LEVI - NYSE

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Company Fourth Quarter and Fiscal Year-End Conference Call for the period ending December 1, 2024. All parties will be in a listen-only mode until the question-and-answer session, at which time instructions will follow. This conference call is being recorded, and may not be reproduced in whole or in part without written permission from the company. This conference call is being broadcast over the Internet and a replay of the webcast will be accessible for one quarter on the company's website, levistrauss.com. I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Company.

Thank you for joining us on the call today to discuss the results for our fourth quarter and fiscal year-end. Joining me on today's call are Michelle Gass, our President and CEO; and Harmit Singh, our Chief Financial and Growth Officer. We've posted complete Q4 and fiscal year-end results in our earnings release on the IR section of our website, investors.levistrauss.com. The link to the webcast of today's conference call can also be found on our site. We'd like to remind you that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Please review our filings with the SEC, in particular the Risk Factors section of our Form 10-K for the year-ended December 1, 2024, for the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today, and we assume no obligation to update any of these statements. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. Reconciliations of our non-GAAP measures to their most comparable GAAP measure are included in today's press release. Reconciliation of non-GAAP forward-looking information to the corresponding GAAP measures, however, cannot be provided without unreasonable efforts due to the challenge in quantifying various items, including, but not limited to the effects of foreign currency fluctuations, taxes, and any future restructuring, restructuring-related severance, and other charges. This call is being webcast on our IR website, and a replay of this call will be available on the website shortly. Finally, please note that Michelle and Harmit will be referencing organic net revenues unless otherwise noted. As described in our press release and 10-K, organic net revenues exclude the impacts of foreign exchange rates, divested business, acquisitions, and any 53rd week from the change in reported net revenue. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now, I'd like to turn over the call to Michelle.

