Levi Strauss & Co. (LEVI) Earnings Call Transcript & Summary

[Audio Gap] VP of Investor Relations, Aida Orphan.

Good afternoon. Welcome to the Levi Strauss & Co 2022 Investor Day. I'm Aida Orphan, Head of Investor Relations. It's great to see so many of you here today with us at our New York showroom, and thank you to those joining us via the webcast. We'd like to remind everyone that we will be making forward-looking statements today and disclosures are up on the screen. Today, you'll be hearing from our senior leadership team about the company's key growth drivers, long-term strategic priorities and updated growth targets. Chip will lead off, followed by members of our leadership team, and Harmit will close out the presentations with an overview of our updated financial algorithm. We have a comprehensive agenda that is up on the screen. I do want to note that Karyn, Liz and Santiago will be presenting virtually today, unfortunately, due to COVID. The presentations will be about 3 hours long, including a brief break followed by Q&A. If you have any questions over the course of the day, don't hesitate to reach out to me or any of my colleagues, we're usually the ones in denim, sometimes denim on denim. And there's also some great Beyond Yoga and Dockers too modeled by my colleagues. And with that, let's get started today with our CEO, Chip Bergh, after a brief video. [Presentation]

Please welcome to the stage President and CEO, Chip Bergh.

Hey, everyone. Good afternoon, and thank you all for joining us, especially those of you here in person and those of you on the webcast. I'm Chip Bergh, the President and CEO of Levi Strauss. And for those of you who don't already know me, I joined the company as CEO nearly 11 years ago after spending 28 years of Procter & Gamble. I'm a brand guy, and I joined this company because it was struggling at the time and yet had one of the most iconic brands in the world. I saw a clear opportunity to revitalize an American icon and at the same time turn the company around. We are excited to be here today in our New York showroom. For those of you joining us in person, hopefully you've already had a chance to walk around a little bit, meet more of the team and see some our newest product. And if you didn't have time to walk the floor before this program, we are all be hanging out afterwards and I really encourage you to get out there and meet more of the team and get a chance to engage with the product. The product lineup shows off the advantages of our brand led culture that allow us to create product that is authentic, original and loved by consumers around the world. Today we are going to share with you how our strategy will drive accelerated growth by unlocking our brands to achieve our aspiration to be the world's best apparel company, famous for our brands and our values. For 169 years, we have been a purpose driven company with the goal of delivering profits through principles and making an outsized impact on the world. From being seen as an industry leader in sustainability and taking stands on important issues of our day to taking care of our employees and workers in our supply chain. This is who we are. Our values create a halo effect for our brands and in a war of talent, it's an advantage in attracting and retaining great people. As you saw in our press release, we have significant runway for growth and ambitious plans to accelerate profitable growth over the next 5 years. Harmit will take you through the growth algorithm in detail at the end of the presentation, saving the best for last, I guess. Our strategy, which I will focus on leads into the power of our brands and the strength of our relationships with consumers. We all know that a great strategy without outstanding execution is meaningless. So we'll also talk about our relentless focus on executional excellence. I'm confident that our key strategic choices, combined with outstanding execution will drive an acceleration of the top line to 6% to 8% growth, EBIT margins growing to 15% and double-digit total shareholder return, all while continuing to live our mission of delivering profits through principles. Before we dive into the details, I want to spend a moment discussing our key advantages and competitive strengths. First and foremost, we have strong brands. And I think it is clear in this environment that strong brands really matter. All of our brands have a deep heritage and a unique and distinctive positioning that is resonating with today's consumers. Levi's is by far our single biggest asset as a company, and the brand is stronger today than at any point in its history. I'll back that bold statement up with 2 data points. First is the record gross margins over the last few quarters; and second is the pricing power that the brand has demonstrated with AURs up 10% year-to-date, while we continue to grow unit volume. Second, we have unique connections with consumers around the world and an organization model that allows us to scale globally while still executing locally in a compelling and relevant manner. Third, we have a diversified business model across regions, channels and categories. We focused on this in the early days of the turnaround, and this diversification gives us some shock absorbers in these times of macro uncertainty. The addition of Beyond Yoga obviously adds portfolio diversification as well. Fourth, and really importantly, we have global scale. And this has been particularly important with the stress that we've seen in the supply chain over the past year. Our global scale, the resilience of our supply chain, the agility that the team has demonstrated has enabled us to navigate the supply chain disruptions better than most. And Liz will talk more about this later. Fifth, we're a values-driven company with an unwavering commitment to corporate citizenship and doing what I like to say, the harder right over the easier wrong. And finally, but I think really importantly, we are a management team with a decade-long track record of success. The key to our success has been this tightly knit team. Just take a look at the number of years that many of these folks have been together. I've hired almost everybody on this slide. And as you can see, some of us have been working together for 7, 8, 9, 10, even 11 years. Like any world-class team, we push each other to make the team better. We're competitive and we want and like to win in the marketplace. We've also welcomed a few new members to the team over the past few years, which has only made us stronger and given us additional capabilities. I think I've got the best team in this industry, and I put this team up against any executive team in corporate America. We faced good times and some challenging times, but this is a team that when we decide to get something done, we get it done. Together, we've built a culture that allows us to attract and retain the best talent in the industry. Today, you'll get a chance to meet several of these folks during the presentation. And afterwards, my executive team and many other leaders from around the company will stick around for informal conversations. And I really encourage you to meet the team broadly later for those of you who are here in person. As I just said, unfortunately, 3 of our presenters are going to be by video due to