Good day, ladies and gentlemen and welcome to the Levi Strauss & Company Fourth Quarter and Fiscal Year 2019 Earnings Conference Call for the period ending November 24, 2019. [Operator Instructions] This conference is being recorded and may not be reproduced in whole or in part without written permission from the company.

A telephone replay will be available 2 hours after the completion of this call through February 5, 2020. Please use conference ID 2979134. This conference call also 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, Senior Director, Investor Relations and Risk Management at Levi Strauss & Company..

Thank you for joining us on the call today to discuss the results for our fourth quarter and full fiscal year for 2019. Joining me on today’s call are Chip Bergh, President and CEO of Levi Strauss and Harmit Singh, our Executive Vice President and CFO.

We have posted complete quarter four and full year financial results and our earnings release on our IR section of our website, investors.levistrauss.com. A link to the webcast of today’s conference call can also be found on our site.

We would like to remind everyone 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. Reported results should not be considered as an indication of future performance.

Please review our filings with the SEC for a discussion of the factors that could cause the results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today’s date. We disclaim any obligation to update any forward-looking statements except as required by law.

During this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results.

Finally, this call is in its entirety being webcast on our IR website and a replay of this call will be available on the website shortly. Today’s call is scheduled for 1 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 Chip..

Thanks, Aida. Good afternoon, everyone and thank you for joining us today. 2019 was a historic year for the company. We returned to the public equity markets with our IPO last spring, maintained focus on what we could control in a challenging environment and executed against our objectives.

We are pleased with the financial results we delivered and the progress we have made toward becoming a leading global lifestyle brand. The backbone of our success remains the strategic initiatives we have implemented to diversify our business by expanding our direct-to-consumer presence and growing internationally and across categories.

On the back of double-digit growth last year, we delivered revenues of $5.8 billion in 2019, up 3% on a reported basis and 6% in constant currency. And we did this despite facing several challenges, both expected and unexpected, not the least of which was having no benefit of the Black Friday week in the fourth quarter.

That impact in combination with our distributor acquisition in South America and the unrest in Hong Kong cost the company a point of growth for the full year. Growth was driven by diversification and included the following highlights, all in constant currency on a full year basis.

Our growth internationally was broad-based with Europe growing 13% and Asia 10%. Direct-to-consumer grew 10% and within that, e-commerce grew 18% and women’s and tops were particularly strong each up 14% for the year.

The Levi’s brand had another strong year maintaining its position of the center of culture and growing 7% for the year on the back of 13% the prior year.

We continue to assert ourselves as the inventors of denim and the leader of the category connecting with consumers through innovative shopping experiences, leading fits and styles and exciting new collaborations, all while redefining our industry.

Levi’s continues to be the partner of choice for influencers, artists, iconic characters and technology companies alike. In 2019, we unveiled several diverse creative collaborations with partners, including Star Wars, Hello Kitty and Stranger Things.

We worked with Nike to launch an exclusive end demand collection of footwear and we partnered with Google to create an improved version of your card or Smart Trucker that allows consumers to control their phone from the comfort of their jacket.

In 2019, these collaborations delivered over 12 billion impressions globally equating to roughly $100 million immediate value.

Collaborations continue to generate brand heat as well as drive traffic in sales and looking forward to 2020, you can expect to see the Levi’s brand come to life with many more exciting, unexpected and innovative collaborations in the pipeline. We continue to evolve the Levi’s consumer experience to create deeper connections with our fans.

We opened 6 next gen stores globally across Europe and Asia in 2019. These stores amplify the Levi’s brand and feature a redesigned storefront, tailor shops, updated fitting rooms and more.

As we exited the year, we launched our largest ever pop-up in Miami, 45,000 square feet, which opened in conjunction with the launch of our Fossil [ph] has been a hotspot this week in the run up to the Super Bowl.

