Chip Bergh - President, Chief Executive Officer Harmit Singh - Chief Financial Officer Aida Orphan - Vice President of Investor Relations.

Good day ladies and gentlemen, and welcome to the Levi Strauss & Company, Fourth Quarter Earnings Conference Call for the period ending November 28, 2021. All parties will be in a listen-only mode until the question-and-answer session, at which time instructions will follow.

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 two hours after the completion of this call through February 2, 2022 one week after call for telephone replay. Please use the Conference ID 4676203.

Now 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 www.levistrauss.com. I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations..

Thank you for joining us on the call today to discuss the results for our fourth fiscal quarter of 2021. Joining me on today's call are Chip Bergh, President and CEO of Levi Strauss, and Harmit Singh, CFO. We posted complete Q4 financial results in our earnings release section of our IR 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 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.

Please review our filings with the SEC, in particular the Risk Factors section of the annual report on Form 10-Q that we filed today, 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 non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP financial measures are provided in today's earnings release on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is 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 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 Chip..

Good afternoon, and thanks for joining us today. At the beginning of the pandemic we declared that we would emerge stronger from the crisis and I can confidently say that we are now indeed a better, stronger company than ever before.

After returning to pre-COVID revenue levels in Q3, momentum accelerated through Q4 and today's results reflect robust financial performance across the board.

Our Q4 revenues were $1.7 billion, up 22% to 2020 and 7% to 2019, led by continued strength in the Americas and Europe, with Asia seeing a strong recovery despite COVID headwinds across the region. Consumer demand remained very strong and outstripped supply by approximately $50 million in the quarter or 3% of revenue due to supply chain constraints.

The quarter punctuated a very strong fiscal 2021 performance delivering our highest revenue since 1998 and achieving a 12.4% adjusted EBIT margin above our 12% plus target, while continuing to reinvest at a higher and accelerated level.

We have been able to deliver these results despite well-known headwinds as our diversified and agile supply chain is a source of competitive strength enabling us to mitigate risk and outperform.

Our performance demonstrates the strength and resilience of our brands and the increasing authentic connections we have with consumers on the foundation of trust and loyalty built over the past 170 years.

The results we delivered this year are proof points that our strategies are working and we have greater conviction than ever in our future with several multi-year tailwinds. First, the total addressable market for denim is large and growing, and consumer preferences continue to shift towards casualization.

As the global denim market leader, we are well positioned to take advantage of and drive growth. In the most recent quarter, the U.S. Jeans growth outpaced apparel with both categories surpassing 2019 levels. For the year, the U.S. Jeans category was up 8% versus 2019. We also continued to increase share in Women's in the U.S.

and we have achieved significant traction engaging Gen Z consumers through programs like Levi's® SecondHand recommerce initiative and our Buy Better Wear it Longer campaign. Second, our strong brand equity is driving pricing power.

2021 pricing action are sticking, best reflected by the company's 7% AUR increase over 2019, which is primarily driven by our pricing initiatives. We have plans to take additional price increases in 2022 and beyond, helping us to offset inflationary pressures. Even as we take price, our products provide an exceptional value to consumers.

Third, the direct engagement we are building through our DTC business is bringing us closer to the consumer and allows us to showcase the fullest expression of our iconic brand and drive category expansion. In 2021 we continued the roll out of NextGen doors around the world, including 16 in the U.S. as we premiumized this marketplace.

These stores are built with a digital backbone that supports our omni-channel platform delivering an elevated, engaging and brand centric experience for our fans.

We're also using AI to enhance and differentiate our loyalty programs and app, and both our seeing strong acquisition rates, meaningful growth in performance and productivity of existing members. And fourth, the continued diversification of our business represents significant growth opportunities.

Our performance this year reflects the strength of our diversified portfolio, yet we remain underpenetrated in Women's, Tops and International, as well as product expansion further outside of downtown. The acquisition of Beyond Yoga also provides an entry into the fast growing and high margin premium active wear category.

Let me know shift to some highlights from the fourth quarter. Strength was broad based across channels, brands, category, gender and markets. The Levi's brand accelerated to 7% growth versus 2019, with even stronger growth in our top five markets. Men's bottoms were up 6% to 2019, reaching the highest revenue level since Q4, 2015.

