Levi Strauss & Co. Q1 2025 Earnings Report

Levi Strauss & Co. EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.28
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $0.26

Levi Strauss & Co. Revenue Results

• Actual Revenue: $1.53 billion
• Expected Revenue: $1.54 billion
• Beat/Miss: Missed by -$16.78 million
• YoY Revenue Growth: +3.10%

Levi Strauss & Co. Announcement Details

• Quarter: Q1 2025
• Date: 4/7/2025
• Time: After Market Closes
• Conference Call Date: Monday, April 7, 2025
• Conference Call Time: 5:00PM ET

Levi Strauss & Co. (NYSE:LEVI) is a global apparel company best known for its Levi’s brand of denim jeans and related clothing. Its product portfolio includes jeans, tops, jackets, footwear, accessories and other casualwear, sold through company-operated stores, digital channels, wholesale partners and distributors.

Founded in 1853 by Levi Strauss, the company is headquartered in San Francisco, California. In addition to Levi’s, its brand portfolio includes Dockers, Beyond Yoga, Signature by Levi Strauss & Co. and Denizen. The company serves consumers across the Americas, Europe and Asia through a combination of direct-to-consumer and wholesale operations.

Levi Strauss & Co. is led by Michelle Gass, who became president and chief executive officer in 2024. The company continues to build its business around denim and casual apparel while expanding its lifestyle offerings, international presence and direct-to-consumer distribution.

Levi Strauss & Co. Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong Q1 performance: Organic net revenues grew 9%, exceeding sales, margin, and EPS expectations driven by brand-led and DTC-first strategies.
• DTC momentum: Direct-to-consumer revenue rose 12% (e-commerce up 16%), with DTC now representing 52% of total net revenues and fueling significant margin expansion.
• Record margin expansion: Q1 gross margin reached 62.1% (up 330 bps) and adjusted EBIT margin expanded 400 bps to 13.4%, supporting a 52% EPS increase to $0.38.
• Wholesale stability: Global wholesale revenue was up 5% (U.S. wholesale +9%), with Q2 expected to be flat to slightly up and spring/summer prebook orders up mid- to high-single digits.
• Tariff uncertainty: Newly announced U.S. tariffs create a fluid macro backdrop; the company is evaluating supply-chain, cost and pricing mitigations, and has not yet factored tariff impacts into full-year guidance.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co. First Quarter Fiscal 2025 Earnings Conference Call for the period ending March 2, 2025. 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 at levistrauss.com. I would now like to hand the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Co.

[Aida Orphan, VP of Investor Relations at Levi Strauss & Co.]

Thank you for joining us on the call today to discuss the results for our First Quarter Fiscal 2025. Joining me on today's call are Michelle Gass, our President and Chief Executive Officer, and Harmit Singh, our Chief Financial and Growth Officer. We have posted complete First Quarter financial results and 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.

[Aida Orphan, VP of Investor Relations at Levi Strauss & Co.]

Please review our filings with the SEC, in particular the risk factors section of our Form 10-K for the fiscal year ended December 1, 2024, and the MD&A section of our recently filed Form 10-Q 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.

[Aida Orphan, VP of Investor Relations at Levi Strauss & Co.]

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, newly imposed U.S. tariffs, and any additional responsive non-U.S. tariffs or additional U.S. tariffs, and any future restructuring-related severance and any other charges. This call is being webcast on our IR website, and a replay of this call will be available on the website shortly. Please note that Michelle and Harmit will be referencing organic net revenues or constant currency numbers unless otherwise noted, and information provided is based on continuing operations, which excludes $76 million of net revenues related to Dockers. 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.

[Aida Orphan, VP of Investor Relations at Levi Strauss & Co.]

I would like to turn over the call to Michelle.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Thank you and welcome, everyone, to today's call. I'm pleased to share that 2025 is off to a strong start, and our shift to becoming a direct-to-consumer-first (DTC) company is driving both strategic and financial value. In First Quarter, we exceeded expectations across sales, margins, and EPS, driven by the momentum of our strategies. We again achieved high single-digit organic net revenue growth, up 9%. Direct-to-consumer continues to be the primary growth driver, up 12%, fueled by positive comp growth, successful new openings, and strong e-commerce performance. Our wholesale business delivered another quarter of positive growth, up 5%. Our U.S. business further accelerated, up 8%, while international was strong as well, up 9%. We extended our market leadership with share gains across both women's and men's.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