The pop-up showcases the best of our brand and the future of retail causing Levi’s premium products, our largest and most innovative tailor shop, interacting one of the kind experiences, technical innovations and collaborations with well-known artists such as Shepard Fairey and Cey Adams.

And just night, in Miami, we have launched our global product campaign for the Levi’s XX Chino, our new extra comfort, extra soft chino for men with Grammy nominated artist Khalid as the global face of the campaign.

Speaking of Super Bowl, how about them diners, our ROI from Levi’s stadium investment has been tremendously amplified behind to run this powerhouse team has been on. And with more than a decade to go, our stadium deal has been one of the best returning advertising investments we make in the U.S.

and continues to be one of many vehicles that enable us to stay squarely at the center of culture. I will now walk you through our full year constant currency results in the context of our 3 where-to-play strategic choices which are drive the profitable core, expand for more and become a leading world class omni-channel retailer.

First, on our profitable core business which comprises men’s bottoms, our top 10 wholesale customers and our top 5 mature markets, we protected and grew our share leadership in men’s bottoms. Levi’s men’s bottoms grew low single-digits while Dockers men’s bottoms declined as we anniversaried the line reset in 2018.

Our top 10 global wholesale customers collectively grew 2% despite a disrupted U.S. channel and our top 5 mature markets grew 2%, within which the international markets were collectively up 10% and the U.S. was down 1% for the year. We have several initiatives in place to strengthen performance in the U.S. market.

We have the opportunity to expand distribution at wholesale and in direct-to-consumer and to premiumize the marketplace on the back of the strength of our brand by offering a broader assortment of our better and best products across both men’s and women’s in order to offset some of the macro trends we are seeing in wholesale.

Initiatives in the U.S wholesale channel include gaining share within the largest department store retailers, through elevated product presentations and broadening our portfolio, incremental penetration in the premium retailers and selectively adding distribution and enlarging our footprint in existing specialty and regional retailers.

We are collaboratively managing our expanding digital business across pure-play and wholesale dot-com and our own e-commerce site and we are growing our presence with our partners in the mass channel. We believe these initiatives will support our aspiration to manage the U.S. wholesale business to flattish over time. In our U.S.

direct-to-consumer channel, we will open more mainline doors leveraging the successful model we deployed internationally, smaller footprint, more profitable, more capital efficient stores in better locations. This will support our objective to increase distribution of our premium products in the U.S. marketplace.

We are approaching expanding DTC brick-and-mortar distribution judiciously by testing a handful of stores in the U.S. this year. And if the test has a high ROI, we will expand that model. We are focused on optimizing execution of our strategies within the U.S. with an objective to grow the marketplace over time despite fluctuations within U.S.

wholesale on a quarter-to-quarter basis. Our second strategy is to diversify the business by expanding for more and this strategy continued to drive strong results. As I mentioned, our total women’s business grew 14% in 2019, approaching $1.8 billion in 4 years in a row of double-digit growth.

We continue to grow our market share in women’s denim, including in the U.S. where we have overtaken the number two position.

We are driving trends and leading the category and innovation demonstrated by the rapid growth of our women’s fashion fits, including high-rise styles like the ribcage and looser fitting bottoms like our new balloon jean which are really resonating with the consumer.

We also have recently expanded our accessories line and ventured into new categories in women’s including body wear. These are natural extensions of our brands in areas that offer us a long runway for growth in women’s.

Our total tops business growth of 14% also its fourth year of double-digit growth was driven by the success of a wide spectrum of tops, including tees, fleece, outerwear, and Trucker jackets. Each of our emerging markets of India, Russia and Brazil posted strong double-digit growth. And though modest at 2%, mainland China is back to growth.

Our plan is to accelerate growth in mainland China in 2020 and December was a very strong month. And then the virus had a significant impact to our business in January. It is really unfortunate how the outbreak of the recent virus has been impacting people’s lives, especially during the Chinese New Year.