Women's bottoms continue to outperform, up an exceptional 21% to 2019 as the trend towards high rise and looser fashion fits drove significant growth. And demand remained robust for our iconic 501, which was up 23% to 2019, driven by strong gains with both men and women.

Overall looser fits continue to increase in penetration, representing roughly half of both our women's and men's bottoms assortments, including for the year. Consumers can expect to see us at a rate on this trend in future seasons.

We are diversifying our tops offering and we're pleased to see the Levi's tops business return to growth versus 2019, driven by solid performance in men's woven and sweatshirts, while women’s saw moment to across wovens, dresses and outerwear.

Direct-to-consumer momentum accelerated across the globe and saw significant growth with the channel up 20% versus 2019 levels. Global brick and mortar also grew well above pre-pandemic levels, up 14% to 2019, driven by both our mainline and outlet stores.

Higher conversion and a mid-single digit increase in AUR driven by pricing power at Levi's brand have offset lower store traffic.

We continue to roll out and enhance our in-store and omni-channel capabilities globally, so that consumers can shop these physician points seamlessly, feeling the ease and convenience of our complete offering across all channels.

Our owned and operating e-commerce saw continued strength despite the recovery in our stores and was up 22% year-over-year on top of 38% growth last year. In order to drive growth in this marketplace we'd accelerated investments to evolve our distribution network with plans to open two new distribution centers.

As we shared earlier in the year, we successfully migrated to U.S. West Coast e-commerce fulfillment to our owned and operated DC in Nevada and now have plans to build a new DC for digital on the East Coast. We are also building a highly automated, highly sustainable, owned and operated omni facility in Germany.

This multi-year project scheduled to open in 2024 will allow us to realize our strong long term opportunity in Europe, consolidate the region's DC operations and deliver significant efficiencies. The global wholesale business grew 1% versus 2019 and is importantly a healthier business virus pre-pandemic. This reflects 2% growth in the U.S.

for the quarter. For the year U.S. wholesale was up 4% versus 2019 and is notably a more elevated, digitally oriented and profitable market. I’ll now provide highlights on Signature, Dockers and Beyond Yoga. Signatures saw continued momentum with another quarter of about 30% growth versus 2019 led by women’s.

The brand saw strong gains in AURs and continued success in digital wholesale. Dockers had a good year, and sales improved sequentially each quarter in 2021. The brand has a healthier, more diverse sales mix and it's updated California casual aesthetic is winning new and younger consumers, increasingly via DTC, digital and international markets.

For the full year international comprised nearly 50% of Dockers sales and grew at a higher rate than in the U.S. Nearly 30% of Dockers sales also now come from digital channels, and what had been an almost entirely wholesale business just a few years ago, now has almost 30% of its business in DTC and growing.

And in the quarter, Beyond Yoga launched a men's pilot and based on the positive response we will be expanding that collection in 2022. Overall we are entering fiscal ‘22 with great momentum around the world.

We are a stronger company than ever before with an agile supply chain enabling us to outperform as Levi drives increasingly more direct consumer engagement and denim category expansion, while making meaningful gains with women and Gen Z.

Longer term, our entry into the activewear market represents another strong runway for growth, in addition to the category diversification opportunities in our existing portfolio. Our company’s potential has never been greater.

I credit all of our teams around the world for delivering an outstanding year for the company and positioning us for an even better 2022. Let me now turn it over to Harmit. .

First, we are pleased with what we accomplished in fiscal 2021, delivering our highest revenue and profitability in over two decades despite the pandemic continuing to impact consumer mobility, the disruption to the supply chain and inflationary headwinds.

Second, our improved structural economic helped us generate in 2021 our record gross margin and 12.4 adjusted EBIT margin. We continue to have sustainable margin drivers as we grow DTC, digital and women, while also optimizing margins via AI and machine learning.

The strength of our brand supports our pricing initiatives, while continuing to provide great value to our consumer. Third, our free cash flows and balance sheets are strong, allowing us to increase capital deployment across our priorities while also producing our lowest leverage ratio in decades.

Indeed in 2021 we successfully allocated capital across investments to grow the business organically, return cash to our shareholders and completed our first inorganic product position, all while generating the highest ROIC in a decade.