COVID, which is really unfortunate. Our transformation started almost 11 years ago when I joined the company. I joined in part because the company hadn't performed in well over a decade. Revenues peaked in 1996 at $7.1 billion and fell over the next 5 years to just over $4 billion. And then kind of bounced along during the 2000s with revenues going up slightly 1 year, but profits would be down in the next year, they'd fix the profits, but the revenues would fall. We believe Levi's brand was skewing older. When I joined the company, the average male consumer in the U.S. was 47 years old. The market cap of the company when I joined was under $2 billion. We were highly levered with nearly $2 billion of debt. And in fact, our interest payments were more than what we were spending on advertising, television advertising globally. So I had 3 immediate priorities when I first joined the company. First was building a team. I knew that the team that got the company to where it was at that point in time was not going to be the team that would take us to where I thought we needed to go; second, we restructured our cost base; and third, we needed to figure out the strategy and put pull of winning strategy together. We dissected the business, where were we making money? Where were we losing money? Where are we growing share? Where are we declining share? Where were we overdeveloped? Where were we underdeveloped? We did this by brand, by country, by segment, by customer and by channel. Through that thorough analysis of the business that led to 3 key strategic choices, which guided us for over a decade. First, grow our profitable core business, which is our men's bottoms business, our top 5 markets and our top 10 wholesale customers. These are huge profitable businesses where we were very developed with high market shares, but the business was flattish to very low single-digit growth, absolutely essential to protect and grow, but very unlikely to yield mid-single-digit levels of growth on its own, which led to the second key choice, which was to expand for more. These were businesses where we were significantly underdeveloped and where there were clear opportunities for growth. This importantly included our women's business tops and outerwear and then a number of key markets where we saw big opportunities. And then the third big choice was to become a leading world-class omnichannel retailer. This wasn't an obvious choice at the time given our business skewed very heavily towards traditional wholesale. But we made this choice because of the high gross margins of direct-to-consumer versus wholesale and because we could control the brand and have the direct connection with the consumer and own that consumer experience. Finally, we declared that we were going to focus on executional excellence, something that we weren't good at, at the time because in the end, the only strategy a consumer ever sees is what we execute, so we needed to execute brilliantly. These strategic choices fundamentally transformed our business. We put the Levi's brand back at the center of culture, created advertising that resonated with younger consumers, launching our new advertising campaign, Live in Levi's, which captured the essence of the brand. Today, in the U.S., the average Levi's male consumer is early 30s. We built share with the younger consumers without losing the old guys. We relaunched our women's business in 2015 and had 13 straight quarters of double-digit growth in a constant currency right up to the pandemic. Our growth has been broad based with a focus of the areas of greatest long-term potential. We diversified the business and have delivered sustainable profitable growth. And as you can see on this slide, the mix of our business has changed significantly. DTC as a percentage of our total business, including e-commerce grew dramatically. We're bigger internationally today than we are in the U.S. And we've made really meaningful progress on our women's business and several underpenetrated categories. The business turnaround also transformed our financials and balance sheet as well. Over the last 10 years, we've grown revenues by $1 billion, improved gross margin by nearly 1,000 basis points and EBIT margins by 400 basis points. The balance sheet has gone from being a constraint, to being an asset with significant firepower. This puts us in a position where we are stronger today than ever. We are emerging from the pandemic, a far better company than we were even at the time of the IPO back in March of 2019. Our structural economics have improved significantly with higher gross and EBIT margins. We have scale with annual revenues of more than $5.8 billion and operations in more than 110 countries. And I firmly believe that in this business, scale really matters. We are more in control of our brand than ever before with now 40% of our business in our own direct-to-consumer channel, and we continue to elevate the brand. We're building a portfolio of strong brands beyond just Levi's, with Dockers now growing again after years of struggle, then is in Signature, which are value brands, mostly here in the U.S. and, of course, the recent addition of Beyond Yoga. So during the pandemic, we reflected on what's working and where we had more opportunity to focus our strategy on what will further differentiate LS & Co. from the rest of the pack and allow us to accelerate growth profitably. Our strategy focuses on our fundamental advantages across 3 areas, which I'll touch on briefly here, and then dive deeper on the following slides. First, we will lead with our brands. The pandemic made it crystal clear. Our biggest assets are our brands, particularly the Levi's brand. We're elevating and strengthening all of our brands more effectively integrating product, design, positioning, marketing and consumer experience to ensure that they are highly differentiated and delivering a superior consumer value even as we continue to elevate our brands. This will strengthen loyalty with our existing fans while creating new lifelong fans. Our second big choice is direct-to-consumer first. We will accelerate our investment in stores and online programs while creating an integrated omnichannel shopping experience. Our goal is to drive this channel to 55% of revenues by 2027. And our third choice is to continue to diversify the portfolio. We still have very significant opportunities to grow share across geographies, categories, gender and channels. Underpinning these 3 where-to-play choices are the 3 capabilities we will focus on: driving digital transformation and then continuing to drive executional excellence and financial discipline. Let me take you through these in a bit more detail. First Choice -- our first choice is to be brand-led. Levi's brand is stronger than ever. It is by far the biggest Denim brand in the world. We're #1 overall, but also #1 in men's and #1 in women's. We are bigger than #2, 3 and 4 combined. And in 2021, we were the #1 market share gainer making significant gains with women and Gen Z. We're also the #1 brand in apparel and unaided brand awareness across most markets. In other words, when asked to name an apparel brand unaided, the #1 answer from consumers is Levi's. Levi's brand is clearly at the center of culture, driving strong engagement with the consumer. And I