We are taking this seriously and responsibly with our top priority being our people and our business partners. As a result, we temporarily closed roughly 50% of our fleet and have stopped all employee travel in and out of China.

While this will put a damper on our growth in China in the near-term, we are continuing to execute on our strategies there and we will update you on the impact to our business when we provide our first quarter results. As a result, mainland China is still only 3% of our business.

Our value brands, Signature and Denizen, grew mid single-digits in 2019 as we continue to offer great products at lower price points in the value market without cannibalizing the other parts of our business. Both brands improved gross margins and leverage their cost bases improving profitability.

Signature and Denizen collectively represent about 7% of out total business. Our third where-to-play strategic choice is to become a leading world class omni-channel retailer. Global DTC for us includes the brick-and-mortar stores in e-commerce sites that we operate.

Direct-to-consumer growth of 10%, also its fourth year of double-digits reflected strength in each of our three regions. Revenue from our brick-and-mortar stores was up 8% globally.

Performance of existing sores improved both internationally and in the United States, where we continue to build out our store network which grew by a net of 81 stores in 2019. Global e-commerce was up 18% for the year with strong growth in all three regions largely driven by increased traffic. We continue to enhance our omni-channel capabilities.

We have accelerated the U.S. rollout of ship from store due to strong performance and we are leveraging RFID technology in more than 600 doors across 17 countries and growing, including all of our company operated mainline doors in China, to provide inventory visibility and new consumer demand in real-time.

Both of these initiatives are adding to consumer experience and positively impacting top and bottom line. We have introduced the all new Levi’s app and royalty program in the U.S.

which allows consumers to access curated, editorial and brand content as well as purchase premium products available exclusively on the app from limited edition collaborations to Levi’s authorized vintage truckers. Looking forward, we plan to rollout the Levi’s app and loyalty program beyond the U.S.

Our strategies to diversify our global business are clearly working domestically and abroad. Our international business is approaching 60% of total revenues. Direct-to-consumer is heading to 40%. Women’s is nearly a third of total revenues and pops is almost a fourth. In all of these areas, there remained a long runway for growth.

In underlying our performance for the year as it has always been during our long history as profits through principles. In 2019, we reaffirmed our commitment to the Paris agreement.

We pioneered a contextual approach to water use to prioritize the saving water in areas that need it most and we encourage others in our industry to sign-on to reducing their carbon emissions to meet science-based targets.

Our employees and consumers have come to expect that we will do what’s right and we operate with the firm belief that sustainability and business performance go hand in hand. And in today’s environment, profits through principles, is another thing keeping us at the center of culture.

Overall, it’s a really good fiscal 2019 and we look forward to advancing on our strategic conditions as we continue to gain traction in building a global lifestyle brand. We are well-positioned to drive strong growth in 2020 and beyond. And now over to Harmit to review the fourth quarter and year end finish – financials.

Harmit?.

first, as we lack 8% growth last year and second, given the improved health of our inventory, we expect lower sales to the off-price channel.

Additionally, despite anticipated strong gross margin expansion in the first quarter of 2020, we expect adjusted EBITA margin in the first quarter to be adversely impacted by two factors as compared to prior year.

First, we expect about 100 basis point of adjusted EBIT margin decline from higher advertising as we plan to smooth out advertising by bringing more of our spend into the first half of the year. Second, the timing of the employer tax expense for new equity-settled awards will hit us when they rest in Q1.

And this would pressure adjusted EBIT margin by approximately 50 basis points. Note that we expect adjusted EBIT margin to build back towards our annual guidance as the year progresses. With that, we will now turn it – we’ll now open it up and take your questions..

Thank you. [Operator Instructions] Your first question comes from Bob Drbul with Guggenheim..

Good afternoon guys. Good quarter..

Hey, Bob..

I guess, the first question is probably towards Harmit.

You guys mentioned the annual algorithm in the prepared remarks, I was just wondering if you could just sort of remind us or refresh exactly what you guys consider the algorithm to be?.