I am proud we are able to deliver these strong results while fundamentally changing the way we work as part of our hard pivot towards becoming a best-in-class omnichannel retailer. Given last week's tariff announcements, we're dealing with a dynamic macro environment. However, I'm confident in our ability to navigate these rapidly evolving times. As an iconic brand with more than 170 years of history, we've weathered challenging times before. We have a playbook that begins with leveraging the strength of our brand and our deep connection with consumers. We know, especially during times like these, people turn to the brands they know and trust and prioritize value and quality, and that's what Levi's has always stood for. Today, almost 60% of our revenue is generated outside the U.S.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We have scale with an agile global supply chain, deep vendor relationships, and a strong balance sheet, all of which position us well to navigate this time of uncertainty. I'll now walk you through highlights from the quarter in the context of our strategies. Note that all numbers that Harmit and I will reference are on an organic basis and exclude Dockers, which, as you saw in our release, has been moved to discontinued operations as we explore a sale of the brand. Let's start with our first strategy, being brand-led. The Levi's brand was up 8% for the quarter and continues to reach new levels of strength all over the world. While many brands aspire to be at the center of culture, we are firmly there. You can see that through our partnership with the most influential artist of our generation, Beyoncé.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Since launching Reimagine in September of 2024, the campaign has generated more than 4.3 billion impressions and more than $65 million in estimated earned media value, continuing to help us drive equity gains with men and women across our market. As another proof point in our ongoing efforts to drive brand heat, this last quarter, the Levi's brand was featured in A Complete Unknown, a highly celebrated biopic of Bob Dylan starring Timothée Chalamet. Bob Dylan, known for his love of Levi's, has shaped and defined culture across many decades. To commemorate the film's release, we launched a limited edition collection featuring some of Bob Dylan's wardrobe staples. This example of how we lean into our legacy to spark inspiration for the future is further proof that we're not a heritage brand, but instead a brand with heritage.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We are also partnering with authentic, locally influential icons to drive brand heat and anchor the brand at the center of culture across the globe. Earlier this month, we expanded our partnership in India with Punjabi superstar Diljit Dosanjh, and launched a new campaign in Germany with Stephanie Giesinger, strengthening our appeal with consumers in both of these important markets. As a testament to the strength of the Levi's brand, we gained market share in men's and women's in the quarter, further solidifying our number one position in denim across both categories. Consistent with our strategy to recruit younger fans to the brand, we also grew share with our 18- to 30-year-old target consumer demographic. These consumers transacted a higher average unit retail (AUR) and purchased more frequently than our average consumer.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Moving to product, while our history is built on jeans, our future will be built around lifestyle, always rooted in denim. For most of our history, we've been known as a men's jeans business, but to achieve our bold aspirations, we need to be more. Over the last couple of years, we have significantly expanded our head-to-toe offering, especially with women, while maintaining our dominance with men. This enables us to further expand our already large total addressable market. As a result, women's continued to accelerate, growing double digits over the last few quarters and now represents 38% of net revenues. Tops represents more than 20% of our business, which has more than doubled over the last 10 years. Inspired by denim lifestyle, newer categories such as dresses, skirts, and outerwear continue to grow at a faster pace than the rest of the business.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

While we are the leader in jeans, our portfolio beyond denim bottoms now comprises 35% of our total sales. As we diversify our product portfolio, we also remain laser-focused on our core Levi's bottoms business, and in First Quarter, bottoms were up 9%, driven by strength in both men and women. The continued success we have achieved in bottoms is attributable to our fit diversification strategy. We have a style for everyone, for every occasion, and for any time of year. Loose and baggy fits, which make up roughly 15% of our total bottoms portfolio, continue to be a significant growth driver. For her, we are building on the trend with new fits. A great example is our launch of the Cinched Baggy, available across both DTC and wholesale, which went viral on TikTok and created tremendous interest with search volumes surpassing 200 million.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

