The conference call mainly discussed Levi Strauss & Co.'s financial performance for the second quarter ending June 1, 2025. The company's leadership, including the President and CEO, as well as the Chief Financial and Growth Officer, participated in the meeting, sharing quarter results, non-GAAP financial metrics, and future outlook, and reminding of the risks and uncertainties that may exist in forward-looking statements. The meeting emphasized the use of organic net income and constant currency values, and pointed out any differences between non-GAAP metrics and GAAP results. Additionally, the audience was reminded to pay attention to uncertain factors in financial forecasts, such as exchange rate fluctuations, tariff impacts, etc.

The company has shown outstanding performance in the most recent quarter, with sales, profits, and earnings per share all surpassing expectations, achieving high single-digit organic net income growth. This is mainly attributed to the strong performance of the Direct-to-Consumer (DTC) business, as well as growth in wholesale business and international markets, especially in the European region. The company is accelerating its transformation towards a DTC-led business model, while shifting its product line from primarily denim to a full lifestyle brand, maintaining its leadership position in the denim market while achieving significant growth in categories such as tops, dresses, coats, and non-denim pants. Additionally, the company has increased the productivity and profitability of its product portfolio by streamlining SKUs and introducing new products with higher price points.

In May, the company announced the sale of the Dockers brand, along with the decision to exit the Denizen and footwear businesses. These series of strategic decisions aim to focus on the Levi's brand, strengthen brand value, consumer connections, and category leadership. Through global marketing activities and influential partnerships, such as collaborations with Beyonce and participation in major music festivals, the Levi's brand continues to grow globally, particularly achieving significant success in both the women's and men's markets. The company is moving towards becoming a $100 billion company, navigating from a position of strength through product innovation, marketing, and supply chain optimization, despite facing uncertainties such as tariffs and consumer behavior. On the product side, Levi's is gradually evolving into a lifestyle brand, leading industry trends, especially in terms of diversity and innovation in menswear and womenswear. Additionally, through collaborations with well-known fashion brands and music culture, Levi's continues to maintain competitiveness and influence in the market.

This quarter, the company's global direct-to-consumer business performed strongly, achieving continuous positive growth. This was mainly due to increased store traffic, improved conversion rates, and higher average transaction value. While driving growth in direct-to-consumer (DTC), the company also focused on maintaining a healthy and profitable state, with DTC profit margins continuing to improve. In addition, full-price sales also saw growth through optimizing consumer experience and enhancing sales efficiency. The company expanded its store network globally, opening 16 new stores, and its e-commerce channel also achieved double-digit growth of 13%. The loyalty program is key to connecting with consumers, and through data analysis, the company is able to provide personalized products and experiences more accurately. Currently, there are nearly 40 million members, with members' purchase frequency and average transaction values higher than regular consumers. The loyalty program has expanded to multiple countries in Europe and will launch more member-exclusive features in the United States.

Levi's has shown strong growth in the European market, especially in fashionable cities such as Paris, Barcelona, and Milan, where the brand is particularly popular among young consumers. The 15% growth in the European market is mainly due to the brand's presence in the market and close collaboration with key partners. At the same time, Beyond Yoga business has also made significant progress, with a 12% growth in Q2, and plans to further expand the number of stores, demonstrating strong market potential.

Levi's has announced that they have reached an agreement with Authentic Brands Group to sell the Dockers brand, while also expressing gratitude to the Dockers team for their many years of contribution. The company emphasized that this transaction reflects progress in their strategic agenda, and noted strong performance in the most recent quarter, setting a solid foundation for development in the second half of 2025. Looking ahead, the Levi's brand will have an even brighter future. Following this, Jami will provide a financial overview for the quarter and full-year expectations.

The Levi's brand achieved strong financial performance in the first half of 2025, including comprehensive growth in sales, gross margin, SNA, EBIT profit margin, and earnings per share. Both direct-to-consumer (DDC) and wholesale channels performed well, particularly with DDC seeing same-store sales growth in the high double digits. Meanwhile, international and US markets, women's and men's products, as well as online and brick-and-mortar stores all experienced high single-digit growth. The company's focus on core brands and DDC priority strategy drove sustained improvement in financial performance, positioning the company strongly in mid-2025 and leading to an upward revision of full-year performance expectations.