know the brand is hot. We're partnering with some of the biggest names and biggest brands in fashion and music and we say no a lot more than we say yes to brands and talent that want to work with us. The total denim category is about $100 billion in sales and projected to grow 6% over the next several years, which is ahead of pre-pandemic levels and faster than total apparel is expected to grow. Driving this growth are 2 main tailwinds. First, the accelerated trend towards casualization, which the pandemic and post-pandemic work is accelerating; and second, the new Denim cycle, which we led. As I said a moment ago, we are the clear category leader, and we believe it's our responsibility to drive category growth. Category growth is good. It floats more boats. Everyone can grow without turning into an expensive share war. We drive category growth through innovation and marketing. And the new Denim cycle, which is focused on the looser bagger fit that we've now been talking about for well over a year, has been driven by that combination of innovation and marketing, and we believe it's sustainable. And unlike the previous Denim cycle, which was fundamentally the women's skinny gene, this new cycle splits evenly across men's and women's. Our portfolio obviously expands beyond Denim. Dockers competes in broader categories and the repositioning that Santiago will talk with you about later today, you'll get to see that. And the acquisition of Beyond Yoga significantly expands our total addressable market into the high-growth, high-margin, premium activewear segment, which Michelle will share with you more later this afternoon. Our second big choice is DTC first. Our direct-to-consumer channel allows us to showcase the fullest expression of our brands, where we are in complete control of how we show up, which helps to drive category diversification while both elevating our brands and owning that connection with the consumer. DTC was 36% of our revenues in 2021, with 28% of that coming from company-operated stores. We ended last year with about 1,100 doors and 8% of our revenues coming from our owned and operated e-commerce business. Our brick-and-mortar stores deliver a strong high teens ROIC, and we continue to invest in its growth. We expect DTC to be the primary driver of growth from a channel standpoint and account for over half of our revenues by 2027. Levi's, Dockers and Beyond Yoga all have opportunity to build out company operated mostly mainline stores. We expect that owned and operated brick-and-mortar will represent between 35% and 40% of annual revenues by 2025. We also continue to have opportunity to further improve productivity in our stores which Seth will talk to in a while. For Levi's, we'll continue to focus on the rollout of our NextGen stores, which are smaller footprint, highly productive stores with a digital backbone that supports our omnichannel platform delivering an elevated, engaging and brand-centric experience. These are working really well internationally. These stores also contribute to premiumizing and elevating the Levi's brand and we have a notable opportunity here in the U.S., where today, we only have 51 mainline doors. Finally, we will continue to roll out and enhance our in-store and omnichannel capabilities to enhance the shopping experience with personalized offerings like our tailor shops. Dockers has a profitable fleet of 70 doors globally, but only 1 door here in the U.S., which is an outlet store. And you'll hear more about this from Santiago in a bit. And while Beyond Yoga currently has no doors, I think you'll agree with me when you see the product display out there that there is an enormous opportunity for retail with this brand. And Michelle will talk about our plans for brick-and-mortar in a little bit. At 8% of revenues today, we believe that e-commerce represents another significant engine for growth. We believe that this could be 15% of revenues in 5 years, and you do the math, that means that we'll triple the revenues in e-commerce over that same period of time. We're going to take a number of steps that will accelerate growth in our e-commerce channel. First, we're expanding the Levi's app globally. Everybody is shopping on their phone now and our app is only available in 9 markets today, and we just rolled out 5 here recently. Second, expanding and enhancing our loyalty programs across brands and leveraging data science to better fuel our loyalty programs. Third, we're going to be increasing exclusivity on our website with product drops and collaborations. We're going to continue to expand categories, all while building consumer engagement via social channels and more. I need to pause here and talk about wholesale because DTC first does not mean DTC only. Many of you know, over the last few years, we've been laser-focused on evolving our wholesale strategy and the evolution of our wholesale footprint. And I think it's fair to say that you will continue to see this evolution in the marketplace over the next year or more. Today, traditional wholesale represents approximately 54% of revenues, which is down from 70% 10 years ago. Our focus is on partnering with customers that do a great job executing our brand, driving high-quality distribution and executing brilliantly in store. Our wholesale gross margin and profitability is stronger today than at any time in recent history. This is due to a combination of our focus on less off-price customers and more digital and premium customers, combined with our ability to take pricing and significantly reducing promotion in this channel. We expect that our wholesale business will grow over the next 5 years in the low single digits. Our final where-to-play choice is to continue diversification of our portfolio, capitalizing on the significant market opportunities in still underpenetrated parts of our business. Extending Levi's into a head to toe expression is key to delivering on our lifestyle diversification strategies. Tops, women's and active wear are all areas where we can leverage the strength of our brands and extend into new categories of markets. We've done this before. Best example is our women's business which was 20% of our revenue when we relaunched the women's Denim business in the summer of 2015. That business experienced double digit growth for 13 consecutive quarters in constant currency up to the pandemic and now coming out of the pandemic, the business is on fire again growing at a strong double digit rate. Diversification is more than just categories, it's also geographies too. We have plenty of opportunity here as well. Levi's Europe will grow high single digit and Asia will grow high single digit to low double digit. Our international business should continue to deliver outsized growth and you know that it is margin-rich. Beyond Yoga and Dockers are both meaningful growth opportunities for us as well. Dockers has turned a corner and is growing again. We actually consider divesting this business a few years ago, but we concluded we'd likely wind up selling it to private equity. So instead, we decided to run the business as if we were private equity. So we've carved the Dockers business out, and we -- where the Dockers business used to have many shared resources with Levi's, a person would spend 85% of their time on Levi's and 15% of