Sure. Thanks Bob. Good question. Our annual algorithm basically talks about growing revenue in the mid single-digit range, so think about 4% to 6% in constant currency.

That’s basically comprised of the Americas growing 2% to 4%, Europe and Asia in the high single-digits and in the consumer channels, wholesale growing globally in the low single-digits and direct-to-consumer growing in the high single-digits.

And on a product basis, the men’s bottom business growing low single-digits and the tops and women’s business growing high single-digit. So that is the – on the growth side.

Then on the adjusted EBIT side, we expect to grow little faster, so expect to grow our EBIT in the mid to high single-digits, especially as adjusted EBIT expands 20 to 30 basis points annually. And then there is leverage on fixed cost of interest and which is – because we expect the debt levels to be largely there.

This is going to be augmented by our increase in dividends which we have just talked about driving a total shareholder return of close to 10% and then on top of this, while we have announced plans to buyback the shares, this will offset dilution.

Longer term, we can increase our share repurchase as well as this M&A, so all that is on top of the TSR growth of 10% as we look at growing annually on a constant currency basis.

Does that help?.

Yes, that’s great. And I just have – I think a question for Chip, just I think you talked about the balloon jeans, just sort of two product questions for you, our skinny jeans fading in favor of fleeted jean? It’s my first question.

And then the second one is our shaping jeans becoming a trend, I saw recently that the totally shaping pull on skinny jean from signature by Levi’s was the number one that’s on Amazon, I was just wondering if you might be able to comment on those two? Thanks..

Which is true and thanks for flagging that Bob. On the trends, I would say that the overall trends driving the category holistically or kind of a continuation of the same theme we have been seeing for the last year or so, which is a macro trend of casualization and the evolving impact of street wear and street wear influence.

And clearly, in the 80s and 90s, we are going on. On women’s, I mean there has been talking about the depth of the skinny jean for years and I will say that the skinny is still more than 50% of our total women’s bottoms revenue.

But women got a wide range and I think part of our success over the last couple of years in women’s has been meeting her needs more fit and – fit and fabric, in particular and finish as well on our, I call it, the 3S.

And so we have been leading in some of the more fashion-forward like loose, which is the balloon jeans that we mentioned in the prepared remarks to the wide leg and high-rise and I mean we have read the trends as the rises have been going up.

And one of our fastest and hottest items that are aligned is the ribcage skinny which is our highest rise women’s jean ever with the 13.5 inch rise. So the fashion fits are clearly driving a lot of the growth.

In fact, our fashion fits on women’s were up about 87% over the prior year, but our core skinny business is still a huge part of the business and it’s still an important part. And then on the shaping jeans, we have been selling shaping jeans for over a decade and there are some women where that’s really an important consideration for them.

They wanted a jean that flatters them and celebrates her curves and we offer it across many parts of our line, the Signature jean that you referenced is the number one selling jean on Amazon.

And we have got more coming in this space in 2020 as we look ahead and more on that later in the fiscal year, but it is certainly an important part of our women’s business.

Hope you got it?.

Yes, perfect. Thank you very much..

Thanks Bob..

Your next question comes from Matthew Boss with JPMorgan..

Congrats on a nice quarter..

Thanks, Matt..

Maybe to breakdown the U.S. landscape, can you elaborate on growth opportunities within U.S.

wholesale that you are excited about and just you confidence in managing this part of the business flattish? And then just maybe touch on some of the drivers of the continued direct-to-consumer runway that you see remaining also in the U.S.?.

Yes. So back to the growth algorithm just to kind of get everybody grounded, we say we’ll – we are going to – U.S. will grow kind of 2% to 4%. And within that, we are saying we will kind of deliver a wholesale business roughly flattish year-on-year and that’s what we have been able to do over the last 3 years on a CAGR basis.

And in today’s environment, there are winners and losers. So first and forecast, we are focusing on winning with the winners, but within every single customer, we have opportunities and we are focused on the largest doors and showing up great and largest doors of all of our big retailers.