In closing, we are pleased with our momentum and the strong outlook we have provided for 2022 is underpinned by the strength of our brand, discipline in allocating capital towards the right strategic priorities and proven agility in managing through crises. With that, I will now open it up for questions. .

Thank you [Operator Instructions]. Our first question comes from Matthew Boss of J.P. Morgan. Your line is open..

Great! Thanks, and congrats on another nice quarter guys. .

Thanks Matt. .

So Chip, can you speak to a larger picture trends in the denim category. Your level of optimism into ‘22 maybe based on what you're seeing today. And then Harmit, what gives you confidence in 11% to 13% revenue growth as the starting point for this year.

If you could just help bridge this outlook relative to your mid-single digit historical algorithm?.

Well I’ll start and Harmit, you can take the second half of the question. But I think there's every reason to be optimistic about denim and denim category growth as we go forward. There are three, you know kind of big things that are happening that are driving it.

First is, you know this continued acceleration of the casualization trend, which is not just a U.S. phenomenon; it’s really happening around the world.

Number two is, we are still in what I would call the early innings of the new denim cycle, the new, the looser, baggier fits really driving the category and keep in mind that this is on both men's and women's.

You know the last big cycle was skinny jeans, which is a women's only thing and the new denim cycle drives apparels widely, it drives footwear, it drives tops as well. So I’m optimistic for that reason. And then the third things, and we’ve mentioned this in the past is, you know here in the U.S.

more than a third of Americans, almost 40% have had their waist size change during the pandemic and that's driving the need for a closet upgrade or closet refresh and we see it in the results. Denim bottoms were up 11% in Q4, Levi’s men’s was up 6%, woman’s was up 21%.

You know the 501 which is our most iconic item, was up 23% to 2019, all those are doses of 2019. So really strong across both men's and women's. And I guess the other thing I would say just to keep in mind and I’ve got a hammer this point home. You know we are by far the global market leader in denim.

If you look at Euromonitor we're number one in men’s, we are number one in women's, we are number one overall, obviously, but importantly we are bigger [inaudible] program. We are also in Euromonitor [ph] in ’21 versus ’20 than any other major brand measured.

And then if you take a look at the U.S., which is you know still the biggest market, we have opportunities here. We're still only number two in women's here in the U.S., but we are the only brand, only major ground to grow women’s share over the past 12 months. We added a full share point on our woman’s business in the U.S.

and we added a full share point on an important 18 to 30 demographic. So you know, we've got a great share story to tell on top of I think a pretty robust category story and it’s a big part of the reason, why we are optimistic about the year ahead..

And to your question. Yeah, and to your question Matt on the 11 to 13 guidance, a couple of things. We have momentum as we step into the year. You've seen our holiday sales, our businesses that are underpenetrated women’s has been growing very strongly. Digital is the bigger complement of our business and so its growing strongly.

As we talk to our customers, our orders are reflecting growth, the orders that we see, whether its prebook in Europe and other orders that we are tracking in the U.S. Our direct-to-consumer which was the bulk of the growth in quarter four is coming back nicely despite traffic still being down. Beyond Yoga adds about 2 points of growth.

Dockers is turning around and that should also be accretive to our business. So I think as we think about the 11% to 13% guidance, you know our view is we got tailwind as Chip talked about from a category perspective, but all the things we’re doing are fairly strong.

If you think about the growth algorithm regionally, I think the strength of the consumer in the U.S. and we've looked at it you know everywhere and twice in a Sunday, whether its economic forecast from banks, credit card data, you know the consumer is pretty strong.

So we think Americas drives higher growth, high single digit growth in 2022, which is higher than our growth algorithm. Asia, United Kings rebound. I think you'd see you know high growth there, higher than our growth algorithm. I say Europe because of Omicron and what different countries are dealing with is a high single digit growth.

You know hopefully we are conservative and they prove us wrong, but you know they – the gross margins are fairly good and so – and they are largely a direct-to-consumer business, so that really helps.

If you think about it by channel, stronger growth in wholesale globally and you know outsized growth in direct-to-consumer, which is good because it helps our gross margin.

And if you think about categories, tops and bottoms, I’d say bottom is slightly higher because of the casualization trends that we have seen in the past and tops we continue to be underpenetrated. So higher than what we have seen in the past.