With men, we've been focused on expanding this trend through new fit launches like the 568 Loose Straight and the 578 Baggy. While there's so much buzz around the loose and baggy trend, slim and skinny styles remain a wardrobe staple and comprise more than 20% of both our women's and men's bottoms businesses. We continue to infuse innovation and newness into these styles with a robust pipeline of new fits, finishes, and fabrics. Our men's classic 511 Slim Fit is a great example, now offered across a range of fabrics, washes, and colors, as well as part of our new tech series, earning us more space in his closet. As part of our denim lifestyle strategy, tops remain a key growth category for us, and in the quarter, tops grew 7%.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We're seeing stronger growth in our direct-to-consumer channel, up low double digits, where we offer our broadest assortment. There is a long runway for growth in our tops business, and the strong demand we're seeing in our DTC channel gives us great confidence that this will scale to be a meaningful part of our business over time. Our pipeline of newness and innovation remains robust, and I'm confident this will continue to drive impact and resonate with our fans. We continue to see an opportunity to further premiumize the brand with the global launch of the Levi's Blue Tab Collection. Introduced in Asia earlier this year, Blue Tab paired our iconic Levi's aesthetic with the quality and sensibility of Japanese craftsmanship. Our most elevated expression of denim leadership to date, the collection features iconic denim staples along with new tops, skirts, and outerwear.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Building on the success of our lightweight denim collection, we're excited to introduce our newest innovation, linen and denim, combining the authentic feel of blue jeans with soft, light linen. Now shifting to our strategy to be DTC-first, our global direct-to-consumer business delivered another quarter of double-digit growth, up 12%, and posting its twelfth consecutive quarter of positive comp. AURs in the channel were up mid-single digits as customers are gravitating to more premium products, as well as an intentional reduction in promotion in our stores. DTC productivity actions, including improving the front-of-house consumer experience and back-of-house efficiency, are driving growth across key metrics, including strong conversion and traffic trends, fueling significant margin expansion in this channel. I see firsthand how our strategies and actions are driving these results when I walk our stores and get feedback from our team.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Our stores today reflect a more robust head-to-toe offering compared to when we were mainly a men's denim bottoms destination, and we're now showcasing a broader denim lifestyle assortment through tops, dresses, outerwear, skirts, and both denim and non-denim bottoms. Our inventory levels are healthier with better in-stock availability, and we're equipping our stylists with enhanced product knowledge and improved selling techniques. The results of all of this work are more productive and profitable doors, increasing our conviction that we can build several hundred more stores in the future. We are on that path today. In First Quarter, we continued executing our retail expansion plans. Notable openings include Rome on Via Cola di Rienzo, one of the most renowned shopping streets in Italy, and continued expansion across Mexico and India as we grow our retail footprint in these important markets.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We have abundant opportunity to increase our DTC presence in major markets all around the world, including here in the U.S. Our efforts to accelerate our performance in our e-commerce business are working, with the channel up 16% in First Quarter on top of 13% in the prior year. Over the last couple of years, the team has been focused on three core areas to fuel momentum in our e-commerce channel, including fixing the fundamentals, evolving the assortment, and elevating the consumer experience, creating a much more premium and engaging destination for the full Levi's experience. We have upgraded the content on our site with higher quality imagery that focuses on our lifestyle assortment and enhanced storytelling. We're featuring more use of videos on our product detail pages, which allow our consumers to see our product in motion.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We are seeing a strong response from our consumers, with customer satisfaction scores for the U.S. e-commerce business rising to its highest level ever. Today, comprising just 12% of our total company net revenues, we believe that e-commerce represents another significant engine for growth. DTC ended the quarter at 52% of total global net revenues, up two points to last year, accounting for over half of our total revenue, a milestone as we transform into a DTC-first company. We are also encouraged by the performance in our global wholesale channel, up 5%, driven by strong growth in the U.S. U.S. wholesale exceeded our expectations in the quarter, up 9%, in part driven by door expansion and more space with our broadened lifestyle assortment. Our Levi's women's business was a particular bright spot, up 17%. Consistent with our strategy to diversify our channels of business, U.S.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Department stores now represent just 7%, which is less than half of what it was 10 years ago. Signature, our value brand, also grew this quarter, up 19%, driven by strength in our seasonal fit. As we look to the balance of the year, we remain prudent as respects global wholesale. We continue to expect the channel to be flat for the full year on an organic basis, and this continues to be an important, profitable channel for us. Now turning to our third strategy, powering the portfolio, our international business represents close to 60% of our total business today, up 9% in First Quarter, driven by growth in Mexico, the U.K., France, and Germany. International growth remains an important opportunity for us long-term, and we continue to believe that we are underpenetrated. Beyond Yoga was up 10% in First Quarter.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We are continuing to focus on brand-building initiatives to drive awareness and profitable growth. Customers are responding to our broadened assortment of colorways and styles, as well as new products like our Luxe Sleeve Collection, expanded outerwear assortment, and our Lifestyle Status Trouser. Comp sales in our small but growing network of stores were positive for the quarter. In closing, we are pleased with our strong start to the year. We recognize that the environment around us continues to have uncertainty, and we're focused on the things we can control. Our First Quarter performance demonstrates how our transformation into a best-in-class lifestyle retailer is accelerating both the top line and the bottom line. Our key strategies of being brand-led, DTC-first, and powering our portfolio, along with our efforts to rewire our company to be faster and more consumer-obsessed, are working and are gaining momentum.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Our team is focused on executing with excellence, and I'm grateful to our employees around the globe for their commitment to the change underway and for their unwavering dedication to consistently deliver for our fans. I am confident we have the right foundation to capture the opportunity ahead and deliver profitable long-term growth for all of our shareholders. With that, I'll turn it over to Harmit to provide a financial overview of the quarter and our expectations for the year. Harmit?

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thank you, Michelle. We started the year with momentum. Our financial results were better than expected, and our transformation to a DTC-first lifestyle business is making real progress. As you saw in this morning's press release, Dockers has been reclassified to discontinued operations.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

As you will notice, while Dockers was a positive contributor to sales, our gross and operating margin structure is higher, excluding Dockers, thereby improving the structural economics and profitability of our remaining business. Our focus on structural economics is reflected in the fact that net revenues, margins, expenses, and earning per share (EPS) were all better than expected. While global wholesale net revenues were up for the second consecutive quarter, our direct-to-consumer business continues to lead our growth, with net revenues up 12% as we consistently execute the three things that matter most in this channel, what I call a trifecta: positive comp sales, opening high-performing stores, and growing e-commerce profitability. Besides the double-digit top-line growth, our direct-to-consumer EBIT margins grew 500 basis points in the quarter, contributing to the company's overall margin expansion. This is helping drive sustainable sequential progression across our P&L.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

First Quarter 2025 organic net revenues accelerated to 9% versus flat in First Quarter 2023 and 2024. Gross margin was a record at 62.1% this quarter versus 58.2% in First Quarter 2024 and 56.5% in First Quarter 2023. Given our expense discipline in First Quarter, we were also able to leverage adjusted SG&A margin by 70 basis points, all of which drove 400 basis points of adjusted EBIT margin expansion to 13.4% versus 9.4% in First Quarter 2024 and 11.5% in First Quarter 2023. Now turning to a brief review of our results, 9% top-line growth was driven by better-than-expected performance in both direct-to-consumer and wholesale channels. Two-thirds of the growth was driven by units and a third by higher AURs. Turning to margins, we continue to see expansion in both our gross and operating margins. Gross margin for First Quarter was 62.1% of net revenues, a new record.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Gross margin expanded 330 basis points relative to last year, driven primarily by the continued benefit of lower product costs, favorable channel and brand mix, and higher full-price selling. Adjusted SG&A expenses in the quarter were up 2% versus prior year to $744 million from higher distribution expenses driven by a transition to a hybrid third-party logistics (3PL) structure. We were pleased to see our adjusted SG&A rate of 48.7% improve after last quarter's elevated levels, leveraging 70 basis points versus prior year. Gross profit dollars growth outpaced the adjusted SG&A dollar increase, delivering a flow-through of 84%, driving adjusted EBIT margin expansion of 400 basis points to 13.4%. Adjusted diluted EPS came in at $0.38, well ahead of our expectations and up 52% to prior year. We ended the quarter with reported inventory dollars up 7% to the prior year.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