We have portfolio opportunities as well when you look at segmentation of the wholesale base. So as you know we have been really focused on premiumizing our offering here in the U.S. based on the strength of the brand that has led to incremental distribution in some of the more premium wholesale customers and we still have opportunities there.

We have been upgrading our in-store fixtures in a number of these premium wholesale customers over the last year or so. And then we have also been expanding in the mass channel as you know.

And today, what we have done in Target, we are now in 50 stores heading to 70 and I think we will go a little bit faster than that over the course of the next year. That’s been very, very positive for us. We have a lot of data that shows that it is largely incremental.

In fact, it runs from consumer resource where Target consumers have said it’s the first time they bought Levi’s jeans in a long, long time. So we have the number of levers to push and pull and that’s what gives us confidence and there is still some white space opportunities that we are chasing down.

So the strength of the brand though grounds us in everything and that gives us conviction that we can continue to maintain a roughly flattish wholesale business and will be choppy just to reinforce that point one more time.

Quarter-to-quarter, we are going to have our ups and downs as we go through the year just as we did last year, but we are confident we can – we challenged ourselves that we are going to maintain this business of roughly flattish as we go forward..

And just for clarity, Matt, the 2% to 4% was Americas growth, U.S. was 2% of the marketplace..

Great.

And then maybe Harmit, just to follow-up on gross margin, how best to think about the drivers and level of gross margin expansion that you have embedded in your 2020 outlook? And then just what inning would you say that the brand’s pricing power is today globally?.

I can answer that one first. That’s really as you were still in the very, very early innings, so first – bottom of the first half of the second maybe. We have taken some pricing action in Europe in the second half of the year. We will see some pricing action go into effect in the U.S. here or early this fiscal year..

Yes. So, just building on that, Matt, I would say the tailwinds are the factors that contribute to gross margin expansion, price increases, Chip talked about sourcing savings, continued to drive our leverage on volumes. The reduction of our price which is we are continuing that through quarter two of this year.

And then the benefit of growing our direct-to-consumer channel as well as international. Now, in 2020, because we have two Black Fridays and is driving direct-to-consumer business, that helps. With acquisitions, we probably have a marginal impact, the headwinds, maybe slight headwind on currency not a lot, but slight in 2020.

So I think that’s why we feel good about a higher gross margin in 2020 relative to our growth algorithm which was 40 to 50 basis points..

One other thing I would add, Matt and we mentioned it in the script is it does get back to branch strength on the Levi’s brand. And through the holidays, we were intentional to not chase the competitive marketplace.

And as a result, our promotion levels – the depth of our promotions was less than it was the prior year and less in general than what the marketplace was and we still had a decent holiday. So I think again it just underscores the strength of the brand..

Great. Good luck to the Niners on Sunday..

Go Niners. Thanks Matt..

Your next question comes from Omar Saad with Evercore..

Good evening. Thanks for taking my question.

Wanted to ask about the revenue guidance it’s a little bit ahead of the long-term algorithm that you were discussing, Harmit, the plus 7, it’s good number, maybe you guys could breakdown some of the key chunks that gets us there, I know there is some non-comparable components around the Black Friday, how big of a piece is that? Should we think about pricing, what’s the underlying U.S.

wholesale and broader Americas assumptions maybe some of the key pieces there? and then I also wanted to ask if you could dive in on Europe a little bit, I think it slowed a little bit more on a constant currency basis than we thought, maybe if there is any kind of color to add around that market? Thanks guys..

Sure, Omar. So, our guidance as you begin the year is 7% on constant currency, 6% on reported, that’s revenue growth year-over-year. We are saying our base business algorithm where I talked about 4% to 6%, middle of that about 5%. I talked about the different components. To your question about U.S.

wholesale, we are saying flattish by the end of the year adjusted for the off-price reduction that we are doing.