their time on Dockers, which meant they were spending 0% of their time on Dockers and all of their time on Levi's. Dockers now has a fully dedicated team and as a stand-alone business unit from end-to-end. Santiago and his team's compensation is based entirely on the performance of the Dockers business. Not only are revenues growing again, but we've reconnected with the younger consumer. And you'll hear more from Santiago, but I will tell you this, I am more optimistic about Dockers being a contributor to growth than at any time since I've been with this company. And finally, is the acquisition of Beyond Yoga. Beyond Yoga gives us a powerful platform to strengthen our women's business and accelerate growth. We're also running this business similar to Dockers, maintaining its operations in Los Angeles with a fully dedicated team. And some of the leaders from the Beyond Yoga business, Beyond -- just Michelle are here, and I encourage you to meet them. And Michelle will tell you more about Beyond Yoga a bit. Underpinning our 3 key where-to-play choices are the 3 capabilities that we'll continue to focus on. First, and importantly, is digitally transforming our business, operating with excellence and being financially disciplined. I want to highlight the importance of the digital transformation since it is a driver of our future success. We've been investing and will continue to invest in digital, data and AI capabilities. These relatively new capabilities are paying off, and we're seeing good value creation from them. We're personalizing all of our consumer interactions and deepening the loyalty of our fans around the world. You'll also hear from Liz on the red thread of digitization and how it is driving productivity in our supply chain and planning areas. And Seth will talk about how data science is making us smarter on assortment planning, markdowns, promotions and pricing. To support the digital transformation, we're also upgrading our enterprise resource planning system and automating and digitizing key processes, while linking our enterprise systems in a seamless manner, creating a more simplified productive work environment. This is all in service to us improving consumer loyalty and increasing our speed to market while also driving improved profitability. We are driven by our mission and values to deliver profits through principles to make an outsized impact on the world. This goes all the way back to our founder, Levi Strauss himself who donated a percentage of his profits to an orphanage the first year he was profitable. Mr. Strauss believed that business could be a force for good in society and that how we do business is just as important as our business results. We are guided by this and by our desire to be on the right side of history. This company has a long history of not being afraid to take a stand on important social issues. We desegregated our factories in the south back when we own factories in the South, 10 years before the Civil Rights Act. We were the first major company to offer health care benefits to same-sex partners. We have a long track record of standing for equality, gender equality, racial equality and LGBTQ equality. We have been passionate about ESG long before the acronym even existed. That's why we are recognized as a leader in the industry. It means operating sustainably across our value chain and the 3 pillars of our sustainability work what we call the 3 Cs, climate, consumption and community. And Liz will talk more about this later. It means driving diversity, equity and inclusion across the organization and making sure that LS & Co. is a place where every person can bring their true authentic self to work every day. And while we are not yet where we want to be, we've made meaningful progress since making our DE&I commitments public 2 years ago. And our DE&I goals are embedded in the long-term compensation plan for senior management. It means using our voice to address important social issues of the day, especially those that most impact our employees, consumers and communities. From paid family leave, which we implemented over 2 years ago, to speaking out and acting to end gun violence in this country, to ensuring everyone has equal access to vote and investing in social and racial justice. It means giving back to the communities where we live and work, which we do through the Levi Strauss Foundation, which is funded every year from a portion of the company's profits. We also do this through the Red Tab Foundation, the first ever employee-sponsored hardship fund now 40 years old, which helps employees and retirees facing unexpected financial challenges. We said on our IPO road show that this is who we are, and it wouldn't change once we became a public company, and it hasn't. It makes us who we are. It has a halo effect on our brands, it contributes to us being able to recruit and retain top talent, it brings us closer to our consumer and it ensures that we will not only be around another 169 years but be worthy of it. So in closing we are stronger today than at any time before. Our company's potential has never been brighter. I am not only confident in our strategy and plan but I am committed to it. What separates LS & Co. from so many others in our space are few key things that you see on this slide. First, we have what everyone else wished they had, the Levi's brand. One of the most iconic brands in the world in any industry. As I said earlier, strong brands matter in this industry, and arguably even more so during inflationary times. As I said, we've demonstrated we can take price and sustain it without a negative hit to volume. We also have a healthy and growing Dockers brand again and the addition of Beyond Yoga represents meaningful upside. Second, we are competing in large growing categories that are structurally attractive. Denim has the dual benefit of the trend towards casualization and a new Denim cycle and the performance athletic market which Beyond Yoga competes in is more than double the global Denim market. Third, we have scale. And as I have said before, scale matters in this business. It allows us to source competitively and react to disruptions faster than others who don't have our scale. Fourth, the diversification of our business model across brands, categories, segments, geographies, channels and even customers gives us built-in shock absorbers at a time when there is this much uncertainty. Fifth, we have a strong balance sheet and improved P&L from before the pandemic, and our plans continue to drive improved profitability margins while allowing for us to continue to reinvest back into the business. Finally, but very importantly, we have an incredible management team that is experienced and has delivered through all of the disruptions of the past few years. We have a track record of being financially disciplined and buttoned up. Over the next 5 years, we will deliver accelerated growth higher profitability and stronger cash flow, which will allow us to return more capital to shareholders. I'm confident in the future and excited by the opportunities. And with that, I'm now going to turn it over to Karyn Hillman, our Chief Product Officer, who unfortunately is 1 of the casualties from COVID, so she's going to be joining us by video. Karyn will tell you more about Levi's. Karyn?

