Levi Strauss & Co. aims ‘to be the best apparel company in the world,’ CFO says

Levi Strauss & Co. CFO Harmit Singh joins Yahoo Finance Live to discuss company earnings, his new role, consumer trends, why skinny jeans are recession-proof, driving profits, and the outlook for Levi Strauss & Co.

Video Transcript

- Levi's is looking to go beyond jeans, I should say. The apparel maker saw 10% growth in its business outside of denim bottoms in the fourth quarter, making up nearly 40% of the company's 2022 revenue. Levi's CFO and Chief Growth Officer Harmit Singh joins us now. Harmit, a little bit longer title there for you and a new title, I should say. Why that title change? We've only known you as the CFO of Levi's. What will that allow you to do?

HARMIT SINGH: Good morning. Happy New Year to you, Brian. And thank you for having me. I'm both humbled and excited at the expansion in the role and the opportunity. Given the tremendous opportunity in front of our portfolio of brands, I have always believed that CFOs that drive profits by having a growth mindset can create a lot more stakeholder value. And the role, essentially, allows me to directly work with Jeff, Michelle, the executive team, and the board in delivering and allocating resources to deliver a longer term target.

We are $6, $6 and 1/2 billion company. We feel and believe and are confident we can get to $9 to $10 billion. We have three wonderful brands. We can add more brands in our portfolio. And then diversify. We've done a great job diversifying, as you said, outside of pure denim. And so we want to be the best apparel company there is in the world. And to do that, diversifying, especially with the tailwind of casualization behind us, I think is a big opportunity for us.

- Harmit, I read your earnings call. I read the transcript a couple of times. And I came away thinking, are skinny jeans just recession resistant?

HARMIT SINGH: Yes, they we are. We are a democratic brand. We have something for everybody. And I think I went on CNBC for the first time sometime in '14 or '15. And the first question I was asked is, are skinny jeans dead? I said, no. And it continues to be the same. So we sell a lot of skinny. I'm wearing a 511, which is a slimmer fit. Our looser. Baggier fits are a home run and continue to grow. And so there's something for everybody and whoever wants whatever style. I wore the baggy yesterday. I've worn the slimmer fit today. And so it just keeps my wardrobe fresh and my look fresh.

- Yes, I see you're not wearing the Canadian tuxedo that you sometimes join us with, Harmit, the jean jacket with the jeans. But what about just in general, though, the sort of decline that we're seeing overall in demand for denim, which seemed to hurt in the quarter. What do you think is going to turn that around? Is it going to be new product? Is it going to be changes in trends? And how much control do you have over that?

HARMIT SINGH: Yeah. Sure. So we just reported a great quarter, a wonderful year. We grew 12% when the category was up low single digit. And that's largely because we're a very diversified business. Our market share in '22 was up again. It's been up five out of the last six years. So as market leaders, it's our responsibility to continue to grow the category. And we're growing know many times the pace of the category, as our results have demonstrated. I think to your question about what keeps it going is relevance, having products that the consumers love. Our direct to consumer business, for example, was up 6%. If you take Russia out, it was up 10% in quarter three.

And our holiday sales on DTC was also 10%. So having relevant products, having something for everybody. '23 is the 150th anniversary of the 501, the product that changed everything, that created denim. And so we're leading from front. We're putting our money where our mouth is. We've got wonderful styles. And I'm going to tease you with saying that there's a lot coming, starting with the Grammys next week, in terms of marketing and product news on 501. And that should have a halo effect on both our styles as well as the category.

- Harmit, I got to be brief because I have two questions. One is to follow up on what you just said. But the first one-- what percentage of SKUs would you say are selling at promotional levels right now?

HARMIT SINGH: Yeah. I'd say we track percentage of sales that we sell on full price. And I would say on promotion probably 10%, 12%. And it varies across the world. I mean, there's some markets where we lead by a mile and we don't have to promote as much. Mexico is a great example. And some places where it's fairly competitive. The US is a fairly competitive market. And our view on promotion is don't lead with promotions. Lead with the product. But don't be uncompetitive.

And so my personal perspective is be smart in promotions I've been in retail for a long period of time. I've seen different levels of promotion. And it's not always offering a pure discount. It's offering a product at a relevant price point depending on the circumstances. And so our retailers around the world are promoting smartly. And I just talked about our direct to consumer results during the holiday period, which is fairly promotional.

And it's best reflected in our gross margin. Our gross margin for the year in '22 was up 380 basis points relative to '19. And so as we think about '23, we are also talking about growing gross margins when everybody probably contracts. And that is because we have relevant product promoting smartly and executing really well.

- And then a second question follow up to what you just mentioned in that international kind of equation and the calculus that you run over at Levi's. Within that calculus, what was behind the decision to remain in Russia?

HARMIT SINGH: We have suspended operations in Russia.

- Understood. OK.

HARMIT SINGH: Right. And we have a few outlets that are still open, essentially, because we had 800 people on the ground and we have to exit leases, we have to exit people, and we need to run an operation that is able allows us to generate cash so we can exit with our values high and be fair to both the landlords as well as our employees. But our operations in Russia are generally in a majority of operations are suspended.

- Harmit, can you explain to me what is happening over at Dockers? This is I believe the third quarter in a row where sales of just I think surprised a lot of folks. Over 20%. Are khakis just back in style?

HARMIT SINGH: Yeah. Khakis are back in style. But it is not only the third quarter, Brian. It's the second year where we've grown close to 30% year over year. And so Dockers is back. The management team is really focused on turning around Dockers in our growth algorithm. We have said Dockers will grow in the mid-teens from here on. And, essentially, what we did a couple of years ago to build a company that can have a portfolio of brands is we carved out Dockers.

And the management team that runs Dockers essentially only focuses on Dockers. They're compensated in Dockers. We run it like a private equity runs in a portfolio. And that allowed us to go and buy Beyond Yoga. And I think the opportunity is pick up brands that are subscale but wonderful brands and scale them like we've done Levi's. And I think what Dockers is doing is taking a page off the Levi's turnaround, which is growing our direct to consumer business, diversifying outside the US. And it's a wonderful team that's doing a fabulous job.

- OK. So just very quickly here, what's the greatest leg of the growth opportunity for Levi's going forward? Is it still jeans? Is it khakis? Or are we talking yoga here?

HARMIT SINGH: Yeah. No. I think a company that has a portfolio of wonderful iconic brands that scale. I think Levi's as a brand making it more lifestyle, more of a head to toe look, and diversifying our non-denim bottoms business, which I think, Brian, you referred to as 40%. That grew 10%. And continue to grow that. I think the opportunity is huge. For example, our tops business was up 12%. And we under-penetrated. Our women's business last year was up 13%. And we under-penetrated.

We're just starting on athleisure. And Dockers is still fairly small and not a billion dollar brand. So my view is we need to get a higher share of your closet. And this huge opportunity-- we don't have 100% market share in any of the categories yet.

- Enjoy that 49ers game. Levi's CFO and chief growth officer. I swear, Harmit, I will get it right eventually. Harmit Singh, always good to see you.