Thank you, and welcome everyone to today's call. You'll hear from us today that we delivered strong Q4 results, including through the holiday season that our strategies are driving momentum in the business and that we are entering 2025 from a position of strength. In 2024, we took several bold steps to position Ellis & Co. for sustainable, profitable long-term growth. We sharpened our focus on our core Levi's brand by exiting Denizen, announcing the exit of footwear and preparing for the sale of Dockers. We accelerated our DTC transformation, generating high single-digit comp growth in 2024, while also expanding our store base globally. We stabilized wholesale channel trends, driving improvement in performance through the year. We advanced our evolution to become a true lifestyle apparel brand by rolling out a robust product pipeline. We launched our breakthrough campaign with global icon Beyoncé, reaffirming Levi's place at the center of culture, which is driving demand across our business, especially in women. And for the year, we delivered solid mid single-digit growth for the Levi's brand in the U.S. and internationally. We have done all of this while fundamentally changing the way we work as part of our hard pivot towards becoming a best-in-class omni-channel retailer. We have right-sized our organization, expanded our product pipeline, and are streamlining how we work, including our go-to-market. And as we look to 2025, this transformation will continue, enabling us to operate with greater speed, improved agility, and more responsiveness to consumer demand. While we are just one year into this exciting next chapter for the company, our fourth quarter performance demonstrates how this transformation is accelerating both the top line and bottom line. In Q4, net revenues increased 12% on a reported basis. On an organic basis, excluding the non-comparable items in the quarter of the exit of the Denizen business and footwear, the impact of the 53rd week in FX headwinds, net revenue grew 8%. Our performance accelerated throughout 2024, resulting in organic net revenue growth of 3% for the full-year. The continued strength of our brand is reflected in the all-time record gross margin of 60%, which helped drive 120 basis points of adjusted EBIT margin expansion, translating to a double-digit increase in earnings per share to $1.25 this year. In the fourth quarter, we saw strong growth across every aspect of our business. As a reminder, all net revenue numbers will be on an organic basis. The momentum we saw in Q4 continued through holiday. As we elevate our capability as a best-in-class retailer, we were extremely focused on winning the holiday season. We put a number of programs in place to ensure we had the right strategies to delight our fans and equip our stylists to deliver outstanding experiences during this critical time. We had a more comprehensive holiday assortment. We were well-stocked and replenished. We delivered traffic-driving marketing in-store and online, and we staffed the service consumer demand. This led to a robust 8% growth during the November-December holiday season, marking our highest revenue for this period in at least a decade. Across the board, this was a strong quarter, driven by consistent execution of our strategic priorities, which, as a reminder, are being brand-led, DTC-first, empowering our portfolio. First, we'll walk through the progress made against our brand-led strategy, which centers around how we're amplifying the power of the Levi's brand through an innovative and fresh product pipeline, and culturally relevant marketing. For the quarter, the Levi's brand was up 8%, driven by strong growth across categories and genders. Let's start with the women's business. The momentum we have seen in our Levi's women's business this year continued into Q4, growing 12% and delivering nearly $2 billion in sales for the full-year. This was driven by continued share gains in the U.S., now firmly placing Levi's as the number one women's denim brand on a 12-month basis, a significant milestone for our company. And our Levi's men's business accelerated from approximately flat through Q3 to a mid single-digit growth in Q4, as we introduced more newness to our assortment, especially loose fits, and as the wholesale business strengthened. Our global marketing initiatives continue to help drive demand across all channels of our business. Before our last call, we launched the first chapter of Reimagine, our campaign with Beyoncé. This partnership is having a significant impact on brand affinity within our target consumer demographics, while supporting our focus on growing our women's business and owning denim lifestyle. We're excited to launch the additional chapters of Reimagine throughout 2025 with the next iteration coming soon. A year ago, I shared my commitment to elevate our denim authority and evolve into a full lifestyle apparel brand through an expanded product pipeline and introduction of new innovative platforms. I am pleased to share it's working. In 2024, we delivered a significantly expanded product assortment with newness across categories, fits, and fabric. This innovation is fueling growth with consumers more willing to pay full price. And we continue to see strong performance in our core offerings as well, such as in our most coveted icon, the 501. In the quarter, our Levi's Bottoms business was up 8%, driven by strength in both men's and women's. We continue to see outperformance in loose and baggy fits, driven by new fit launches like the XL and rib cage wide leg for her, and the Loose 568 and Relaxed 555 fits for him. This year, we made significant progress expanding our authority as a head to toe denim lifestyle brand. As the authentic purveyor of Western wear, we are continuing to drive the broader trend across genders with our iconic denim Western tops, shorts, jumpsuits, and dresses. We have also seen a strong response to the denim outerwear offerings, which we launched in time for the holidays, with styles like the super puffer and spade trench. And we continue to feel growth in one of our newer categories, dresses and skirts, with relevant fashion, newness, and expanded assortments. With respect to expanded lifestyle categories for men, we continue to see strength in men's non-denim bottoms fueled by our XX Chino series, as well as our [TechGant] (ph) platform. Given the strong consumer response, we will continue to expand that platform in the coming year with new elevated offerings. Over the last year, the product team has been hard at work to deliver an end-to-end reset of our Levi's Tops business. And we're seeing encouraging results with this business up 8% in Q4. Growth was fueled by elevated essentials, blouses, and button downs, which we expect to sustain as consumers begin to see us as a destination for these categories. Looking to 2025, we will lead the trends with another exciting pipeline of newness and innovation. This spring, we will assert our denim leadership through the introduction of our latest innovation, linen plus denim, while building up our momentum in loose and baggy with additional launches to come. This will be complemented with an expanded assortment of lifestyle categories, such as tops, dresses, and outerwear, all rooted in denim. Now shifting to our strategy to be DTC first, our global direct-to-consumer business delivered another quarter of double-digit growth, up 14% and posting its 11th consecutive quarter of positive comps. Over the past year, we have been laser-focused on our retail fundamentals, which translates to an improved consumer experience. Along with broader assortment and better in stocks, our enhanced retail execution is driving increased conversion and a mid single-digit increase in AUR. We are also seeing strong incremental performance from our new stores. In Q4, we opened 33 net new stores, including one in London's iconic Knightsbridge neighborhood, and two large format stores in India and Malaysia as we continue to expand our DTC presence in Asia. Our e-commerce growth was again very strong, up 14%, and importantly saw further margin expansion in 2024. For the full-year, global DTC was up 11%, approaching 3 billion. This represents 47% of total global net revenues, four points ahead of last year. Our global wholesale business continues to be a critical part of our business and inflected to growth this quarter, up 3%, exceeding our expectations driven by strong performance in the U.S. and growth in Asia. Within U.S. wholesale, the Levi's brands were up 4%. Retailers are responding to the significant amount of newness across our assortment, which is driving an acceleration in the men's business. And while we're encouraged by our performance in the quarter, we continue to approach this channel cautiously. As expected, Signature, our value brand, returned to growth in the quarter, driven by the success of some of our core fits, like the Signature men's athletic fit. Now turning to our third strategy, powering the portfolio, in Q4, our international business grew 9%, led by strong performance in our top four international markets, Mexico, France, the U.K., and India. Dockers was up 5% in the quarter, reflecting broad-based growth across channels and geographies. Profitability exceeded prior year, driven by higher sales volume and gross margin expansion. Beyond Yoga was up 4%, on top of 19% growth in the prior year, and was up double-digits for the full-year. Our broadened product assortment is gaining traction, especially in fleece and outerwear. We are also excited to open our first East Coast store in Connecticut later this year. As we look to the year ahead, we are encouraged by the momentum that our strategic priorities are driving across the business. We are focused on accelerating our performance on both the top and bottom line by, first, continue to drive Levi's growth across genders and categories and create powerful brand moments. We will do this by broadening our brand relevant lifestyle assortments while maintaining our leadership and denim bottoms in our key markets. Second, further accelerate our direct to consumer channels while reinvigorating our wholesale business. We will continue to hone our retail fundamentals, deliver relevant and innovative product assortments and drive demand through engaging marketing. And third, accelerate growth across our geographic portfolio by generating profitable growth in our largest regions, North America and Europe, and leaning into the opportunities in fast growing regions such as Latin America and Asia Pacific, while stabilizing greater China. We will also continue to pursue a successful next chapter for Dockers as we explore a sale of the brand, and we remain confident about the prospects for Beyond Yoga to one day become a billion-dollar brand. We will deliver these priorities by focusing on operational excellence, improving the structural economics of our business, and optimizing our processes and ways of working. We have a talented and committed team in place to deliver these objectives, and we're encouraged by the progress we have achieved together in year one of this next chapter for Ellis & Co. With that, I'm going to hand it over to Harmit to review our performance in the fourth quarter and expectations for 2025 in more detail. Harmit?