We will lay out our longer term growth algorithm Matt when we have an Investor Day, but clearly I think we seem to be headed towards a stronger growth algorithm than we had pre-pandemic. .

That’s great to hear.

Great color! Congrats again!.

Thanks Matt. .

Thanks Matt..

Thank you. Our next question comes from Laurent Vasilescu of BNP Paribas Exane. Your line is open. .

Good afternoon! Thank you very much for taking my question. Harmit, you talked about $50 million in supply chain constraints. How do we think about that through the first quarter and first half regarding these constraints? If you can give us any finer points on that, particularly with regards to 1Q performance year-over-year.

How do we think about that and the contents of the constraint, but also the European lockdowns from last winter?.

Yeah sure. So you know the good news is demand for our product and brand is outstripping supply, but we can confidently say that we did. Everybody wanted a pair of Levi's to place under the Christmas tree as Chip likes to call it ‘Got it’, but demand outstrips supply.

You know we have had to book more shipping capacity, because we had fixed capacity at a certain point and a certain rate but you know because we needed more, we had to book at higher rates. But generally speaking I'd say, demand higher than supply.

We probably see that continue, you know I’d say definitely for the first half of the year and that's where you've seen a range in our numbers. We’re doing what we can. Our distribution teams, our retail store associates are really working around the clock to make sure we're able to serve the demand.

The other thing that we are going to be doing Laurent is we plan to build a little bit more of the core inventory, especially in the U.S., relative to sales especially in the first half.

You know not a lot, but a little bit more because we do want to have inventor use service, consumer needs and you know on a full year basis it's difficult to predict how long this continues. I mean economists and folks are talking about supply chain constraints disappearing or reducing in the second half.

You know we are taking you know what we call more for a conservative view and should that really happen, it definitely bodes well for our brands and our business.

But you know we're going to do what we can and because COVID’s a large piece of our inventory, I think building a little bit of inventory will probably work to our advantage and to our consumers’ needs over time. .

Very helpful. Thank you very much for all the color..

Thanks Laurent..

Thank you. Our next question comes from Omar Saad of Evercore. Your question please. .

Thanks for taking my question. I'd like to ask actually about inflation, as well as pricing power. Kind of how are you seeing inflation develop for ’22, cost inflation? And maybe put into context you know the gross margin guidance that you gave.

How much of that is kind of proactive price increases offsetting inflation, as well as you know what’s your expectation around the reduced promotional environment? Do you expect that to continue or you expect that to rebound a little bit verses how 2021 played out? Thanks. .

Sure Omar. Let me talk a little bit about you know how we’re thinking about COGS and then I'll talk to you about the puts and takes in the gross margins. So on COGS, last time when we reported Q3, we said we're in the process of locking in the second half supply and we’re negotiating prices.

You know we locked in COGS slightly higher than the mid-single digit, which we think is still better than the market, but it is slightly higher. We are effectively pricing for it.

Our view is, you know because we are locked in the first half at about a percentage increase relative to – you know relative to 2020, the increase in COGS for the year is about mid-single digits, so that's how we’re thinking about it. We use about 15% to 20% of cotton.

Cotton continues to be high, but because we are effectively priced for it, you know we think we'll be able to – our gross margins will be able to offset that even as we think about H1 2023.

Talking about gross margin and how we’re thinking about gross margin, we did signal that gross margin for ‘22 would be about, I think 15 to 30 basis points higher than recorded gross margins in 2021.

The puts and takes on that is you know pricing probably heads gross margin between 200 and 250 basis points, but we think that will offset inflation which is largely COGS and higher dilution. You know we did reflect in the last few calls that you know the promotional environment probably doesn't continue.

So we have kind of built that in and so that's one piece of it, pricing offsetting inflation and higher dilution. I think dilution probably stepping up you know sometime in quarter two onwards rather than quarter one, because inventories continue to be tight.

Our structured improvements in our business, whether its D2C women’s Beyond Yoga, you know added 40 to 50 basis points which is our growth algorithm, and then we had you know a recent amount of air freight, but because ocean freight has stepped up, you know we think the combination of higher ocean freight and potentially reduction in air freight is about a 20 to 30 basis points of headwind and that's what makes up the gross margin, you know different puts and takes leading to a 50 to 30 basis points of gross margin accretion year-over-year, that’s our thinking.