The performance of the global wholesale business has exceeded expectations, especially in Europe, with the completion of the transition to new distribution centers, wholesale channels are returning to growth. Levi's wholesale business in the US grew by 7%, demonstrating continued strength with digital and high-end accounts. Insights into product trends have given the company and its partners more confidence in new products, such as the 578 baggy men's pants performing well in direct sales channels and expanding to wholesale channels. The company has adjusted its forecast for the full-year wholesale channel, expecting it to be slightly positive. The second quarter gross margin reached a record 62.6%, mainly driven by lower product costs and favorable channel mix. By increasing full-price sales and reducing promotional activities, the company has improved product lifecycle management. The adjusted EBIT profit margin is 8.3%, up by 190 basis points from last year, driving a 37% growth in adjusted earnings per share. Additionally, the company has completed the transformation of its distribution center network to improve service levels and optimize distribution costs.

This report provides a detailed review of the net income growth and operating profit margin changes in the Americas, Europe, and Asia regions, emphasizing the strong performance in different channels such as DDC and wholesale channels. Additionally, the report mentions various mitigation measures taken in the face of tariff uncertainties, as well as outlooks for full-year performance and the third quarter, highlighting the close monitoring of consumer confidence and behavior.

Due to the strong performance and continued strong business in the first half of the year, the company has raised its full-year revenue and profit expectations. The organic net income growth expectation has been raised to 4.5% to 5.5%, while the reported net income growth expectation has been raised to 1% to 2%. Despite facing tariff challenges, the company still expects the gross profit margin to expand by 80 basis points this year, reaching a historic high. In addition, the EBIT profit margin is expected to be maintained at 11.4% to 11.6%, and the adjusted earnings per share expectation has been raised to $1.25 to $1.30. This guidance includes the impact of tariffs, taxes, and foreign exchange factors.

The company expects organic net revenue to grow by 4 to 5% in the third quarter of 2024, compared to a 4% growth in the same quarter last year. The revenue growth for the quarter is expected to be influenced by a positive impact of 100 basis points from foreign exchange, as well as adverse effects from business exits. Despite the impact of tariffs, the company still expects the adjusted EBIT profit margin to be within a specific range, with adjusted diluted earnings per share expected to be between 28 and 30 cents. Despite uncertainties in the macro environment, particularly with tariff issues, the company is successfully moving towards transforming into a more profitable D.C. premier lifestyle retailer through its brand, products, and profitability momentum. This will help the company achieve mid-single-digit organic growth annually and gradually move towards its target of a 15% operating profit margin.

As the boss of JP Morgan, Matthew first congratulated the company on its outstanding quarterly performance, and raised some related questions.

Discussed the sustained high demand and strong growth of the Levi's brand globally, particularly in direct-to-consumer (DTC) and wholesale businesses, international markets, and the US domestic market. At the same time, analyzed the company's strategic shift to a predominantly DTC model, as well as the contribution of product innovation and freshness to its growth. Additionally, explained the significant improvement in gross margin, explored structural changes and sustainable high-profit margin factors.

This brand focuses on core products such as linen denim and shorts, leveraging the summer popularity to drive sales, while deepening its presence in the men's and women's clothing markets, especially the women's market, to achieve double-digit growth. The brand's success is attributed to a combination of its rich heritage and modern strategies, including actively using social media, cultural events, and celebrity collaborations (such as partnerships with Beyonce and Nike) to attract consumers. In addition, by discontinuing inefficient product lines (such as Den and Dockers), optimizing product mix, and increasing full-price sales, reducing promotional activities, continuous growth in gross margin has been achieved. Despite facing challenges from tariffs and exchange rates, the brand remains optimistic and anticipates further growth in gross margin in the future.

The conversation discussed the organic wholesale revenue growth of 6% in the past six months, despite the low single-digit growth expected for the entire year. It was mentioned that the growth in wholesale channels was positively influenced by order books, while emphasizing a cautious attitude towards wholesale business, especially for channels not directly controlled by the company. It was pointed out that growth was driven by digital channels and high-end customers, as well as the strategy of partnering with American department stores for long-term growth. Lastly, they inquired whether the wholesale business could maintain low to mid-single-digit organic growth in the third quarter.

The company is currently stocking up for the holiday season, expecting better performance in the third quarter than in the fourth quarter. Business performance should be viewed from a two-year perspective, with flat growth in the first half of last year and 4-5% growth in the second half. It is anticipated that the third quarter of this year will maintain a similar growth rate, achieving 4-5% organic growth.

In the meeting, Dana from Chelsea Consulting Group is prepared to ask a question, waiting for her question and subsequent discussion.