Thank you, Chip, and hello, everyone. I'm Karyn Hillman, Levi's Chief Product Officer. I joined LS & Co. in 2013. And prior to Levi's, I worked at Calvin Klein and Calvin Klein Jeans in product and brand. And before that, I was at Gap Inc. I'm excited to talk to you today about our Levi's growth strategy with a focus on product and brand. And I wanted to start off with sharing a video with some of our most recent brand highlights. [Presentation]

Before we talk about our growth strategy going forward, I want to take a moment to review the Levi's brand vision and some key accomplishments since we last met. Our vision is to become the most loved and relevant lifestyle brand in the world. Over the last decade, we have been laser-focused on asserting our Denim Leadership and putting Levi's at the center of culture, driving a strong connection and building brand love with fans and consumers around the world. We have made significant progress diversifying beyond Denim, and the next step in our journey is to continue to leverage our Denim Leadership and brand strength and capture a larger share of closet to truly lead in casual lifestyle. Our Levi's brand promise is unleash and inspire authentic self expression. The Levi's brand empowers people to be themselves and has become some bullock within inclusivity, individuality and authentic self expression. Our brand promises resonating with consumers of all ages and has only increased in relevance. Levi's inspires consumers to be their best authentic selves, living in Levi's with style, comfort and confidence. The Levi's brand is the strongest it has ever been. Across most markets, Levi's is a leader in unaided awareness above all other apparel brands. In Denim excluding the pandemic, we have grown consistently our share year over year for the past 5 years. Consumers rank Levi's as top authority on jeans with leading equity and quality, trend setting, fit and comfort. We have created life-long fans and built enduring emotional connections with our consumers through leading products and impactful marketing. We are the global leader in men's denim. We have 8% global market share, more than the next 4 competitors combined, and we have been strengthening our leadership position in gaining market share. And we did this while increasing AURs and delivering strong gross margins. We successfully reset the Levi's women's denim business in late 2015. As you heard from Chip from 2017 to the pandemic, our Levi's women's business saw 13 consecutive quarters of double-digit growth. We successfully doubled the business to pass $1 billion. We increased our women's denim penetration from 22% to over 35% of our denim portfolio. And today, we have the #1 market share in women's denim globally. We prioritized tops, and we doubled the business. In both men's and women's, our tops growth was initially driven by 2 franchise businesses, our logo tees and our denim trucker jackets. And then we built off this momentum and gain traction across additional categories like tees, sweatshirts and denim tops. From 2011 to 2019, we improved our bottoms and tops ratio from 7:1 to 3:1 and we have so much runway for growth as we currently have less than 1% share in the $460 billion tops market. We have gained traction with our younger consumers. Since 2016, we have increased brand awareness, ownership of brand recommendation with consumers 18 to 30, cementing our traction with the next generation of Levi's fans. As we all know, the 18- to 30-year old segment represents a large opportunity. They are engaged shoppers and their purchasing power is only increasing. In the next 5 years, Gen Z spending is expected to grow 70%. The younger segment has a strong influence on cultural and market trends, and they influence perceptions and behaviors of older generations as well. We have set a strong foundation for accelerated growth. As we look to the future, we will unlock the next phase of growth by executing across 3 key strategic pillars: amplify Denim Leadership; accelerate lifestyle diversification and activate brand heat. Amplifying our Denim Leadership is critical. We are the world's leading authority in denim. We will continue to deliver best-in-class fit, fabric, style and innovation. And it's about striking that perfect balance in combination of our authentic roots in Levi's DNA with a modernity and relevance in energy of today. That's where the magic is and that's what makes us unique and differentiates us in the marketplace. So let's talk about how we drive category leadership in denim, starting with a look at some examples in women's. When we reset the women's business in 2015, our first step was to create a new core denim platform that was rooted in skinny fits, the 700 and 300 series. And we did this with best-in-class fit, mid-rise and high-rise and next-level fabric and stretch innovation and injecting our Levi's product identity in sinter details into the jeans. We also injected newness into our iconic 501 family with our 501 Skinny, our 501 Taper, and we doubled down on 501 shorts. Both of these platforms took hold and have been very successful. We then saw a trend with ultra high-rise fits, rises were getting even higher. So we created winning fits like the Wedgie and the Ribcage and the Mile High Jean. These jeans had a more authentic look and feel and character, but with a really modern spin in fit. We had great new lake shapes like taper legs, straight leg, boot cut and wide leg. They were not all skinny fits. And then in the last few years, with the influence from the '80s and '90s, we led the trend on fits loosening up. And for example, we launched our high loose, our balloon jean, our dad jean, or 90s 501, really setting the trend for roomier, more relaxed fits for her. And it's not really about 1 fit anymore. We have to actively manage our denim fit portfolio on an ongoing basis to keep our core, our icons and our fashion fits relevant and market-leading always. This is what my design team and I do every day. We are dialed into what's happening around the world as product experts. We study and observe people, the market trends, changing