In terms of what makes of the 7%, we are saying 2 percentage points largely driven by our fiscal calendar, so each Black Friday would help by about 50 basis points, that’s about a 100 basis point improvement and the 53rd week is about a 100 basis points is probably a little lower than what you guys have in your model largely because is not as simple as taking 1 week from the year and extrapolating it for a couple of reasons.

Let me explain that. One, not every part of our global business has a 53rd week, so largely, Asia runs on a monthly calendar and there is some markets in Europe with a very similar monthly calendar. So they are not going to have the benefit of the 53rd week.

The second is if you take the other – the remaining business, our direct-to-consumer business is straight extrapolation, you could take one week and that’s the impact on the 53rd week.

But our wholesale business, what we are assuming is about 50 basis points largely because it’s the replenishment sales that we are incorporating largely people and open the book by – done on a monthly cadence. So, that’s how we are thinking about it.

And that’s why it’s 100 basis points on for Black Friday, 100 basis points for the 53rd week and that’s making it up. Now we have done an acquisition in South America that was supposed to help. It was supposed to be a headwind this year, but late last year or early this year, one of our licensed partners bought a distributor.

And so as the licensed partner who used to handle our footwear business in the U.S. for Dockers has now bought our footwear distributor for Levi’s and we definitely see synergies and benefits longer term with this combination, but it’s the business model change that offsets the acquisition that we talked earlier.

Does that help, Omar?.

Absolutely.

And could you maybe give us some color on Europe as well?.

Yes, sure, so….

And what’s the underlying assumption on price sorry for this fiscal year?.

Yes. The underlying assumption in prices what we have factored into the revised gross margin, our normal gross margin perspective is 40 to 50 basis points, we think 60 to 80 next year is probably more like it. So that incorporates the price changes which you think will stick broadly.

Relative to your question on Europe, Europe grew 11% adjusted for Black Friday. It’s a tad bit softer than the remarkable growth that has and that’s just a law of large numbers. Our belief is Europe longer term we have said that in our growth algorithm is more a high single-digit, lower double-digit business.

But having said all that, we are leveraging beautifully on the profit basis. The business is now close to $1.6 billion, $1.7 billion and the operating margins are now close to 20%, so we have got this business positioned for driving profitable long-term..

Thanks for all the color..

Thanks..

Your next question comes from Heather Balsky with Bank of America..

Hi, thank you for taking my question. I was hoping first if you could talk about the U.S. store tests that you are running and I guess how these stores compare to your existing fleet and what you are testing exactly? And then also how you think of the U.S.

store opportunity long-term if these tests work?.

Okay. Heather, you are talking about our owned and operated stores.

Is that what you are asking?.

Yes, yes..

Okay. So we talked about this I think on the last call, basically, so our big opportunity in the U.S. is mainline doors, I go back to part of our strategy for the U.S. The U.S. is unlike just about any other market globally, it is largely a Tier 3 market with prices on a Levi’s Red Tab at roughly $40.

If you go to Europe, if you go to most of Asia and we are in the $100 -- $90 to $100 price point as our opening price point and more mainland doors there. Here in the U.S. we have roughly 30 mainline doors and that’s it. And they tend to be larger doors often not in great locations.

The model that we are now executing is smaller source call that in the range of 3,000 to 4,000 square feet with a tighter assortment in better locations. So it’s more capital efficient.

These stores tend to be more profitable and are in better locations as well and a great presentation of the brand is basically what we are executing in most of the rest of the world, but we have never executed it here in the U.S.

And so we have a couple of these stores already right across the bay from us here in San Francisco and Emeryville is a good example. And we are going to open in the plan we’ve got a couple of doors like this that we are going to open in 2020 that are in the range of 2,500 to 4,000 square feet in great locations.

We have talked before of one examples is we will open a store this spring in the Stanford Mall. We have no stores down in Palo Alto or around Stanford. The Stanford Mall is an A mall and we don’t have a store there and we are in a great location with a relatively small footprint.