We feel comfortable with the level and composition of our inventory and have secured the majority of inventory required to meet U.S. orders for Second Quarter. In the quarter, as planned, we closed 21 net stores as a system. However, this consists of 13 new store openings, primarily full-price Levi's brand stores, and 51 closures, which were mostly underperforming franchisee stores in China. Our disciplined fleet review process ensures that the doors we are opening are productive and only the most profitable with the highest return opportunity remain open. In the quarter, we returned $81 million to shareholders in the form of dividends and share buybacks, which were up 12% to prior year. In Second Quarter, we have declared a dividend of $0.13 per share, an increase of 8% versus prior year. Now let's review the key highlights by segment.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

The Americas net revenues were up 11%, fueled by double-digit growth across both direct-to-consumer and wholesale. In the U.S., net revenues were up 8%, driven by high single-digit growth in both channels. Our business in Mexico was up 6% from increased traffic in our stores as well as e-commerce growth. For the segment, strong gross margin and SG&A leverage led to operating margin of 21.7%, improving 370 basis points to prior year. Europe was positive for the third consecutive quarter. Net revenues were up 3% in First Quarter, led by double-digit growth in key markets like the U.K. and Germany. Direct-to-consumer continued to accelerate this quarter up 11%, supported by comp stores, e-commerce, and more full-price sales.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

While wholesale shipping was down in the quarter, given the transition of our distribution center in Germany, we expect wholesale in the segment to return to growth in Second Quarter and have strong pre-book orders, up mid to high single digits for spring and summer. Gross margin expansion drove operating margin to leverage 120 basis points versus prior year to 25.6%. Asia net revenues increased 10% compared to prior year. Direct-to-consumer net revenues were up 14%, led by double-digit growth in key markets like Japan, Korea, and Turkey. Our South Asia, Middle East, and Africa business, which includes India, was also up double digits this quarter as improved in-store retail experiences drove higher unit per transection (UPT) and better conversion rates in addition to growth in wholesale.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

This quarter, our China business was flat to prior year, and we continue to have modest expectations in 2025 as our work to reset this market is underway. Operating margin of 18.8% was up 200 basis points to last year from stronger gross margin. Now turning to our full year and Second Quarter guidance, we had a strong First Quarter with broad-based strength across segments, channels, and categories, delivering a notable beat for the quarter, and we saw solid trends continue through March. However, as you all know, there were changes to the tariff structure announced a few days ago. Given that the situation is fluid and unprecedented, the impacts are uncertain. We are in the process of scenario planning and determining different mitigation strategies.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

We recognize this is a quickly evolving macro situation, and we have to see where the dust settles to give you the guidance that is going to be as helpful to you as possible. For now, our full year outlook remains unchanged and includes no impact from the proposed tariffs. Our Second Quarter outlook remains consistent with our internal plan. The impacts of tariffs will have a minimal impact on our margin structure in the quarter, as most of the product for spring, early summer is already in the U.S. As a reminder, Second Quarter is seasonally our lowest quarter for revenue and margins in the year. For Second Quarter, we expect organic net revenue growth from continued operations of 3.5%-4.5%.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

This excludes approximately two points of foreign exchange headwinds and 1.5 points attributable to the exit of Denizen and our footwear business, which implies being flat to up 1% for the quarter on a reported basis. Gross margin is expected to be up between 80 basis points to 100 basis points, and adjusted EBIT margin is expected to be in the range of 5.5% to 6%. This translates to an adjusted diluted EPS of approximately $0.11 to $0.13, which includes around $0.03 headwind from foreign exchange and a higher tax rate versus prior year. With this expectation, our profitability assumptions will be significantly higher, up approximately 20% versus First Half 2024. In closing, I will leave you with three thoughts. First, while the tariffs announced last week pose a significant challenge for us and the industry, our business and our brand have endured for 170 years, proving our resilience.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Today, the Levi's brand is stronger than ever with diversified global revenue, solid margin structure, agile sourcing base with deep vendor relationships, and a strong balance sheet. We are well positioned to manage through this uncertain time. Second, we deliver strong First Quarter results, and we are starting the year with momentum. Our new products are resonating and driving market share gains. We have a robust product pipeline that will fuel growth in our denim and non-denim business for the rest of 2025 and beyond. We are making incredible progress on growing the direct-to-consumer channel to our longer-term goal of 55% of our business while also growing wholesale. Third, we are both transforming our business while delivering strong financial results and improving our structural economics as we continue on our path to becoming a $10 billion company with 15% operating margins. I will now open up the line for Question and Answer (Q&A).

[Operator]

Thank you. The floor is now open for questions. If you have a question, please press star, then the numbers 11 on your telephone keypad. Due to time constraints, the company requests that you ask only one question. If you have an additional question, please queue up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 11 again. Our first question comes from the line of Laurent Vasilescu of BNP Paribas. Your line is open, Loren.