behaviors, expectations, likes, dislikes and all the shifts. We are the market leader in denim, and we will use this repeatable winning formula to double the business again. In men's, we take a very similar approach. For an example, just 5 years ago, we introduced key taper fits like the 512 and the 502 and we were leveraging an insight that people want to show up their sneaker with a sneaker culture boom. So one trend led to another trend. And now today, taper fits are some of the biggest fits in our men's portfolio, and they make up to 25% of our denim business. We also led the resurgence of straight fits. We continue to evolve and inject newness in our core, like the 501, the 501 '93 and the 505, keeping them relevant and fresh. And men's was also inspired by the '80s and '90s with fits loosening up and becoming more relaxed. We introduced new fits like the 551 Z, it's a new modern straight and the stay loose and the state baggy for him, roomy, easy, cool and really resonating with our younger consumers. These examples illustrate how we actively balance our denim portfolio and maintain a healthy mix of our core, our icons and our fashion fits. We are coming up on an exciting milestone in the history of Levi's. In 2023, we are celebrating the 150th anniversary of 1 of the most iconic designs in the history of clothing, the Levi's 501. Since its invention in 1873, the Levi's 501 has taken on a life of its own, becoming a beloved global icon of culture and enduring style. One of the most fascinating things about the 501 is that is involved and adapted over time for 150 years. And it's that adaptability that has allowed the 501 to continue to thrive. We've seen explosive growth in our 501. And the 501 was up almost 50% in Q1, demonstrating the love consumers have for our brand's most iconic product. The 501 has been and will continue to be a key element of our brand story. I also now want to share 1 of my favorite videos bringing the 501 to life. [Presentation]

Accelerating lifestyle diversification is our second pillar of growth. We are paving the path to become the leading denim and casual lifestyle brand in the world. We have permission from consumers to extend into adjacent relevant head-to-toe and increase our share of closet. Our focus will be on tops and non-denim to unlock our next phase of growth in casual lifestyle. So let's talk about tops first. Tops will drive the majority of our lifestyle revenues. We are capitalizing on the casualization trend in categories where we are underpenetrated for our lifestyle brand. We are diversifying our logo tee business beyond the batwing and expanding nongraphic tees and sweatshirts. We are also focusing on establishing essentials and fashion newness in wovens, be it tops and outerwear across men's and women's. Here's a quick video to give you a flavor of where we're headed for tops. [Presentation]

While tops is a key focus for growth, we will also build a meaningful chinos and shorts business for men's, leveraging our core competency in men's bottoms fit. Our Double chino fit platform and our non-denim shorts business saw strong double-digit growth in 2021. In addition, we are building on our sweats offering to capitalize on casualization trends. Our focus is on athletic-inspired indoor, outdoor apparel, not technical performance. It's right in our wheelhouse as an adjacent category of lifestyle apparel. Here's a quick video to illustrate how we will continue to lean into this category with head-to-toe dressing. [Presentation]

Activating brand heat is our third pillar for growth. The greatest brands in the world garner a powerful and intangible emotional connection with consumers that transcends beyond just great product. This is true brand love and consumer connection. Levi's builds us invaluable lasting connection with consumers in a multifaceted way. We win the hearts and minds of consumers by delivering market-leading product, curating unique experiences and engaging our consumers with purpose. This leads to stronger brand loyalty and equity, new fans, increased traffic and revenue growth and ultimately activates brand heat to fuel growth. Collaborations are a key ingredient in driving brand heat and relevancy. We work with some of the most iconic brands and partners from around the world, from cultural icons to artists, to musicians, to industry pioneers, we are co-creating one-of-a-kind products and experiences to ignite energy and elevate the brand. These collaborations also help us capture new consumers and create a halo for the brand. We've had so many exciting collaborations this past year, everything from Valentino, to NIGO, to Naomi Osaka, to Miu Miu, to New Balance, to Denim Tears, to Junya Watanabe to name a few. And as Chip said, we are in high demand, and we are very thoughtful and selective with our partners. Our music strategy delivers powerful experiences that drive brand heat and consumer connection, especially with our younger fans. Through our Levi's music project, global music festival strategy and artist partnerships, we celebrate key cultural moments that place Levi's at the intersection of the most recognized global events. Our values are a North Star for Levi's and drive deep consumer connection. Today's consumers shop with intention and look for brands that align with their values. We have a long history of standing up for what's right and we have only deepened our commitments to equality and inclusion, sustainability and conscious consumption. Our values are a differentiator, and we back up our words with action whether giving consumers a platform to drive change in their local communities or bringing next level sustainable product innovations to the marketplace. The Levi's brand is the strongest it has ever been. We have a tremendous opportunity to continue to grow market share, especially as the casualization trend accelerates. Our growth strategy positions us to win. We will amplify denim leadership accelerate lifestyle diversification and activate brand heat. Levi's will continue to lead the market and set trends. Thank you so much for your time today, and I now want to introduce Seth Ellison.