We think this probably – you know this kind of progresses evenly through the year, maybe gross margin slightly higher in the first half versus the second half, but that's how we’re thinking about it. .

Thanks for all the details Harmit.

Best of luck!.

Thank you. .

Thank you. Our next question comes from Chris [inaudible] of Bank of America. Your line is open. .

Good afternoon guys. Looks like you guys saw some nice recovery in Asia with revenues getting back in ‘19 levels during the quarter, but full year EBIT margins in the region still hanging out pretty well below pre-pandemic levels.

Can you discuss whether there are any structural differences today that prevent you from returning to those pre-pandemic levels? If you could just generally provide some comments around your strategy in Asia, that would be great. .

Yeah the – I think you know the reason the operating margins in Asia were down, really a combination of two things; one was volumes being down. You know Asia is about 15%, 16% of our business. It doesn't nearly leverage our operating costs as much as some of the other regions. The second is we were investing in China.

The good news is China in quarter four actually made money. It had lost money in quarter three and you know earlier part of the year, so that was why operating margins were impacted. I think as you think about Asia longer term, I’d say Asia you know coming back to pre-pandemic levels will make a sizable different.

Our gross margins you know around the company are higher. Our costs around the company are lower, so I think that impacts operating margins nicely over time.

But I think you know the way operating margins improve sustainably in Asia, it's all going to be driven by volume and as we reflected or I reflected in my script, there were markets that actually turned to growth in Asia and that was pleasing as we ended the quarter. .

Thank you. .

Thank you. Our next question comes from Bob Drbul of Guggenheim. Your question please..

Hi! Good afternoon! Just wondering, Chip, could you talk a little bit about the progress you made on the wholesale business, I think specifically in the U.S. piece of it, just the profitability gains.

I don't know if you could share the percentage for the fiscal year in terms of where that business ended up, and just curious on, you know like the game plan on inventories and orders that you're seeing.

I think Harmit mentioned it, but if you could maybe just address a little bit around the game plan and what you see on inventory levels and inventory orders from your wholesale partners? Thanks. .

Yeah I – you know first of all Happy New Year Bob!.

Thank you..

We put a lot of effort as you go into kind of remapping our wholesale footprint to make it more premium and more digital over time and that's really paid off. Our wholesale business today is much more profitable.

I’m not going to give you a number, but it's a lot more profitable today than it was before, and certainly you know the lower promotional environment has been good for us, good for the brand and good for our customers as well. But the pandemic definitely accelerated growth in the channel and we had a good holiday as well here in the U.S.

But I think our success in U. S. wholesale has largely traced the work that we did to premiumize our business and really get our footprint right. So you know real elevation with customers like Nordstrom and Bloomingdale's.

The addition of Target as one of our customers here has been really big for us; a very small, tight assortment, but really premium elevation of the brand, great in store execution.

So wholesale and gross margin profitability are the strongest they've been in a long, long time, and again as I said, more promotional environment has helped that and when we do have this Analysts Day that we keep talking about, which is going to come later this year in the spring, late spring, we’ll share a full growth algorithm about what we're expecting from wholesale over time.

I guess the last thing I would say is you know brick and mortar wholesale, so just the brick and mortar component of it is only around 10% of our sales today, which is down hugely from 10 years ago when I joined here. I mean U.S. wholesale at the time was almost half of the company's total business. Today brick and mortar and the U.S.

wholesale is about 10% of our total revenue. It’s a massive transformation for us over the last decade. .

Got it.

And if I could just sneak in one more for you Chip, are you – do you think the Niners are going to win this weekend and are you guys planning for a big Levi's commercial in the Super Bowl at this point in time?.

Well, here's what I will tell you. What super bowl is this? 56 right, and what's 56 in roman letters, its LVI. So the only thing that's missing is a letter ‘E’. .

So we'll see you in the Super Bowl. Good luck! Thank you..

Thanks a lot. Yeah, bye-bye. .

Thank you. Our next question comes from Dana Telsey of Telsey Advisory Group. Please go ahead. .

Good afternoon everyone and Happy New Year! As you think about the CapEx budget for this year, is 270 the new number or is the new distribution centers adding to that; how do you break it down? And then just following up on digital, what are you seeing on that digital margin, you mention the improvement. Where do you think that could go? Thank you. .