[Laurent Vasilescu, Analyst at BNP Paribas]

Good afternoon, Michelle and Harmit. Thanks for taking our question. With tariffs front and center on everyone's mind, can you provide a percentage breakdown of sourcing by key countries for the investors on this call? What are your suppliers saying about providing potential concessions? On passing some of the tariffs down the value chain, how much and when do you think you can raise pricing? Thank you very much.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Yes. Hi, Laurent. Thanks for the question. Let me just take a step back for a minute. Obviously, the news on tariffs is very new. It's fluid. This was just a couple of days ago, and I think we, like the industry, are getting our arms around it. I would say that as we enter in this period, we are coming from a place of strength. We have momentum on the business. The brand's never been stronger, and we've achieved significant margin expansion. That said, we have a task force assembled assessing the various scenarios and identifying what levers we have to mitigate.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

You've named a couple of them, but I'd first start with the structural changes, cost structure that we can make as part of our transformation initiative. As you know, we've made significant progress. You see it again in First Quarter with margin expansion. We will look there first on how we can accelerate further margin and cost opportunities. Point number two is, yes, we will work with all of our stakeholders. That includes our vendors. It includes our customers as we assess and look at what opportunities we have. As it relates to our vendors, I mean, we've got long, deep relationships with many suppliers around the world. We source from 28 countries, 20 of which are countries that we source into the U.S. I'll speak to some of the countries in a moment.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

That is definitely an area that we're investigating, but we're in the very early days on that, Laurent. I'd say more to follow. Similarly on pricing, as we look at pricing, we do believe that the brand, especially given the health of the brand, that there is pricing power there. If we do anything, it'll be very surgical. As you saw even this past quarter, our average unit retailer, AURs, were up again. The consumer is actually increasing prices. They buy up into more premium products. That's an opportunity. We've also been pulling back, especially in our DTC channel on some promotion. We had more full-price selling. That whole area is an opportunity. I would just say more to come.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Really, we're looking at those three areas: the cost structure, kind of the end-to-end stakeholder and supply chain, and then surgical pricing. Specific to the supply chain, as I said, we have a global, long-tenured supply chain. We source from over 28 countries. The places that we source from are the places you'd expect from the industry. Some of the key countries for us, in no particular order, are places like Bangladesh, Cambodia, Egypt, Pakistan, Sri Lanka, Vietnam. Those, I'd say, are our top vendors. It is broad. I'd say our supply chain is more agile today than it ever has been. We make pivots all the time. We will continue to do so as we look to address the issues both in the short, medium, and long term.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

I think what we've disclosed, Laurent, into the U.S. from China, approximately 1%; into the U.S. from Mexico, approximately 5%; and from Vietnam, in the mid to high single digits into the U.S.

[Laurent Vasilescu, Analyst at BNP Paribas]

Very helpful. Thank you very much for your thoughts.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Thank you.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thanks.

[Operator]

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

[Dana Telsey, Analyst at Telsey Advisory Group]

Hi, everyone. Nice to see the progress. As you think about inventory levels, Harmit, how are you planning inventory levels going forward on wholesale orders? What are you seeing from the accounts? And Michelle, given the Beyoncé campaign and some of the other activations and collaborations, women's business, men's business, how are you thinking of the denim market growing? What should we be looking at given the linen and denim and new things coming? How are you thinking about pricing? Thank you.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Dana, a couple of things. Inventory at the end of First Quarter was up 7%. The composition of the inventory is healthy. As I mentioned in the prepared remarks, for the U.S., we have product for spring and summer. That is why we gave guidance on Second Quarter. The other thing is our Second Quarter includes March, and the trends in March are stronger than how we exited February. That is a perspective on that business. We have been prudent in inventory planning as we think about the year. As you think about inventory, the three things, and now the fourth that we are keeping in mind, there was getting product in for spring and summer, largely because the tariff clouds were there was an overhang even a couple of months ago. The second for Europe is Red Sea disruption. The third was generally our thinking about the year. We have been very prudent.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

As a reminder for everybody, we sell a lot of coal, right? A lot of our product is seasonless, and we can carry it through seasons. Our balance sheet is fairly strong. We talked about the cash position at the end of the quarter and the access to liquidity. We are in a good spot in a lot of ways. We've been prudent. Your question about wholesale orders, global wholesale was up 5%. U.S. wholesale was up 9% organically. This was the Second Quarter where we have seen both global wholesale and U.S. wholesale up. As we think and as we are understanding right now, there's been no change to orders in from wholesale customers. Inventory or trade inventory is very similar to 2019 levels.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Let me share a little bit of a perspective on wholesale in Europe. Wholesale in Europe was down in First Quarter. Essentially, as I said, because we are ramping up our distribution center, we expect wholesale to return to growth in Second Quarter. The best indication of wholesale demand in Europe is pre-book, which for spring and summer is positive, and for fall is positive right now. I think the second question, Michelle, she asked you about the denim category.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Yes. Dana, thanks for the question. I think to echo what we said in our remarks, we're really pleased with the start of the year. The Levi's brand has never been stronger. The Levi's brand was up 8% in the quarter. I think to your question, we're seeing gains in both men and women, both in market share and in equity.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Specific to the Beyoncé campaign, 4.3 billion press impressions, more than $65 million in media value alone. I think importantly, it's creating a nice tailwind to everything else that we're doing. Specific to, as we think about our transformation, we must preserve and drive the leadership position in men's. Our intention has been to accelerate with women's because we're undershared there. Women's is now 38% of our business. First Quarter was our fourth consecutive quarter of double-digit growth. Like I said, we are now firmly in the number one position market share in the U.S., and we're growing that, which is really exciting. Women's was up 12% overall across all channels and geographies. If you look at DTC, which is really the leading indicator, up 16% in the quarter and really delivering on that head-to-toe lifestyle.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

As we pivot from jeans to becoming DTC, becoming head-to-toe, we're seeing that in our DTC results up 12, and we're seeing that in women's and in lifestyle. Like I said, women's up 16 in both bottoms and tops growing. The team is really nailing it in terms of driving trends and fashion fits, diversifying the fit opportunities. Strength in loose and baggy continues, but our core remains strong. Western wear continues to trend. The list goes on. Even in times like these, when it's turbulent, we're going to lean in and please our fans with delivering the highest quality product at a great value and deliver that innovation.