The conversation discussed the strategy of enhancing brand influence and product sales through collaborations with renowned designers and brands such as Sakai, Nike, and celebrities like Beyonce. It also mentioned future marketing plans, including activities targeting the male market in the autumn and holiday seasons, indicating that the brand is actively investing and seeking more market opportunities.

The discussion focused on adjusting marketing expenses and their impact on business growth, emphasizing the breadth of growth including geographic, channel, and category aspects. It was also pointed out that this growth did not sacrifice sales volume, and new product launches were introduced to continually improve this situation.

The blue Ta, as a high-end product, has performed excellently in the Asian market, showing enormous potential for further growth in the current stage.

At this meeting, an analyst from UBS raised a new question that is awaiting an answer.

Levi's is driving business growth through enhancing operational efficiency and focusing on the direct-to-consumer (DTC) strategy. Specific measures include shortening product launch times, increasing the proportion of globally unified product series, and reducing inefficient SKUs to introduce more fresh products. In terms of products, the company has comprehensively revamped its top apparel business, introducing new designs and supply chain capabilities, achieving significant growth in male and female DTC channels, especially in categories such as denim, sweaters, and women's dresses. This marks Levi's transition from a single t-shirt business to a broader top apparel market.

The company conducted a detailed discussion on the marginal profit situation of its DTC (direct-to-consumer) business, pointing out that the marginal profit of the DTC business has continued to improve in the past few quarters and is currently at a high level. The growth is mainly attributed to the increase in single-store sales, improvement in product turnover efficiency, increase in the proportion of women's products, and optimization of cost management. At the same time, the company emphasized that its e-commerce business has achieved profitability, no longer dragging down overall profit margins, and is expected to further increase efficiency through optimizing the distribution network to help achieve the 15% marginal profit target.

In response to changes in global tariffs, particularly the 30% increase in tariffs in China and 10% increase in other countries, the company anticipates an impact of 25 to 30 million US dollars on annual business and pressure on gross profit margins. To address this challenge, the company is reducing promotions, driving full-price sales, and leveraging new products to drive growth. At the same time, the company emphasizes the widespread distribution of its international business and multiple sources of product supply, indicating its competitive advantage in a globally uncertain environment.

Levi's management team stated that they are committed to achieving mid-single-digit sales growth in the medium term to steadily reach the goal of one billion in revenue. At the same time, they explained the changes in the annual SGNA (selling, general, and administrative expenses) trend, pointing out that due to organic revenue growth, SGNA was able to leverage on a yearly basis. The growth is primarily being invested in improving distribution efficiency, opening new stores, and upgrading ERP systems to support the company's transition to a more focused business model on PDC (Product Design and Development).

The brand has launched an enhanced loyalty program in the United States, hoping to drive business growth by increasing consumer loyalty and frequency. At the same time, the brand is also focusing on the inventory management of retailers in the wholesale business, actively collaborating with retail partners, especially in the European and American markets, introducing more lifestyle products and women's products to meet the new demands of the market.

The discussion mentioned the performance and strategies of the company in multiple aspects, including broad growth in performance, but weaker performance in the female and Asian markets. The company is undergoing changes and is cautious about future guidance, despite encouraging order situations. In addition, the discussion also touched on product lifecycle management strategies, emphasizing the enhancement of full-price sales and reduction of discounts through global product launches and operating teams. Furthermore, attention was also paid to wholesale and Asian markets, showing a deep analysis of regional market performance and strategic adjustments.

Levi's plans to deepen its market penetration in Asia, especially in India, Japan, and China, with an expected recovery in the Chinese market by 2026. The company emphasizes the balanced development of its men's and women's clothing businesses. The men's business continues to grow through innovations such as linen, denim, and loose-fitting styles, while the women's business shows stronger growth potential due to its lower market penetration rate. It has achieved nearly double the growth since 2019, but still needs to further develop to reach half of the total business volume.

The discussion focuses on whether the profit margin of goods has peaked, and the progress in improving retail and retail industry. It is believed that we may currently be only in the early stages, and with the improvement of retail skills, the profit margin of goods is expected to improve in the future.

The conversation discussed the growth drivers of the European business, mentioning the high single-digit growth of the wholesale business and expectations for mid to high single-digit growth in the future, in addition to adjusting distribution centers. The discussion emphasized the adaptability of products (such as responding to global warming) and the role of strong local teams in driving business growth, while also expressing a long-term positive outlook for the European market.