Levi Strauss & (US:LEVI)2024-10-03 03:25Financial Data and Key Metrics Changes - In Q3 2024, net revenues increased by 2% in constant currency and 3% when excluding the Denizen business, reaching $1.5 billion [6][23] - Adjusted EBIT margins expanded by 250 basis points to 11.6%, with adjusted EBIT dollars increasing by 27% [20][25] - Gross profit for Q3 was $911 million, representing a record gross margin of 60%, an increase of 440 basis points year-over-year [24][26] Business Line Data and Key Metrics Changes - The Levi's brand grew by 5% globally in Q3, marking its best quarterly growth in two years, while Dockers underperformed, declining by 13% [6][39] - Direct-to-consumer (DTC) revenues increased by 12%, with U.S. DTC also up by 12% [15][27] - Beyond Yoga saw a growth of 19%, driven by strength in wholesale and e-commerce [18] Market Data and Key Metrics Changes - The Americas region saw a 2% increase in revenues, while Europe returned to growth with a 7% increase [27][28] - Asia's net revenues increased by 4%, with significant strength in markets like Turkey and Japan, although challenges persisted in China and the Middle East [28] - The women's business outperformed, with global growth of 4% in U.S. wholesale and 11% in DTC [61] Company Strategy and Development Direction - The company is focusing on a DTC-first strategy, narrowing its focus to the Levi's brand and Beyond Yoga, while evaluating strategic alternatives for Dockers [7][39] - The overarching strategy aims to transition from a denim bottoms brand to a head-to-toe denim lifestyle brand, with significant growth in dresses and skirts [13] - A new global marketing campaign featuring Beyoncé is expected to enhance brand visibility and drive sales [11][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term potential of the Levi's brand, despite challenges in China and Dockers [8][29] - The company anticipates mid-single-digit revenue growth for Q4, driven by strong momentum in the Levi's brand and DTC channels [29][30] - Management highlighted the importance of maintaining profitability and cash flow discipline, with expectations for continued margin expansion [20][21] Other Important Information - The company returned $69 million to shareholders in Q3, including $52 million in dividends and $18 million in share repurchases [26] - Inventory levels were down 7%, with a healthy composition expected to end the year lower than the previous year [26] Q&A Session Summary Question: Can you talk about the drivers of this quarter's revenue miss and your confidence in Q4 acceleration? - Management identified foreign exchange impacts, particularly from the Mexican peso, and underperformance in Mexico and Dockers as key factors for the revenue miss, but expressed confidence in Q4 acceleration due to strong momentum in the U.S. and Europe [35][36] Question: Can you elaborate on the rationale for the Dockers evaluation? - The decision to explore strategic options for Dockers is aimed at focusing on the Levi's brand and Beyond Yoga, as Dockers has underperformed for some time [39][40] Question: What are the drivers of the 5% global growth for the Levi's brand? - The growth is driven by strong DTC performance, with 12% growth globally, and a focus on women's business, which has gained significant market share [42][45] Question: How should we think about gross margin expansion moving forward? - Management reiterated the goal of growing gross profit dollars faster than SG&A, maintaining a long-term expectation of 30 to 40 basis points of annual gross margin expansion [46][47]