LEVI STRAUSS & CO Q4 FY2024 earnings call

• Delivered strong Q4 results with net revenues increasing 12% on a reported basis and 8% organically. Entering 2025 from a position of strength.
• Sharpened focus on core Levi's brand by exiting Denizen, announcing exit of footwear, and preparing to sell Dockers.
• Accelerated DTC transformation with global DTC up 11% in full-year, reaching 47% of total net revenues, and 11 consecutive quarters of positive comps in DTC.
• Stabilized wholesale channel with Levi's brands in U.S. wholesale up 4% and Signature returning to growth.
• International business grew 9%, Dockers up 5%, and Beyond Yoga up 4% (double-digits full-year).
• Strong product pipeline driving growth in Levi's brand (up 8%), women's business (up 12% in Q4, nearly $2B full-year sales), men's business (mid single-digit growth in Q4), and global marketing initiatives driving demand across channels.

Americas: Net revenues were up 9%. U.S. direct-to-consumer grew 11% due to higher full price sales, improved traffic trends, and better in-stock positions. Mexico returned to growth supported by wholesale strength. Operating margin for the segment was 26.5%, improving 270 basis points versus prior year. Europe: Net revenues increased 6% in Q4 with all key markets delivering growth. Direct-to-consumer accelerated 17% in the quarter, driven by e-commerce growth of 23%. Operating margin was 18.3%, up 130 basis points to prior year. Asia: Net revenues increased 9% compared to prior year. DTC net revenues grew 8% led by company operator stores, and wholesale net revenues were up 10%. Key markets like India, Japan, and Turkey saw double-digit growth. China expected to return to growth over time but had modest expectations for 2025. Operating margin of 8.4% contracted 360 basis points to last year due to marginal loss in the China business and higher spend in DTC expansion and advertising.

• Full-year organic net revenues are expected to grow 3.5 to 4.5 percentage points. Reported net revenues are expected to be down 1% to 2% due to foreign exchange, exit of Denizen and footwear, and the impact of the 53rd week.
• Q1 '25 organic net revenue growth is expected to be 3.5% to 4.5%, with reported net revenues down 1% to 2% due to foreign exchange.
• Gross margin is expected to expand to approximately 61% for the full year. SG&A rate is expected to be approximately 50%, about flat to 2024. Adjusted EBIT margin is expected to be around 11%, and adjusted diluted EPS is in the range of $1.20 to $1.25.

• Macro environment uncertainty including potential tariffs, changes in the tax code, and worsening foreign exchange.
• Volatility in the wholesale channel.
• Marginal loss in the China business and higher spend in DTC expansion and advertising impacting Asia operating margin.

Q: Jay Sole asked about December performance, SG&A drivers, and tax rates.

A: Harmit Singh responded that Nocember (November-December) was up 8% organically, SG&A increase was due to volume, compensation, advertising, 53rd week, and distribution expenses, and tax rate normalized due to foreign tax credit planning.

Q: Paul Kearney asked about wholesale channel outlook and DTC margin improvement.

A: Michelle Gass said wholesale was up 3% in Q4 with U.S. wholesale up 4%, guiding flat for 2025 due to prudence, and Harmit Singh said DTC profitability improved due to streamlined selling model, refined labor model, and upgraded systems.

Q: Matthew Boss asked about denim category health and organic growth outlook.

A: Michelle Gass said denim market grew 1-2% globally, Levi's was ahead of market, women's business is number one in U.S. market share, and 2025 organic growth expected by executing strategies.

Q: Brooke Roach asked about organic growth by region and margin expansion.

A: Michelle Gass said low to mid single-digits in Americas, Europe, and Asia, and Harmit Singh said gross margin expansion due to cost of goods sold improvement, structural mix, and full price focus, with first-half margin expansion higher.

Q: Paul Lejuez asked about square footage growth and comps.

A: Harmit Singh said new stores are 2,500-4,000 sq ft, opening 50-60 net new doors in 2025, and DTC has positive comps for 11+ quarters with new doors performing well.

Q: Laurent Vasilescu asked about distribution costs and sourcing.

A: Harmit Singh said distribution expenses were up due to transfer and parallel run of DCs, and sourcing from Mexico is ~5% and China <1% to U.S.

Q: Jim Duffy asked about tops, bottoms mix and non-denim categories.

A: Michelle Gass said denim bottoms remain key, but tops, dresses, non-denim bottoms are growing, with tops now 40% of business and bottoms-to-tops ratio improving.

Q: Ike Boruchow asked about Docker profitability, Denizen, and footwear.

A: Harmit Singh said Docker is ~$325M business, Denizen exit mostly completed, footwear exit impacts 2025, and organic growth excludes these headwinds.