Thank you, Michelle. We've closed out the year on a strong note with quarter four net revenues, profitability, free cash flow, and overall earnings exceeding our guidance. I'm particularly pleased with the sequential progression and improvement of our structural economics as we move through the year, enabling us to enter '25 with real momentum. Organic net revenues accelerated through the year, ending up 8% in Q4. While DTC momentum continued through the year, wholesale ended the year strong, up 3% in quarter four. Gross margins accelerated from 59.3% in H1 to 60% in Q3 and 61.3% in Q4. Adjusted EBIT margin accelerated from 7.6% in H1 to 11.6% in Q3 and 13.4% in Q4. DTC productivity and improvement of the channels margins by more than 300 basis points contributed to the company's overall margin expansion. For the full-year, we also generated record free cash flow and improved return on invested capital that is now in the mid-teens. This momentum continued into December with a strong holiday selling season in both direct-to-consumer and wholesale, as well as a solid start to quarter one '25. Let's briefly go through the results, starting with revenues. Revenues accelerated in Q4 and came in higher than our expectations. Outperformance in the quarter was driven by men's, U.S. wholesale, and Europe direct-to-consumer. Mexico and Dockers also return to growth. Our references to revenues will refer to organic revenues, which as you will hear in '25. Overall organic revenues growth is expected to continue to accelerate. Turning to margins, we saw significant year-over-year improvement in both gross and operating margins. Gross profit for the fourth quarter was $1.1 billion or 61.3% of net revenues, an all-time record gross margin for the company. Gross margin expanded 350 basis points relative to last year, ahead of our expectations, driven primarily by the continued benefit of lower product costs, including savings from fuel initiatives, the shift to DTC, as well as higher full price sales. Adjusted SG&A expenses in the quarter increased 17% to $880 million, primarily reflecting the expenses associated with higher sales. SG&A deleverage was driven by increased investment in A&P, higher distribution expenses as a result of our DC transition, and higher compensation incentives given our quarter four performance, offset by leverage on selling expenses, which we achieved through greater focus on store profitability. For context, SG&A will end the year at 49.8% of revenues, and we expect the percentage to be broadly the same in 2025. Gross profit dollars increased by 19% and outpaced adjusted SG&A dollars growth, leading to EBIT leverage. Adjusted EBIT margin increased 120 basis points to 13.4% in quarter four and 10.2% on a full-year basis. Adjusted EBIT dollars grew 23% versus last year for the quarter and 17% on a full-year basis. Adjusted dilute EPS of $0.50 was up 14% to prior year for both the quarter and the year. We ended the year with reported inventory dollars down 4% to prior year. Turning to dividend and share repurchases, for the full-year, we returned $289 million to shareholders, which was up 45% to prior year. This includes $199 million in dividends of 4% versus prior year and $90 million in share repurchases. In quarter one '25, we declared a dividend of $0.13 per share, an increase of 8% versus prior year. And we remain committed to returning capital to our shareholders in 2025. Now let's review the key highlights by segment. The America's net revenues were up 9%, higher full price sales, improved traffic trends, and better in-stock positions led to 11 percent growth in U.S. direct-to-consumer. And Mexico returned to growth, supported by strength in wholesale. Strength in gross margin drove operating margin of 26.5% for the segment, improving 270 basis points versus prior year. Europe net revenues increased 6% in Q4, with all key markets delivering growth. Direct-to-consumer accelerated in the quarter, up 17% from its continued performance in e-commerce, which was up 23%. Operating margin of 18.3% was up 130 basis points to prior year. Asia net revenues increased 9% compared to prior year. DTC net revenues increased 8% led by strength in company operator stores, in addition to wholesale's net revenue, which were up 10%. We saw real momentum in key markets led by India, Japan, and Turkey, which were up double-digits. In China, we have reorganized our leadership team and expect this market to return to growth over time, but with modest expectations for 2025. Operating margin of 8.4% contracted 360 basis points to last year, primarily due to the marginal loss in the China business, as well as from higher spend in DTC expansion and advertising. Now, let's turn to our fiscal '25 and Q1 '25 outlook. We are pleased with our Q4 results and the momentum into Q1 '25. However, we recognize there continues to be a lot of uncertainty related to the macro environment, potential tariffs, changes in the tax code as well as worsening foreign exchange. While we have a number of initiatives that we believe will help us to drive organic sales and earnings in the next few years, the best approach for us is to plan prudently. We expect full-year organic net revenues to grow 3.5 to 4.5 percentage. As a reminder, net organic revenue growth excludes FX, the exit of Denizen and footwear, and the impact of the 53rd week. Based on current FX exchange rates, currency is expected to be a 250 basis points drag to '25, revenues primarily driven by the euro, Mexican peso, and the Indian rupee. The impact of Denizen and footwear exits and last year's 53rd week will collectively account for a 300 basis points headwind. Incorporating all of these items, reported net revenues are expected to be down 1% to 2%. By channel, our expectations include high single-digit organic growth in direct-to-consumer for the full-year, driven by positive comp sales, opening of the new doors, and continued growth in e-commerce. And in wholesale, while encouraged by recent results, we are taking a prudent approach to planning this business and expect the channel to be flat for the full-year on an organic basis. Turning to gross margin, we expect full-year expansion of 100 basis points to approximately 61%. This reflects continued benefits from lower product costs driven by project fuel savings, continued structural shifts to DTC, international, and women's, and the benefit from exiting a lower margin Denizen and footwear businesses. We expect the full-year SG&A rate to be approximately 50%, about flat to 2024. The continued expenses associated with growing DTC are offset by cost management initiatives as we continue to improve the structural economics of this business. This translates to an EBIT margin of around 10.9% to 11.1%, a significant expansion from prior year. We expect our full-year effective tax rate to be approximately 23%. This reflects the normalization of our tax rate after realizing benefits from our strategic tax planning in the previous years. As a result of these assumptions, adjusted diluted EPS is expected to be in the range of $1.20 to $1.25, including an approximate $0.20 cent headwind from the higher tax rate and foreign exchange. On the CapEx line, we plan to invest approximately $260 million primarily to support store openings, fleet improvements, and our digital business. After opening 100 net new doors in 2024, we expect to have 50 to 60 net new system doors this year, positioning us to exit '25 with around 3,500 stores. Now turning to the first quarter, we expect organic net revenue growth of 3.5% to 4.5%. This excludes approximately 3.5 points of foreign exchange headwind and two points attributable to the exit of Denizen and our footwear business, which implies being down 1% to 2% for the quarter on a reported basis. Gross margin is expected to be up between 150 to 200 basis points, and EBIT margin is expected to be between 10.2% to 10.5%, expanding 120 to 150 basis points versus prior year. This translates to an EPS of approximately $0.26 to $0.28, which includes $0.02 to $0.03 headwind from foreign exchange. Our 2025 guidance is grounded on a balance of both organic revenue growth and margin expansion. Over the last several years, we've made a concerted effort to become a leaner, more efficient, focused, and profitable company. This strategy is paying off in the form of faster growth, higher margins, and improved returns as evidenced by organic revenue growth progressing from flat in fiscal '23 to 3% in '24 to 3.5% to 4.5% expected in '25. Gross margins progressing from 56.9% in '23 to 60% in '24 and 61% expected in '25, adjusted EBIT margins progressing from 9% in '23 to 10% in '24 to 11% expected in '25, free cash flows moving from over $100 million in '23 to more than $600 million in '24, and ROIC has improved from 12.9% in '23 to 14.9% in '24. Overall, 2024 firmly established the foundation of our ongoing transformation to a DTC-first denim lifestyle company. We're exiting the year with momentum. And I'm confident that we're improving the structural economics of this business as we set our eyes on becoming a $10 billion company with 15%percent operating margins. And with that, I will open up the call for Q&A.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Jay Sole of UBS. Your question, please, Jay.