Okay Dana, Happy New Year to you too. On CapEx, you know CapEx is over time. You know we have stepped up CapEx as the company had generated a decent amount of cash and we've invested I would say wisely because our return on invested capital as a company is at a 10 year high, its about 26%. So there is discipline in how we allocate capital.

Why is capital higher? It’s about 4% or a little over 4% of revenue depending on where you pay the revenue. The increase is largely driven by a couple of things. We did talk about you know the distribution centers in Europe and in the East Coast in the U.S.

and that is to service higher demand, and importantly drive more efficiency in how we fulfill, because we can have visibility inventory across direct-to-consumer and drive the channel that is really growing, which his e-commerce. We are also during the pandemic we had scaled back on remodels and as I said we have a 1000 plus stores.

We are trying to scale that back, that's good ROI and now that we have a Next Gen model that is working around the world, we have something we can retrofit to, plus the 100 new stores that we talked about.

We are also spending more money on digital as we are trying to grow the e-commerce business, whether its scaling our loyalty program, scaling our apps, you know scaling [inaudible], you know the basic things that today define what a good omni-channel retailer is all about.

We are also scaling AI and machine learning and there is a wonderful ERP upgrade which is happening. So I think a combination of factors, quite – my view is two-thirds of the capitalist is still growth oriented, so that's the first answer to your question on capital.

I think your second question, second piece, I’m sorry, Dana can you help me?.

Yep, its digital market. .

On the digital margin it’s a simple – the good news is its mid-single digit from low single digit at the end of last year from numbers being in the red pre-pandemic. I think our view is, if you can double our own e-commerce business, which will take a couple of years, we think we can get to the 12% number.

And so it’s largely a volume gain plus as we build efficiencies through digital distribution, that also helps. So I think that's what we're trying to do. I think the headwind is obviously distribution costs, but we’ve got enough factors, including volume leverage that help offset that. .

Great.

And Chip lastly, anything on Beyond Yoga, the early insights that you're gleening there and what you are seeing?.

Sure, I guess what I would say is a couple of things. First of all, you know we're pretty much complete with the integration and we're really, really happy. I mean no big surprises.

We kind of got what we thought we were going to get, that’s one important headline, that's great, but beyond that the team is terrific, we have already transplanted a couple of Levi's folks on to the Beyond Yoga team, so a person in marketing, a person in IT who's going to help a lot with e-commerce and that area and we’ll likely move a merchant down there as well.

So we are starting to populate some Levi’s folks down there, but it's still really, really early days. We talked on the prepared remarks about the men’s pilot that they had right before the holidays, that was really, really good and we will likely have a couple of stores before the end of this year.

So we're feeling really, really positive and as I've said many times, I think the future is really, really bright for this brand. Its amazing product and it's a great team and we're very, very optimistic right now. .

Thank you..

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

Good afternoon and thank you so much for taking our question. Chip, Harmit, AUR has been a strong contributor to Levi's growth versus 2019 level this year and it sounds like that has a lot of room to continue.

Could you perhaps provide a bit of color on your outlook for sales volumes for the year and maybe the categories or channels where you see the largest opportunity for Levi's share volume capture to increase in this next fiscal year? Thank you. .

Hey Brooke, you know it’s difficult to mode with precision, but here is how we are thinking. If you look at the 11% to 12%, you know about 2% of that is thanks to the wonderful work that the Beyond Yoga team is doing. If you assume the rest is Levi's, it maybe a point from Dockers but less is [inaudible].

Our view is pricing is about half that, and the other is largely being driven by you know what I call higher DTC as well as you know just volumes. So that's how we are thinking about it at this point of time. Overall for the year I think Chip referenced it AURs were up 7%, most of it pricing for the quarter. AURs were up 10%, 70% of that was pricing.

So that's how we’re generally thinking about AURs, what they are and where they are headed over time. .

Thank you so much. .

And in terms of categories, its primarily I think being driven by our bottoms business and the tops is under penetrated as we tend to – as we add more of a portfolio premium - as we add premium tops to our portfolio that will help AURs over time. .

Great! Thank you. .

Thank you. Our next question comes from Jay Sole of UBS. Your question please..