[Dana Telsey, Analyst at Telsey Advisory Group]

Thank you.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Thanks, Dana.

[Operator]

Thank you. Our next question comes from Matthew Boss of JPMorgan. Please go ahead, Matthew.

[Matthew Boss, Analyst at JP Morgan]

Great. Thanks. And congrats on a nice quarter.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thanks, Matt.

[Matthew Boss, Analyst at JP Morgan]

Thank you.

[Matthew Boss, Analyst at JP Morgan]

Michelle, could you elaborate on key drivers of the 9% organic growth, maybe consumer demand and market share trends that you're seeing in the Americas? Harmeet, if you could maybe speak to the cadence of gross margin in the Second Quarter relative to the back half.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Sure.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Great. I can start. I mean, one of the things, Matt, that we're really proud of the team's efforts this quarter is really across the board, we saw strength. If you take our geographies as an example, our total organic revenue is up 9%. We saw strength in the Americas, in Europe, and in Asia. Beyond Yoga, I would say as well, as that carries forward another quarter of double-digit growth. The channels, both channels were positive. DTC up 12, twelfth quarter of positive growth.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

I can speak to that in a moment, as well as our wholesale business up 5%. I'd say particular strength in U.S. wholesale. If I really double-click under DTC, because the 9%, clearly the 12% is what's fueling the majority of that. It's now 52% of our business. As you know, our long-term goal that we've put out there is to be at least 55%. We're making great progress. If you think about DTC and look at some of the KPIs, the key metrics there, as it relates to our owned and operated stores, positive comp sales, we saw positive traffic, we saw positive conversion, and we saw positive AURs. E-commerce up 16%. Again, positive traffic, conversion, and AURs. When you think about this, the growth is healthy and it's sustainable.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We're seeing both it coming through volume and units, which accounted for about two-thirds of the business. We're also seeing AURs up, which is about up a third. As we look at the trends, we feel like it's sustainable. It's all coming off of the back of our key strategies. When we say DTC first, denim lifestyle winning with women, we're seeing that across the board. The second part of your question was around market share. As I think I mentioned even in my earlier remarks, we're really pleased to see the growth we are seeing there. Both men's and women's grew market share in the U.S. this past quarter, number one in both positions across both genders.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

The other piece that we're seeing nice momentum and growth is growing market share with youth, that 18 to 30-year-old target customer, as well as the premium consumer. There is just a lot to like and a lot of momentum we're seeing across all of our segments of the business.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Matt, to your question of gross margin, which to me is a great indicator of how the brand's doing, record Gross Margins in First Quarter at 62.1%. I think the best way to think about it is half is driven by product costs, which are not truly just straight vendor negotiations. As part of our transformation efforts, we're taking a hard look at stock keeping units (SKUs). We have reduced our SKUs. We're taking a hard look at assortments that are not as productive, as well as our newer innovations are great margins. That is one piece of it.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

The other half, I would say, is a combination of mix, which is higher women's, higher DTC, higher international, higher full-price selling that Michelle referred to. There is a real focus given that our products are hitting home. We drive higher full-price selling. We had favorable effects given our hedging strategy. Similar for Second Quarter. Second Quarter, we reflected margins would be up 80 basis points to 100 basis points, again driven by this. A fullier base is 100 basis points. To your question about cadence, First Half versus Second Half, the First Half is really strong. The Second Half, because our margin structure was very strong a year ago, the second half will be muted. Still up, but much lower than the First Half. Obviously, we are focused on driving more full-price selling. It is something that is difficult to predict. That is why we continue to beat margins.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

The other reason that's driving higher margin is the wonderful DTC businesses, higher gross margin.

[Matthew Boss, Analyst at JP Morgan]

Great caller. Best of luck.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thank you, Matt.

[Operator]

Thank you. Our next question comes from Jay Sole of UBS. Please go ahead, Jay.

[Jay Sole, Analyst at UBS]

Great. Thank you so much. Maybe just on the guidance for Second Quarter, can you give us a sense of, for that organic net revenue growth, how you see that by region?

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Similar, Jay, I would say the U.S. low-to-mid-single digit as you think about Second Quarter. Europe probably mid-single digit with one difference. Wholesale should return to growth given what I indicated in Asia. Again, mid-single digit. If you think of channels, DTC, I would say high single digit. And global wholesale, flat to slightly up is the general thinking at this stage.

[Jay Sole, Analyst at UBS]

Got it. All right. Great. Thank you so much.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thank you, Jay.

[Operator]

Thank you. Our next question comes from Ike Boruchow of Wells Fargo. Please go ahead, Ike.