Great. Thank you so much. I guess, a couple of questions, first, you mentioned that the first quarter data is good. Obviously, you gave some guidance talking about organic growth, I think, 3.5% to 4.5% for Q1. Can you talk about how December went? Obviously, it's a key month in the holiday season. And at the same time, can you maybe dive into SG&A in Q4? Maybe give a little bit more color on the drivers quantifying it possible? And then on the tax rates, if it's all about the tax planning, is there a global minimum tax impact seen? Those are the three questions that I have. Thank you.

Hey, Jay. This is Harmit. So, let me try and address your three questions quickly. We don't give December separately, but we do talk about Nocember, which is November and December. And I'd say, first, we had a very strong holiday season. The U.S. continued its strength across both DTC and wholesale. So, Nocember was up on an organic basis by 8%. And so, -- and gross margin continued to improve. And so, that's your perspective, or your response to your December question. The second question I think, you asked was SG&A. SG&A was up. We recognize that. We acknowledge it is higher than prior on our own expectation. But as we plan '25, we're confident that SG&A will be in line as a percentage of revenue as where we ended 2024. So, what drove the SG&A increase? I would say half of that was volume and compensation incentives, and the other half was probably Q4 specific items. The higher sales and higher comp was about half. The other specific items, first, higher advertising, that's a combination of two things; the majority of the increase year over year was because in '23, as we took pricing reductions, to offset that we did cut advertising. So, we normalized that in Q4. And the other piece was in the new Beyoncé campaign. The other thing we did do, we did spend a little bit more on demand advertising because e-commerce as we enter the holiday season in November was fairly strong. And we just ensured that that trend continued, which was reflected in December. The 53rd week was about $25 odd million. That's the extra expense. And then, we had distribution expenses related to the cutovers from Canton and our distribution center in Germany. Overall, as you can see, we still grew EBIT margins by 120 basis points. So, in '25, our expectation is that this -- the growth rate you've seen in SG&A will not continue. Our SG&A, as a percentage of revenue, will be around 50% as I said in my prepared remarks. And we have already seen in December SG&A rate normalize. And so, we're confident that SG&A in '25 would be at normal levels. Your third question, I think, was about tax. The last few years, largely we had foreign tax credits that were expiring. So, tax planning strategies were undertaken to offset the expiring foreign tax credits. And, that made a difference to the tax rate. Given that the remaining foreign tax credits are not material, we believe the tax rate normalizes in '25 at around, as I reflected in my script, at about 23%, which still, if we compare ourselves to a lot of our peers, still is relatively competitive.

