Levi's Denim, Campaigns Drive Higher Sales

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00:00How is the consumer doing?

00:03Well, thanks for having me, Carol and Bailey.

00:05It's great to be here again.

00:08You know, we had a real strong quarter,

00:10four consecutive quarters of high single-digit growth

00:13and record gross margins,

00:16as well as the fact that we were able to raise up full-year guidance,

00:20as well as gross margin and EPS expectations.

00:25Overall, as a company, we're a stronger

00:28and a higher-performing company defined by accelerated growth,

00:33expanding margins, and higher return on invested capital.

00:36To your question about the consumer,

00:38the consumer is largely being resilient.

00:42You know, our products are really well segmented.

00:45You know, we have BlueTab,

00:47which is our premium high-pinnacle product,

00:50and that's doing well.

00:52We've introduced that in the U.S.

00:54So far, so good.

00:55We have a RedTab product that is basically marketed to consumers

01:00who earn between $100,000 and over,

01:04and that's, you know, based on our results, really done well.

01:06And then we have, you know, a signature product sold through Walmart

01:11that, again, had a banner quarter,

01:13and that's for, you know, lower-income consumers.

01:16So consumer strength is really strong.

01:19That's where we were able to raise the full-year guidance,

01:21and our product pipeline hasn't been stronger.

01:23Now, if you go outside the U.S.,

01:26an international business was up in the high single digit,

01:29and so Asia had a strong quarter, consumer strong.

01:33Europe had a decent quarter, consumer in a better place,

01:36and so is Latin America.

01:38Well, I'm just going to lay it out for you.

01:39I think I bought my first pair of Levi's in a long time,

01:42just a couple of months ago.

01:43And my daughter, who's 22, so much younger than me,

01:46has been buying Levi's for a while.

01:47So, Bailey, I mean, they're back.

01:49I go into the store in downtown in the village, and, yeah, it's packed.

01:54Well, you get a partnership with Beyonce,

01:56all the marketing you guys are spending in terms of targeting both young and older generations.

02:00But, Harmeet, I want to ask about tariffs.

02:03So Levi expects tariffs from China about 30 percent,

02:07but increased expectations to 20 percent from the rest of the world.

02:10Where are you sourcing your jeans materials?

02:12Is it more – are you more exposed to that doubling in terms of

02:17are you getting materials from Vietnam in place of China?

02:21Yeah, so overall, we're taking a holistic approach

02:24as we are able to offset the tariff impact.

02:29You know, as you think about this here,

02:30we raised guidance in the top line and the bottom line and gross margin.

02:34So, you know, we've been able to withstand that.

02:36To your specific question, Bailey,

02:38we source about 1 percent we import into the U.S. from China,

02:45a little over a percent from India.

02:47Most of – and Vietnam is in the mid to high single digits.

02:52So most of our imports are from the Southeast Asian countries.

02:55Think Bangladesh, think Pakistan, and the rest of Asia.

03:02The way we think about our supply chain, it's fairly well diversified.

03:07We import from about 20 countries into the U.S., 60 percent of our businesses outside the U.S.

03:13And so we're well positioned to mitigate and offset tariffs.

03:18And the way we're thinking about the holistic approach,

03:21given that volume is driving a big piece of our, you know, revenue momentum,

03:27and we have tenured vendor relationships, we're working with our vendors,

03:33we're looking at different cost efficiencies across our organization,

03:37as well as, you know, being very thoughtful about pricing.

03:41So let me just ask you, though, you guys did – you know, you mentioned you raised your full-year outlook.

03:46You did warn that tariffs are starting to bite.

03:50Profitability, too, measured by gross margins, improved.

03:52So these are the good stuff, but, again, that tariffs are starting to bite.

03:56Harmeet, can you tell us what that means, the bite of tariffs?

04:01When, when, how much?

04:04You know, any color around that.

04:06Sure.

04:07So, you know, overall, you know, we were able to raise top-line and bottom-line guidance,

04:12despite absorbing tariffs.

04:13And so we are able to mitigate it.

04:16To the question about tariffs, you know, tariffs were introduced on Liberation Day.

04:23We normally buy our products, you know, six months in advance.

04:26And so, you know, we are working through, you know, our efforts.

04:32And we've got different levers to kind of position it.

04:36So you take quarter three, the quarter we just reported.

04:39Gross margins are record.

04:41So we're able to offset tariffs because we've got other things working for us.

04:45You know, as we grow our women's business, our direct-to-consumer business,

04:49and international, all of which are accretive to gross margins

04:54and allow us to, you know, mitigate and offset some of the tariff exposure.

05:00Quarter four, we did guide gross margins to be slightly down versus a year ago.

05:05And had it not been for tariffs, you know, we would have grown gross margins.

05:09But overall, as we think about the year, we'll report, again, another year of record gross margin.

05:15So we're working on levers for 2026.

05:18The good news is we'll end the year stronger.

05:21And we believe we're well-positioned to have another strong year in 2026.

05:27And, Carol, we've talked with a good friend, Peter Atwater, for quite some time about that K-shaped recovery

05:31where people who are well-off are doing much better than those really in the bottom quintile.

05:37Harmeet, when you look at your goods, when you look at the ability to raise prices from the impact of tariffs,

05:43which products are you able to more easily raise prices where you aren't going to see consumers push away?

05:48And how are you thinking about that strategy as it relates to, say, the genes that you do sell through a Walmart

05:54where you don't have that gross margin going direct to consumer?

05:56And you do have likely, at least when we look at the data, a consumer who's feeling the pinch of inflation, broadly speaking.

06:03Yeah. And so the first thing, Bailey, to your question, is our products are well-segmented

06:09depending on the income profile of different consumers.

06:13I talk blue tab, red tab, and Signature.

06:17Signature is what's sold into the lower-income consumer.

06:22We've been very thoughtful about pricing.

06:24We're leading with product innovation rather than price.

06:27And so we're doing what we can to maintain our price point.

06:31It was evident in quarter three.

06:33Signature, for example, I think is up in the low double digits for the year.

06:36As we think about our other products, the good news for us is our product pipeline has never been stronger.

06:45We're leading with loose and baggy while at the same time selling a lot of slim and skinny, both for him and her.

06:53You know, we've got wonderful, you know, waist-up products.

06:57Think trucker jackets, think linen shirts, et cetera, et cetera.

07:01And so as a company, we're making this pivot to be more of a denim lifestyle retailer going forward.

07:10Our past was all about denim.

07:12Our future is going to be about denim lifestyle.

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