Great! Thank you so much. Chip, my questions is about the store rollout that you talked about earlier in the call with the Next Gen stores. What are you seeing that makes you – it seems like the rollout is happening faster, it's increasing.

What are you seeing that makes you want to do that and then for Harmit, you know it should be interesting to you from a top line perspective, just because you had a lapping fiscal stimulus in March and April in the U.S. and then there's a lot of easy compares in part of the world where COVID was a big impact in 2021.

So if you can just give us an idea of the contours of the year from a quarterly perspective on where you expect the sales growth to be, like maybe higher than average or lower than average. Thank you. .

Yeah, I'll hit the store thing real quickly.

As we’ve been rolling out these Next Gen stores, we've been really pleased with their performance and literally kind of market-by-market, when we go in with the Next Gen store remember the smaller, they tend to be a smaller foot print, more efficient, tight assortment, digitally enabled, an easy store to shop and a little bit more consumer friendly, larger fitting rooms, better lighting, almost market-by-market they tend to outperform the old format stores.

Take a look at our ROI, see for this past year, we are investing a lot of capital with – into retail and its returning.

And so I won't say every single one of the stores has meet or beaten our expectation, but we are really pleased with it, and we know especially here in the U.S., we know we continue to have this opportunity to premiumize the marketplace. Just a couple of years ago we only had 30 mainline doors. I'm not even sure if we crossed 50 at this point.

And so there's still a lot of opportunity for a productive mainline doors here in the U.S., but in other parts of the world as well. So we think we're going to add about another 100 doors or so on a gross basis this year and we're optimistic about it. It’s a good time to be looking for real-estate too in many markets. .

And to your question about first half, second half, you know the quarterly puts and takes, I’d say last year our H1 relative to ‘19 was still down, because we are dealing with store closures in Europe and in parts of Asia, etcetera. So we think about it as Q1 is probably up in the mid to high teens and obviously vary by quarter.

The second half is in the higher single digit, that's how we are thinking about revenue. U.S. generally strong through the year, but Europe and Asia helping you know drive the swings. .

Got it. Okay, thank you so much. .

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

Hey! Thank you. Happy New Year! Two questions for you. Just you know there’s a lot of investor trepidation in the space clearly for a couple of different reasons, but one is just the idea that demand is going to be moderating to a point where maybe it becomes uncomfortable.

I mean, is there anything you can say about Q1 or quarter-to-date, just from a demand perspective, whether it's your own DTC business or your talks with your wholesale partners, that will be helpful for us.

And then just to that point on the wholesale side, any difference in those competitions within the mass channel versus the department store channel will be helpful?.

I won’t get down to customer level detail, but part of the reason we sound optimistic is every signal we are looking at, and I got to say you know, I'm probably the one who gets most paranoid, and I'm always paranoid and I'm always looking for something that's going to send us sideways and every signal that we look right now, the consumer still looks pretty bullish and including credit card data, that is fair looking current and that's true on a global basis.

We've got good visibility to the order book in Europe, where there is you know this concept of pre booking, the demand signal coming from there is very strong. We're still chasing here in the U.S. right now, and as you heard, we left demand on the table if you will.

We left three points of growth unfilled and we're still chasing, so you now but the fed, I think right about the same time we started this call announcement for rate hike and inflation is partially psychological and I've been there.

You know I was in business back in the early eighties, I remember it, and we're watching the consumer like a hawk, but right now every signal that we're seeing is positive and we know that we've been successful in getting pricing past through over the last six months; we see what’s happened to our AUR, so.

But we'll keep an eye on it and if we see the signal starting to change we’ll react quickly. But right now, and if you look at the economist reports, even from their bank, they're all very, very optimistic right now about the consumer. So that's why we are feeling pretty good and everything we're seeing suggests that. .

Great! Thank you. .

[End of Q&A]:.

Thank you. Thank you at this time I'd like to turn the floor back over to the company for any closing remarks. .

Okay, I think we may have left one or two or a couple of questions unanswered. I'm sorry about that. I know that Harmit and Aida will be doing follow up calls with everybody. We tried to be as quick as we could hear, but in the interest of time and respecting everybody's calendar, we’ll call it here.

Thanks very much for joining us and for being along for the ride and we’ll speak to you at the next earnings call in a couple of months. Bye-bye. .

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