Got it. Okay, thank you so much.

Thanks, Jay.

Thank you. Our next question comes from the line of Paul Kearney of Barclays. Please go ahead, Paul.

Hi, good evening. Thanks for taking my question. Can you talk about your outlook for the wholesale channel into 2025 to be flat? What is driving the conservative outlook? And anything that you can share on the order of books by geography? And my second question is can you talk about the drivers of improvement in the DTC margin and the potential to further expand that? Thank you.

Sure. Hi, Paul. It's Michelle. I'll take the first part of your question regarding wholesale. And then, Harmit will talk about DTC profitability. So, first in regards to wholesale and global wholesale, I'll start there. We were pleased that we saw an inflection to growth in the fourth quarter. We were up 3% globally, up 4% in U.S. wholesale for the Levi's brand. So, that includes both Red Tab and Signature. And I'd say simply that was driven by better execution on our part, better in stocks. We actually had to chase some items that were selling through. So, felt good about that. And then, secondly, in regards to our customers being excited about our fashion fits, especially loose and baggy. And then, our broader lifestyle assortments, more women's, more tops. And like I said, overall, more fashion. To your point, we are guiding flat for the year as we look forward. Order books in Europe are positive. I will say that. But, we're taking a prudent stance on this because we have over time seen some volatility in the channel. But like I said, we're encouraged with the underlying health and the results we saw in the fourth quarter. There's nothing unusual expected as we look forward. It's just that we are, like I said, being prudent given our experience with the wholesale channel over the last couple of years.

And Paul -- first, Paul, welcome to Levi's coverage.

[Perfect] (ph).

Your question on DTC profitability, overall for the year, DTC profitability, as I mentioned, was up 380 basis points. It was -- and it's a combination of higher productivity on the top line as well as better management of the store. So, let me talk to you about a few things that we're doing. First, we have really streamlined our selling model by making sure our stylists and the store associates really focus on selling. We're really looking at our compensation incentive program so that people are geared around both the top line and bottom line. We also really refined our labor model. And we are seeing efficiency across that line. And we're just getting started. We started with the U.S. We're taking it to other parts of the world. And we're really upgrading our systems for better forecasting and better inventory management. So, those are the factors that have really driven better throughput and higher EBIT margins. And as we have this ambition to be a DTC-first-led company, where DTC is going to be 55 plus percentage of our business, driving higher productivity and profitability in DTC is important. So, we're making a lot of progress there. The other thing that's happened, besides improvement in stores, is our e-commerce profitability. As e-commerce has ramped up, it has also dramatically improved. And e-commerce, profitably fully loaded, is now in the low double-digits. So, those are the two things that are helping drive the profitability on our direct-to-consumer business.

Thank you very much.

You're welcome.

Thank you. Our next question comes from the line of Matthew Boss of J.P. Morgan. Your line is open, Matthew.

Great, thanks. So, Michelle, could you speak to health of the denim category, exiting holiday, maybe larger picture in the U.S. and in Europe, and just your overall confidence in the three-and-a-half to four-and-a-half organic for '25? Any new categories that you're prioritizing and what you're seeing from pricing power for the brand?