Good afternoon. I'm Seth Ellison, Levi's Chief Commercial Officer. I've worked for Chip and with LS & Co. for almost 10 years now. I started out as Dockers President then headed over to London to lead Levi's Europe for 7 years, and I returned 18 months ago with our most recent transformation. I'm responsible for leading the Levi's brand and all commercial operations in all 3 regions, managing all channels and all P&Ls. Prior to my career at LS & Co., I started out in the action sports industry spending 7 years building the Quiksilver brand globally. That led to 12 years with Nike, both in the U.S. and Europe in brand and general management positions. In addition to our world-class team, what gives us great confidence that we can achieve our goals is our intense focus on direct-to-consumer. I'm going to give you a tour from the past to the present of our DTC business and then make the case when we combine footprint expansion, productivity, e-commerce and loyalty, fueled by data and analytics, and as Karyn spoke into tremendous brand momentum. We have a clear path for DTC to play a leading role in delivering our company's growth algorithm that Chip highlighted, while just as importantly supporting our Levi's brand aspirations that Karyn took you through. DTC is a key part of the house. I hope you also get a sense of how our aggressive investments in all things data and digital are central to our strategy. As we elevate levi.com, connect our entire global DTC ecosystem, creating an engaging Levi's experience for millions of fans around the world. Levi Strauss began this adventure as a dry goods retailer in 1853. And then we spent decades expanding our wholesale business -- expanding our business through wholesale partnerships. In the past decade, we returned to our roots as a retailer. And since then, we've built a sizable global DTC ecosystem. Today, DTC represents over $2 billion, 37% of Levi's total revenues. Our global brick-and-mortar footprint has grown from less than 500 company-owned doors in 2011 to over 2,900 locations across the globe today. To break this down 1,000 are company-owned and operated and the remaining stores are a combination of franchise, shop-in-shop and commissionary models operated by partners. In key markets, there are over 800 in Europe, 500 in Greater China, 200 in the U.S. and expanding rapidly and 100 in Mexico. While we expand our fleet, we continually upgrade our brand experience and profitability, opening, closing, relocating and refitting doors. Even during the COVID pandemic, we were busy growing and pruning. We upgraded over 40% of our fleet over the past 3 years. And when we upgrade, we see a quick lift in revenues. Our fleet comes in a variety of shapes and sizes as we respond to the specific opportunities by market. For example, the U.S. is an owned-and-operated model, China and India primarily franchise and Europe is a balanced combination of the two. Our fewer, bigger, better franchise strategy ensures that we're always evolving, partnering with the industry's best. Vendor-managed shop-in shops allow us to control the Levi's experience even in multi-brand environments. And when we control the experience good things happen, opportunities quickly open up beyond core denim, expanding by gender category and age. In addition to our different business models, we balance mainline and faster outlet mix to optimize our margins. Our mainline fleet consists of flagships, key city and neighborhood stores showcasing more premium locally relevant assortment, limiting our markdowns and dilution. Our factory outlet network liquidates excess inventory, but the majority of our sales come from high-margin made specifically for outlet products. Both store types offer an elevated Levi's brand experience and level of service. And the U.S. mainline opportunity remains a key focus. In fact, U.S. mainline expansion has already started and will become a key growth driver over the next horizon. We started to gain confidence in our business model as we've tested locations across the U.S. in Scottsdale, Disney Springs, Florida, Irvine, California, Mall of America, Cherry Creek, Colorado and our success with mainline and with our online flagship elevates the brand and price points, which has a halo effect across all channels. Skipping to the other side of the world. We're often asked about our China go-forward strategy, and we've reset our expectations accepting short-term realities, while we're confident that our long-term strategies remain valid. So we continue to build platforms and capabilities for the opportunities ahead. We invest cautiously as we deal with short-term uncertainties, but we also believe long term, China will remain a large and growing marketplace for Levi's. When it comes to M&A, we continue to eye market opportunities surgically to buy back stores and markets and leverage our DTC expertise for elevated growth. And when we strike, we've been very successful internationally. In 2013, we bought back 6 stores in the U.K., making an entire owned and operated ecosystem. That led to a 50% increase in revenues and driving high margins. That led to a 62 store buyback in the Andy's region, and that realized a 25% revenue gain and we've doubled our profits in the 2 years since the acquisition. We bought back 14 stores in Romania, and we recently relaunched in Thailand actually just in March, and we bought back the entire business projecting 30 stores by year-end, 30 company-owned stores. Each acquisition has exceeded our growth expectations. Our brick-and-mortar strategy has paid off. It's been a key contributor to our revenue and margin expansion over the past few years. DTC driving a 17% 3-year ROIC and now exceeding 2019 levels. And e-commerce became profitable last year as it's begun to scale. It's now expected to deliver mid-single-digit profitability this year. But consistency of results is what matters most. As we stare down multiple crises around the world, including COVID, inflation, geopolitical instabilities, the diversification of our fleet provides us with high-quality shock absorbers. With the uncertainties we face today are distribution democratic brand positioning, balanced by channel, spread geographically, allows us to immediately shift assets to aggressively play offense while we minimize disruptions as necessary. With so many fans across the world, diversification combined with agility has allowed us to repeatedly deliver strong results. We successfully tested and launched our NextGen store concept, mid-2019 in Milan, Shanghai and outside of London to elevate the in-store experience. Today, we have almost 300 locations around the world, and we're scaling rapidly. Each new store delivering an additional lift in revenues from higher conversion and AUR. Of the 100 new stores planned in the U.S., all of them are NextGen. Let me take you on a quick tour. [Presentation]

