty. You know, the good news for us is the category strong. We have real business momentum, The brand's never been stronger, and we have a product pipeline that has never been full, especially as we head towards holiday. You know, our focus right now is making
sure a product is on the on the floor. Because of what we have seen Carol is consumers gravitate to new and gravitate toward's relevant and you know, and you know, our view is if we can offer the right product and build a brand experience. And that's why we've got real focus on our direct to consumer business while complementing growth with our wholesale business. So this quarder, you know,
both DDC and wholesale was up. We had in the US five consecutive quarders of high growth, and it's fueled by both the channels.
All right, O, Harmie, when you talk with your design team, I like high waist buttons, kind of slim through the legs and then a little flare. I'm just gonna put it out there, a little stretch in there too. It's kind of my favorite, my favorite, my favorite, you were, Jeb, thank you.
Yeah. And I'll take that feedback, Karen. I know, I sincerely believe feedback is a is a gift, and getting feedback from consumers like yourself is something that I'll take upon myself to feedback to our designers.
All right, I'm going to hold you to it. All right, good stuff, Armie, thank you so much for me, It's saying Chief Antal and Growth Officer Vert Levi Strauss, joining us from our bureau in San Francisco.