[Ike Boruchow, Analyst at Wells Fargo]

Hey, thanks. Good afternoon, everyone. Harmit, I think two for you. Just can you walk us through the expense deleverage that looks to be implied in the Second Quarter after getting some pretty good leverage in First Quarter, and then it looks like the Back Half should go back to kind of getting nice leverage to flat? Just what exactly are the spending dynamics kind of taking place in the Second Quarter? And then bigger picture for you, it sounds like there's no revenue issues for the business at all right now, but at least over the past couple of weeks, it might be helpful. Could you talk about the brand overseas? I think there's some growing narrative about anti-American response to U.S. brands that is a risk to what's going on geopolitically. Would love to hear if you're seeing any of that or if there's any noteworthy developments that you've come across in the past couple of weeks? Thank you

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Right. Ike, I'll try and do this in a speedrun. Right now, international business is fairly strong. We are not seeing any impact internationally. From our perspective, we've been here for a long, long time. Internationally, as a business, we've been around for over 80 years. So we're not seeing it. We're entrenched with the local consumers connecting really well and our new product offers that Michelle referred to are generally doing well. To your question about the Second Quarter guidance, so Second Quarter, just as a reminder, is largely -- is our lowest volume quarter just from the seasonality. First quarter has a December holiday, third quarter has back-to-school and the fourth quarter has the beginning of holidays, Second Quarter. So seasonally it's the lowest quarter. In terms of SG&A increase, the First Quarter was up 2%. We expect the Second Quarterto be up 3%. SGA -- SG&A as a rate is in the mid-50s. It was around under 50. We still expect SG&A for the year to be around 50%. And this is prior to any actions that we take as Michelle referred to mitigate actions on tariff, et cetera. And the EPS decline relative to last year is primarily driven by the foreign exchange and higher tax. Even though foreign exchange rates have improved a little from the last quarter, they're very volatile. They go up and down. And so our perspective is FX and higher tax will probably impact EPS adversely by about $0.03. But structurally, the business is in good standing.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Gross Margins, we expect to be up and organic rate to be up 3.5% to 4%. Think of our reported revenue. Reported revenue in Second Quarter, I said, is flat to slightly up. That is what the deleverage in terms of EBIT percentage is.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

The only thing I would add to what Harmit is saying is just when you think about the whole year, we are obviously thinking about our strategy is to drive the Top line. We will get some leverage there and drive Margin Expansion, both in Gross Margin over the year and in EBIT margin. As you know, we saw progress from 2024 over 2023, and we have guided the year to see another level of expansion there as well. All of this, of course, does not yet reflect the tariffs.

[Ike Boruchow, Analyst at Wells Fargo]

Got it. Thanks a lot.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thanks, Ike.

[Operator]

Thank you. Our next question comes from Chris Nardone of Bank of America. Please go ahead, Chris.

[Chris Nardone, Analyst at Bank of America]

Great, guys. Good afternoon. Just a couple of follow-ups. First, on U.S. wholesale, can you just clarify whether your guidance is implying positive or negative growth for the remainder of this year? Looking out, it sounds like you benefited from expanding into some newer wholesale distribution points in the first quarter. How big is this opportunity over the medium term? Do you need growth in U.S. wholesale to reach your medium-term EBIT margin targets?

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Chris, we've had two great quarters in Wholesale. U.S. and the team, big shout-out to them. They've delivered U.S. Wholesale Growth in the first two quarters. I indicated, I think, in the earlier question, Second Quarter globally, we expect wholesale to be flat to slightly up. Our expectation in U.S. Wholesale right now, we continue to be prudent.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

We think a flat number is a good number at this stage. Obviously, if we're another quarter under the belt, we'll talk about the fullier from that perspective. On the distribution, you are right. Our opportunities on distribution in the U.S. is primarily around the categories we're growing DTC. We think we have an opportunity in Women's. We think we have an opportunity in tops. And as you know, after the exit of Denizen and Target, we are working with our customers, in this case, Target, to try and grow our Levi's business. That's making a difference. As we think about opportunities of distribution in Wholesale, there are opportunities around the company, especially as we grow the categories and both gender, women and men, as Michelle referred to, and the different categories as we pivot to a denim lifestyle company.

[Operator]

Thank you. Our next question comes from Oliver Chen of TD Cowen. Please go ahead, Oliver.

[Oliver Chen, Analyst at TD Cowen]

Hi, thanks. Michelle and Harmit, in the past, what are your thoughts around frameworks around pricing? Also, when you look at tariffs in the past, what percentage did you absorb versus share with customers in different ways? As we look forward, Pricing has been something that you've adjusted in the past and recently in terms of prices being too high. Would you take lower margins in terms of offering the consumer a good value? I know there's a very dynamic situation here with tariffs and inflation.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Yes. Oliver, I'll take that. Thanks for the question. I mean, I think the word you just said is very appropriate, which is it is very dynamic right now. I mean, literally, this whole situation is just a couple of days old, as you know.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

I think both Harmit and I mentioned we've got a really talented team right now who is dissecting the problem and looking at all the levers that we have to address the issue, two of which you just hit on, which is we will work with our vendors, with our customers to understand the best way forward. Pricing is a potential lever, I would say. As we think about it, we will very much think about any pricing, if we do take pricing, very surgically. Number one, one of the things we've seen our consumer do is they're actually driving price up. You saw our AURs again this quarter increase as they gravitate to more premium products. We expect that to continue. There could be more pricing power in our more premium products. We'll look at that. Promotions.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We have been surgically pulling back more in DTC, I would say, on promotions and achieving more full-price selling. That is something that we're going to examine. We can test pricing in our DTC channel. That's something that we can more easily do and understand the elasticity. We have recent experience, for example, in Mexico, where we successfully took some price adjustments based on the tariffs there. What I would say overall, as we think about the Levi's brand, we address today a broad range of price points. If you start at the core of our product, we're at a very accessible price point in that $40 to $50 range. We do compete in the value segment with Signature. That's largely offered in some of the mass channels. That's doing really well. We were up 19% this quarter.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