And we – and that on paper, that store pencils out to be very, very profitable. If we can prove this model out, then we will expand the model over time. And we will do it judiciously. We are pretty diligent and deliberate about capital deployment, but that’s basically what we are all about.

And we will have more as we go through the year on how those stores are performing..

Great. Thank you. And Harmit, quick question on SG&A for 2020, can you help us breakdown the drivers a little bit more? Can you qualify the impact from the accounting changes, the calendar shifts and extra week and also the ramp in marketing relative to 2019? Thanks..

Yes. So if gross margin is 60 to 80 basis points, I’d say, SG&A is probably 30 to 40, that’s what gets you to the 30, 40 in adjusted EBIT. Basically, the subordinate that made of, I’d say higher advertising probably 10 basis points, something in that range.

The payroll tax is just the – to get to being a public company, we have to pay taxes what’s best on – and that happens in Q1, that’s about 10 basis points and the 10 basis points re-class between interest and SG&A as we implement the lease standards and the rest is largely a direct-to-consumer expansion.

So those are the factors that drive an SG&A increase year-over-year..

Thanks a lot..

Your next question comes from Kimberly Greenberger with Morgan Stanley..

Okay, great. Thank you so much.

I wanted to just ask as I am adjusting by 2020 numbers here for the guidance given today, we want to make sure to keep in line or 2021 forecast, so we don’t get out of whack in understanding that you are not giving 2021 guidance today? I am just wondering if I should infer by the fact that you are looking for 7% growth this year with a base business at 5% and the 53rd week will not repeat in 2021 nor will you have two Black Fridays.

So should I think about more of a 3% growth rate in 2021 as we normalize for the outsized performance here in 2020?.

Yes, I mean, yes I haven’t done the math, Kimberly, but I would use the growth algorithm I have talked about which is the mid single-digit growth. And yes, you are lapping a strong year, so whatever the number you get on that basis will be the basis..

You adjust for the Black Friday?.

Yes, I think I’d use that. And if depending on some of the pieces of our business accelerate to the second half of the year, which is largely Asia and China, we will update you folks as the quarters track along..

Okay, great. And then I just wanted to ask about the expanded distribution here in the U.S. with Target and I wanted to understand a little bit about what you are monitoring in order to make sure that, that business is incremental rather than cannibalizing other U.S.

wholesale business, what are the checkpoints you are looking for?.

Sure. So, we are monitoring this very, very closely. As you can imagine, it could be seen as being disruptive in the marketplace, but I don’t know if you have been into a Target or if you have seen it.

But my starting point is both the men’s pad and the women’s pad now I was in my Target that has this literally 3 days before Christmas and the merchandise price point on the pad on both the women’s and men’s pad was $49.99. And so we are selling at a premium to the market. The average marketplace price for a pair of Levi’s today is about $40.

And so first check with cannibalization is Target is actually selling and attracting new consumers at a higher price point, consistent with our whole strategy of trying to premiumize the brand. We have won consumer research inside of Target to see whether these consumers have bought Levi’s in other locations, including our own doors.

And the vast majority of those Target would call them those guests have indicated that this is the first time we have bought Levi’s in long time.

And then the other thing we are doing in all of the test stores, we go on a 5-mile radius around each test store and we have looked at our pre-imposed business results in other customers and see very, very little cannibalization. So, net-net, we are confident that this is incremental for our business.

It’s clearly incremental to Target, but it’s also incremental for us and having very little cannibalizing effect on our other customers. So – and we have got a high degree of confidence in that, which is part of the reason we are willing to continue to move forward. Target has done a great job executing as well, go to the pad, the brand looks great.

And I think the way we are looking there over some other places right now, but it’s really been good for the brands..

Great color. Thank you..

Thanks, Kimberly. I think we have time for one question and then the others we will respond we know who is on the queue, we will respond to part of our sell-side calls that we have setup. So may be one question..