Yes, you bet. Thanks for the question, Matt. So, first, what I would say, if we look at this year, the global denim market, the growth has been about 1% to 2% globally. And as from our overall 3% growth, that was both organic and as it turns out, reported thereabouts, we were ahead of the market. So, we feel good about that. Relative to your question in the U.S., I would say apparel and the denim market continues to be under some level of pressure. And so, it's paramount for us to continue to maintain and grow share. And I'd say, overall, we feel good about that. I mean, as in the men's area, we have the leading market share by a mile, and we're holding steady to that. If you look at us, we generally look at the past 12 months. And now for women, we are firmly in the number one position, in number one in the U.S. for market share. And that's a big milestone for the company. So, I would say there's not been a ton of change in the overall market. Maybe globally, it has slowed just a little bit. But as we look out, the forecasts are generally the same. The global market is expected to grow in that mid single-digit range. So, I would say that about the overall market share. One piece to note, and this will pivot me to 2025, is I think an important thing is we no longer just think about our opportunity as denim bottoms, right? We think about expanding our Total Addressable Market, or TAM as we call it, but this is really about this evolution from our business is denim bottoms to our business is total head-to-toe apparel rooted in denim. And so, when you think about that, it really expands our lens of what's possible in terms of the bottoms business, tops business, and head-to-toe. We also see trends in the marketplace. So, when you think about denim trends, that's one thing, but if you look at other categories like active, active athleisure, that category continues to grow. We're seeing, I'll get to this in a moment, around men's in total non-denim. But like in our new tech platform for men, which is Levi's way of doing sort of this athleisure we're seeing nice growth there and that will continue. It always has to be true to the Levi's brand. And then coupled with, of course, our Beyond Yoga brand, which is in its early days, but we do believe that has a lot of potential, a billion-dollar brand someday. And when we look at the long-term on the active category, those prospects continue to be very, very good. But within what we look ahead, within both the U.S. and globally, we see a lot of upside in core denim, in denim dressing, in denim lifestyle for men and women. And just as a side note, while we have a very stronghold lead market share in men, women's, we're underpenetrated. So, we're at 36% this year, which is a gain from last year. But over time, that should be 50% of our business, right? That's new customers. It's increasing frequency with existing customers. There's just a lot of upside. As we as we close out the year, as we said just now in our remarks we're proud of how we ended the year. We had a strong finish. I mean, 12% reported, but really our core metric of 8% organic growth is really strong. And we saw that across all channels, all geographies and all categories. And that momentum is being directly driven by our key strategies, which will strategies which will continue. So, we made this year was a pivotal year. We made a lot of changes. We've been doubling down on Levi's brand. We've exited some businesses. We're exploring a sale of Dockers. But with this focus, it allows us to really accelerate those core strategies that are driving the business. And I would say, well maintain and maintain leadership in men's ensure resiliency and stable, modest growth for wholesale. The real accelerations on the business are going to be these underpenetrated areas like women's, like denim lifestyle, call it top skirts, dresses, et cetera, and of course, direct-to-consumer, which is our overarching strategy. So, as we look to the year in driving 3.5% to 4.5% organic, which is a step up from our 3% organic this year, it really is about executing the playbook that is working today. And then, I just have to put out there that while we're confident in the continued strength, like I said, in women's and DTC, in non-denim bottoms, in men's and women's, in direct-to-consumer, maintaining comp growth, e-com, et cetera, that we're also doing this more profitably with expectation that growing EBIT margin by another just shy of 100 basis points. So, I speak for Harmit and I, but we feel like we have very strong plans in place to achieve these objectives.

It's great. All the best of luck.

Thank you.

Thank you. Our next question comes from the line of Brooke Roach of Goldman Sachs. Please go ahead, Brooke.

Good afternoon and thank you for taking our question. Michelle, I was hoping you could contextualize the opportunity that you see for organic growth next year by region. Is there anything that we should be contemplating where you see more or less opportunity between the Americas, Europe and Asia within the context of the 3.5% to 4.5% guide? And then, for Harmit, I was hoping you could help us contextualize the opportunity for margin expansion. Are there any quarters where we should be considering higher or lower margin rates, either on gross margin opportunity or on SG&A leverage? Thank you so much.

So, Brooke, I'll take the first one since you asked for color on that. I mean, as we think about the three regions, as you said, the Americas, Europe and Asia, broadly speaking, we're expecting low to mid single-digits in the Americas, mid single-digits in Europe, Asia, mid single-digits. And I think, overall that really goes hand-in-hand with those core strategies that I was just referring to around really betting on DTC in every region, having overall for the year, stable growth and wholesale, the women's opportunity and then the denim lifestyle opportunity. Harmit may want to add a little color to that, but I think that's overall what you should what you should expect.

Yes, and Brooke, to your question on gross margin. First, let me contextualize what is going to drive gross margins for 2025. We have indicated 100 basis points of gross margin expansion. And just to reinforce, we've been growing gross margin now for a while. I think when I joined the company, it was close to 50%. 12 years later, it is 60%. Last three years has grown nicely. And so, and next year, we believe will expand by 100 basis points. It's a combination of factors. The first I would say improvement in cost of goods sold. This is less about getting better rates from our vendors. It's a lot to do with what we're doing in Project Fuel and the transformation. Fewer SKUs making sure that we use fewer fabrics, et cetera. Just thinking about this a little differently, and that's why we believe these benefits not only happen in 2025, but continue for a while. The second is the structural mix DTC growth, international growth, women's growth, all structurally helping gross margin. And the third is this real focus on full price, especially as a product at home and in making sure we're able to sell more on full price over time. So, that's really why we believe those margins will continue to improve. And as we ensure that the SG&A increases year-over-year, as Jade asked, is mortars that drops on to EBIT. SG&A also, the mortars growth is also driven by we're not naming what the Project Fuel impact is in 2025, largely because it's embedded in each of these lines. But we're doing a lot to make sure our organic costs are in the check and in service to a DTC first enterprise. Your question about timing of gross margin, our view is that the first-half, the gross margin expansion will be higher. Again, it's a question of what happened last year. But also with all these other things we're doing on fuel, I think the first-half will probably be in the 150-200 range and the second-half quarter three is probably half of that. And quarter four is broadly flat, largely because we had a very strong quarter four. This is our expectation at this time and as the quarters evolve, we'll give you more information.