We go high-end all the way from, I'll call it our tier two, which is in our mainline stores. You're seeing more and more in that of E-commerce. That's where we're in the $90, $100 range. Then even upwards of $200, $300 with tier one and our new Blue Tab. I share that in the spirit of we have a lot to work with here to determine what is going to be our right path forward, but it's going to be really important for us to be super sensitive to the consumer and make sure that we're on the right path.

[Oliver Chen, Analyst at TD Cowen]

Okay. Harmit, can you get Inventory faster now in order to address what's happening? What happened with the Inventory you have on hand relative to the win and the methodology for inventory evaluation that we should know about with timing of prices relative to the cost of goods sold?

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

I mean, Oliver, we're looking at all options right now. I'm sure a lot of our partners and vendors are being called. We're looking at options. We've been able to successfully air freight in the past when we were chasing product. The fact that we have inventory for spring and summer is a good indication. We're also working on a faster go-to-market calendar, especially for the newer products. We're doing everything that we can within our means. To your question about cost accounting and depending on where tariffs, it totally depends where tariffs settle. It's such a fluid situation. We're working through it.

[Oliver Chen, Analyst at TD Cowen]

Okay. Thanks. Best regards.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thanks, Oliver.

[Operator]

Thank you. Our next question comes from Paul Lejuez of Citi Group. Please go ahead, Paul.

[Paul Lejuez, Analyst at Citi Group]

Hey, thanks, guys. Can we tell you thinking about the various macro backdrops of the major Region that you operate in, and also how you're looking at the Competitive Landscape currently? If you're seeing any changes in terms of Promotions, either increasing or decreasing, and just sort of what is the backdrop that you're thinking about by your major Regions? Thanks.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

The good news, Paul, is First Quarter is a good indication of the Momentum of the Brand. The growth was broad-based. All Regions were up. Europe was up only three, but on an organic basis because that was driven by the ramp-up in our Distribution Center. As we think across the world, Europe third consecutive quarter of growth, U.S.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Fifth consecutive quarter of growth, Mexico second consecutive quarter of growth, Asia up double digits. Generally, the Momentum is strong from that perspective. Being global and 60% international, I think, will make a difference, at least from that perspective. Consumer generally resilient across the world. They're responding to our new products. Our products offer great value, as Michelle referenced. We're feeling generally good from that perspective.

[Paul Lejuez, Analyst at Citi Group]

Any changes on the Promotional front?

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Promotions, actually, we are tightening Promotions. I mean, that's why the focus on full-price sales. You can see it in margins. We're not necessarily going the other way at this stage because the Consumer is not giving us a reason for a change. Because inventories are generally in a good spot, there's no reason to push that down faster or push price down faster.

[Paul Lejuez, Analyst at Citi Group]

Great. Thanks, Harmit. Good luck.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thanks, Paul.

[Operator]

Comes from Brooke Roach.

[Analyst]

Good afternoon, and thank you for taking our question. I was hoping you could talk a little bit more about your playbook should the Macro Environment worsen. What's the Cost Structure of your business today? How much is fixed versus variable? And how much additional Selling, General and Administration (SG&A) leverage can you drive this year to offset higher product costs if the Macro Environment worsens materially? Thank you.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

It's all being planned right now, Brooke. I think the best proxy, unfortunately, but the best proxy recently is 2020 and 2021, which was COVID. At that point, our view was fixed and variable. I'd say between 65% and 70% fixed, the rest variable. And variable also had incentives available, for example. It's the last thing you want to touch, especially when there's so much Momentum in the brand. I'll put it there.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

I think as you think about our stores, very similar Cost Structure, but even then, we actually grew our store base. We kept adding stores. We are thinking through it. We are putting everything on the table right now as we think through the three levers, which is cost initiatives without compromising the long-term, stakeholder management discussions, which is customers and our vendor partners. The third is pricing options or initiatives. We are looking at all options, Brooke. We have an international business that is very strong, right? That could also be we can drive some momentum there to offset some softness, if any, in the U.S. Great.

[Analyst]

Thanks so much. Best of luck.

[Harmit Singh, CFO and Growth Officer at Levi Strauss & Co.]

Thank you.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Thank you, Brooke.

[Michelle Gass, President and CEO at Levi Strauss & Co.]

Okay. Thank you, everyone, for joining our call today, and we look forward to talking to you next quarter.

[Operator]

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

Participants

Executives

• Aida Orphan, VP of Investor Relations
• Michelle Gass, President and CEO
• Harmit Singh, CFO and Growth Officer

Analysts

• Laurent Vasilescu, Analyst at BNP Paribas
• Dana Telsey, Analyst at Telsey Advisory Group
• Matthew Boss, Analyst at JP Morgan
• Jay Sole, Analyst at UBS
• Ike Boruchow, Analyst at Wells Fargo
• Chris Nardone, Analyst at Bank of America
• Oliver Chen, Analyst at TD Cowen
• Paul Lejuez, Analyst at Citi Group
• Analyst