And your last question comes from Dana Telsey with Telsey Advisory Group..

Good afternoon, everyone and thank you for getting me in under the wire. Given Harmit, your commentary on the first quarter, can you unpack how we should expect the cadence of the year to play out and what you are looking – how you are thinking about it, especially given these two Black Fridays this year? And then just….

Yes, it’s….

Go on sorry..

No, no, why don’t you finish?.

And then if you think about the wholesale business, the differences between the U.S. versus Europe, what do you see as the biggest differences and whether it’s Asia, whether it’s Europe and what the learnings could be from one to the other if you were to drive growth globally in terms of wholesale to the levels you would like? Thank you..

Okay. Dana, I am going to briefly stay away from guiding the quarters, but I will give you some color. So I would say that as we have said the first quarter slightly below our full year number driven by the factor that talked about.

We haven’t quantified the unfortunate – the impact of the unfortunate situation in China, because that’s evolving as we speak and we will give you more details of that when we report our first quarter results.

I think quarter two is progressively better than quarter one and quarter four is the strongest quarter, because it’s got the Black Friday and the 53rd week. So that’s how I would kind of progress the quarterly flow of revenue and we will give you the color on EBIT as the quarter progress..

Great. And on the biggest difference between U.S. wholesale and Europe/the rest of the world wholesale, I would say there are a couple of important dynamics. Number one in the U.S. there is a very heavy off-price component and we have talked about strategically how we are trying to manage that, but if you look at denim consumption in the U.S.

over the last 12 to 18 months, a lot of the consumption has shifted to off-price [indiscernible]. And there is much less of that dynamic going on in wholesale, in Europe, I mean, Europe and Asia. The other big difference is really a difference in our business. Here in the U.S. as I explained the U.S. is largely a Tier 3 market and our U.S.

wholesale customers are selling Levi’s out the door day-in and day-out in a price ranging from low $30 to kind of mid $40 day-in and day-out with an average around $40, which by the way is much better than 8 years ago when I got here.

And in Europe and in Asia, we have primarily Tier 2 and Tier 1 business, so better and best, in the U.S., it’s a good quality market at good price points and in Europe and international, it’s a better and best quality, which is consistent with what we have in our mainline doors.

So the pricing and the product that we have got in wholesale in Europe is very similar to the pricing and product that we have got in our mainline doors in Europe.

And that – so, we have much more of a premium representation of the brand and the brand pricing on average across most of Europe and most of Asia is in the kind of $80 to $100 price point as opposed to $40 here in the U.S. So those are probably the two biggest differences.

I guess the only other thing that I would say about Europe today versus the U.S. although we have made some good progress in the U.S.

is Europe has been much more successful with the women’s re-launch which we did back in the middle of 2015 in wholesale and our European wholesale business on both men’s and women’s tends to be much more of a lifestyle representation of the brand and what you see here in the U.S.

where we are still largely being treated as a classification with blue jean bottoms and a lot of customers when you still walk in, whereas in Europe, the Levi’s brand is much more head to toe, much more of a lifestyle representation of the brand.

And not surprisingly, our women’s business is better developed and our tops business is better developed in Europe than it is in the U.S. So I would like to give little bit of an insight on why we are trying to do some of the things that we are trying to do in the U.S. wholesale to begin making U.S.

wholesale look more like Europe and Asia from a wholesale dynamic. I hope that helps..

It does. Thanks a lot of opportunity..

Absolutely. That’s how we look at it..

Alright. Well I think we’ll close it there. I want to thank everyone for dialing in and for participating. Sorry we went over by a little bit.

Aida and Harmit will be on the phone with most of you over the next day or two and you have plenty of opportunity to go a little bit deeper with them on those follow-up calls, but thank you all for joining in and we look forward to talking with you again at the end of the first quarter. Have a good day. Thank you..

Thank you. This concludes today’s conference call. Please disconnect your lines at this time..