Great. Thank you so much. I'll pass it on.

Thank you. Our next question comes from the line of Tracy Kogan of Citi. Your question, please, Tracy.

Hey, guys, it's actually Paul Lejuez. Can you talk about what square footage growth was in F '24 and what you're planning to be in F '25? And I think you gave the store openings, but could you talk about that by geography? And also, if you could share what comp performance has been in the stores that have entered the comp phase in year one. Thanks.

Yes, Paul, we don't necessarily give square footage, but I would say generally our new stores that we're opening are between 2,500 to 3,500, 4,000 square feet. Asia is more towards the 2,500. I think Europe is more in between the 2,000 and the U.S. is more towards 3,500-4,000. We're trying to open stores in that range. We don't open a lot of flagships, a lot of large stores and largely and that allows us to drive productivity from that perspective. To your question, how many new doors did we open? And these are -- we're moving to more system doors, which is a franchisee as well us. Franchisee, we have of our three close to 3,400 doors at the end of '24. I would say we operated about 1,200 or so doors and the franchisees largely operated the rest. And I think as you saw in 2024, we opened as a system a little over a 100 doors. We also took back Columbia, which is not in the hundreds we take. And Columbia was a distributed market that was close to a 100 doors. In '23, I think we open close to a 100 system doors. In '25, in our view is 50 to 60 at this stage, largely because we do want to focus on growing our comp sales and system sales as we've done in the past. And so, that's where we're keeping a 50 to 60 number. Where are these doors opening? I think Asia, bulk of the doors are in Asia and followed by Europe, followed by the U.S. U.S. are those mainline doors that we'd open over the last couple of years are really performing well. So, over time, we'll step up the number of doors in the U.S. And so, you'll see that progress. The other thing is the 50 to 60 for 2025 also incorporates two things, we are in the past two years. We open Dockers doors as we intend to sell Dockers. We have completely shut that right now. And then, we've gone -- we're going slower in China for obvious reasons. And as the business underperforms, we want to really hunker down, make sure that our existing doors perform better before we start expanding. I don't know if that answers your question, Paul.

It does. I guess the last one was just about comps.

Yes. So, the comps, I think Michelle in her prepared remarks talked about high single-digit comps for last year. And the fact that I love to say from a DTC perspective our performance is delivering a trifecta. We've been reporting positive comp sales now for 11 plus quarters. And the new doors are performing well. That's where we're opening those. We also have those. We also have a process here where we do a postmortem and a hit rate which is do new doors meet their expectation. Hit rates have dramatically improved as you build in a lot more discipline. The second piece of the DTC performance is e-commerce. E-commerce has been growing in the high teens. And the third is just the fact we're opening doors. The very few retailers I would submit to all of you that actually are delivering an improvement in all three metrics for a while.

Thanks, Harmit. Good luck.

Thank you.

Thanks, Paul.

Thank you. Our next question comes from the line of Laurent Vasilescu of BNP Paribas. Your question, please, Laurent.

Thank you. Good afternoon, Michelle. Good afternoon, Harmit. Thanks for taking my question. Harmit, I wanted to ask on your 10-K, you're now breaking out distribution costs, which I think we're up like 21% or even in absolute terms for the year, about $70 million, which I think most of that was the conversion from your own to third party logistics. How do we -- should we think about that line item for the full-year in '25? And can you remind us when that happened in the -- was it in the fourth quarter, third quarter? Because I think we only have an annual number. And then, the second question, Harmit Contour Brands, I think 30% of their global productions in Mexico. Just love to get your take on how much of your sourcing comes from Mexico globally, but more importantly, into the United States. Thank you very much.

Yes. So, I'll answer the second quickly, which is and I'll also add China just for others. So, as far as direct sourcing into the U.S., right from China is less than a percent and from Mexico is about 5%. And so, it's not material. And if there is a change in the tariff structure, we'll be able to address that because we cross those, as you all know, from 25 countries. To your second question, Laurent, you get first prize for digging into our 10-K in like in an hour. But the to your question about distribution expenses. Yes, the year was up 21%. It was a combination of two things. Maybe we should explain better in the 10-K. One was we transferred distribution -- distribution expenses a year ago for e-commerce, a part of selling. So, we transfer that to where it should belong, which is in the distribution line. So, that's about that's half of the 21%. And the second is the parallel run of the DTCs, which is as we exit our DC Canton here and transition our DC that was probably half of the -- if you take the 21%, about 9% is this transfer, about 6% of the growth was the parallel running. And so, the -- if you just look at distribution expenses, organic distribution expenses, I hate to use the word organic here, but it's about 6%. I think as we think about '25, the again, comparable distribution expense will be probably 6% to 7% growth. There is the parallel running of the DCs, which continues for a little while in '25. But as we said earlier, the remap of our distribution centers should -- we will drive savings beginning late '25, early '26, which then improves structurally the distribution expenses, a percentage of revenue, helping us get to the part of 15% EBIT. Does that help you?

Very helpful, Harmit. Thank you very much and best of luck.

Thank you.

Thank you. Our next question comes from the line of Jim Duffy of Stifel. Please go ahead, Jim.

Hi, Michelle. Hi, Harmit. Hope you guys are doing well.

We do. Hello.

As you shared, denim bottoms trending well, but everything in the business is just denim bottoms, Michelle, specifically nice brand, can you help us with an update on tops, bottoms mix and update us on the size and trajectory of non-denim categories. Thanks.

Yes, you bet. So, first of all, this is not an or it's an and. And it starts with making sure that our denim bottoms, call it authority or leadership, continues to be healthy. So, it's really important that we always drive innovation in the core, like the 501, which again for the quarter was up based on new evolutions of the 501 and fabrics and fits like the 501-90s, et cetera. And then, driving the fashion fits, which right now it's all about baggy and loose, but at some point we'll be back to tapered and skinny. I think as the designers would say today, kind of anything goes in the closet. But I think what we're really excited about is evolving the Levi's brand to stand for something much broader than a great pair of jeans. And, you know, as we look forward, we want to be an iconic apparel company rooted in denim. And what that means is that we have permission to go into tops and dresses and skirts and outerwear and non-denim bottoms. And we are seeing really encouraging traction on all those fronts. So, if you take some of these categories, well, first, winning with women is a key strategy. We're underpenetrated there. I spoke to it earlier. We're at 36%. That business was up 12% for the quarter, 20% in DTC. And it feels like with that category, we're just getting started. Our tops business overall was up 8%. Again, feel very good on the trajectory that we're seeing. We're seeing growth. I think importantly, it's not just in what we consider our traditional tops categories, like batwing T-shirts and trucker jackets, but we're seeing it in essential tees, in blouses, in wovens, in button downs. And like I said, we had a great outerwear business this past quarter and into holidays. The non-denim bottoms category also doing very well both for women and men. I think especially for men, our XX Chino platform, which we've had for a couple of years, that continues to grow and resonate. Our Tech Pant platform introduced first as a five pocket, now as a Chino, and we're introducing this year an elevated, call it Tier 2, and more to come. So, I think what you hear from me is that we are really significantly broadening our addressable market for the total. Just to give you context, when we look at all things outside of denim bottoms, that's about now 40% of our business and growing, and I think especially for the top, if you just think about the tops piece, think about DTC, it's a great attachment purchase, drives UPTs, drives average ticket. And what years ago, many years ago, our ratio of bottoms to tops used to be like seven to one. Right now we're trending at two to one, two tops to every one bottom. And at some point that's going to be one to one or frankly even more tops to every bottom because we know from consumers they'll buy more tops than bottoms. So, we're making really great progress on that front. Yes, and so I think, you've forwarded many proof points and that gives us confidence, many of these strategies in place for 2025.

Super helpful. Thank you for that perspective.

Great.

Thank you. Our next question comes from the line of Ike Boruchow of Wells Fargo. Your question, please, Ike.

Hey. Afternoon, everyone. Harmit, I guess most of it has been asked, but just to clarify a few things. So, on Docker, so it looks like it's like a $325 million business. Can you just comment on the profitability as of last year? Is it making any money, just so we know for when the sale kind of does go through, what to expect? And then, on some of the headwinds you kind of laid out, can you just give a little bit more clarity on what's going on with Denizen? And you mentioned footwear. I just -- maybe I don't -- maybe I should, but I don't really understand what's going on with footwear. And then, I thought Denizen had kind of been worked through at this point. So, again, just trying to understand the sizes of those and what's going on.

Sure. So, just for everybody's benefit, and I publicly say this, in our press release, we've given details of Denizen, and the LFA, and the 53rd week, we've given it for the company. We have given it by segment and we've given it by channel. So, you guys should have it. And that's why we focus on the organic growth because to your question, Ike, Denizen, the exit started in the beginning of '24. And we believe most of it we have exited. We believe there's about 30 million, which will exit by the end of the first-half of this year. Footwear, we had a small footwear business really based out of Europe. And again, we have felt it is not strategic. And so, we have announced the exit. It will impact largely '25. And the size of that is about a point, or in revenue, which is 60 million-65 million, something like that. The exact numbers you will have there. And that's why we felt it's important to move to an organic revenue growth, because that explains the intrinsic business that is left and will grow over time. Your question about Dockers, you are right, it's about $330 million in revenue. The gross margin are in the high-40s, the EBIT margins in an allocated basis is probably breakeven, and so, that's the business that, (a), just from everybody's perspective, we are in a process, the process is going well, and we have confidence that we will be able to sell this business some time in '25.

Thanks, Harmit.

You're welcome, Ike.

Thanks everyone for joining the call today. And we look forward to seeing many of you at our Product Preview Event tomorrow evening. Thank you.