As you can see, there's no question our stores create brand heat and where the previous generation of pioneer stores displayed our key concepts in the windows, the NextGen store actually becomes the window and it draws consumers into the world Levi Strauss, collaborations, key concepts, local holiday packages, customization, even sales periods become an enjoyable and elevated shopping experience. And our stores remain under construction as we add digital capabilities. Our objective is to allow consumers to shop 24/7 as they prefer and engage with Levi's as deeply as they'd like. The levi.com flagship connected to the fleet with omnichannel capabilities, data and analytics, helping us make smarter decisions. And with our Levi's loyalty propositions, all of these work in sync to make this possible. And to amplify our digital footprint, we work closely with partners like Amazon, Zalando, Mitra and TikTok. Our entire digital universe represents over 20% of our total global business. And even as the stores have reopened, this remains a key growth driver as we follow our consumers shopping preferences. We've obviously been busy. But what we've been working on to date is simply unlocking the larger opportunities ahead. As I mentioned in the beginning, we're focused on 4 areas, starting with footprint expansion. We do not believe we have any mature markets. Untapped have neighborhoods, expanding key cities, relocations and refits. They either fill in white space or they expand and improve our footprints. And when we look at the physical marketplace, we still believe we have an opportunity to grow an incremental $0.5 billion over the next 5 years. Besides increasing and elevating our store footprints, we have several opportunities to improve the productivity of our comp doors. I've already mentioned the importance of new omnichannel and data capabilities. But to give you a sense of the opportunities ahead, we're only starting to scale buy online and pick up in store, associated ordering, ship from store, each one of these is a meaningful path to revenue and profit. And specific data and AI, we know that large numbers of consumers begin their journey via the web, and it's a key starting gate for our entire Levi's commercial ecosystem and it's data rich. So it's a great place to leverage AI as a competitive advantage with thousands of products each, with its own story, navigation and personalization are obvious priorities. But we're also using AI to generate algorithms and filters to make a variety of relevant recommendations from styles and fit to payment and delivery. And behind the scenes, AI is increasingly leading pricing, promotion, assortment, store site and even fulfillment selections. In terms of micro assortments, I'll give you a couple of specific examples. In terms of micro assortments, we realized that a 1- to 2-degree temperature shift in Milan and Rome could shift consumer preferences directing us to adjust our product assortment on the floor immediately increasing revenues single digits. And in the U.S., we're testing AI to optimize e-commerce order fulfillment, and it's making a meaningful difference in lowering our cost per order. Each test, and this is just a couple of 10s, 20s, each test is executed in a specific market, but built for global application. Increasing AI -- leveraging AI and increasing our footprint to optimize our assortments will also unlock the physical space required for further gender and category growth. We remain committed to Denim Leadership, but our fans are giving us permission to expand beyond denim bottoms to become a true lifestyle brand. And as you heard from Karyn, we believe our non-denim products can achieve 50% of revenues from the 35% today. Now moving from productivity to e-commerce. As I've shared today, we've been able to successfully evolve from a wholesale legacy to becoming a world-class brick-and-mortar retailer. Now we're beginning to hard pivot to levi.com in key markets. Future opportunities include a larger selection of exclusive and personalized product, better storytelling, a starting point for all our collaborations while building this seamless journey across technology and channels. We believe the revenues from levi.com should reach 15% of Levi's total revenues and 25% of our DTC business by 2027. And cascading from levi.com to our stores and really likely to be our most promising competency for the future is our loyalty proposition. And the opportunity is massive. After 150 years, we have large numbers of fans who stayed loyal to the brand. Some fans are rediscovering the brands. Some fans are engaging with us for the first time. It's time to reward them for their loyalty over and over again. And we're just beginning the journey, we already have 19 million fans signed up, and we've been doubling every year. But signing them up is simply where the magic begins as we personalize the loyalty experience, enabled, as chip mentioned, by our new mobile app, from concert tickets to music fans, repair and customization in our tailor shops, styling sessions in store and early access to new products, whatever inspires our most valued fans to interact and purchase repeatedly. And our formula is already starting to pay off. The average transaction value for a loyal consumer is 90% higher than a nonmember. Revenues per member have grown 40% in the past year. Fans of all ages want a relationship with the Levi's brand, we can make it fun, memorable and rewarding for both of us. With each tech competency, innovation is critical to stay relevant. So we're constantly testing cutting-edge technology. For example, we recently launched a visual search tool, leveraging AI that creates a bridge from a web images to a product purchase. A consumer sees Hailey Bieber wearing a new Levi's outfit. They upload the image and it immediately takes them to levi.com to our top of choice and are trend-leading high 501s ready to purchase. And this technology is not just for celebrity images. It can be used with pictures of friends, social media postings. This is just 1 of many examples where we're testing exciting new technologies to create the unwritten future. But our most valuable asset remains our team. They make all of this possible. During COVID, this was highly visible to us. As even during our lockdowns, our teams were in this constant state of preparedness, getting ready to reopen rapidly, whatever the regulations and traffic conditions. Our regular staff trainings leverage state-of-the-art tools to ensure we're always ready to compete. They're the face of Levi's to our fans, they elevate the brand each day, and they drive our high performance. They lead with our values. And as Chip mentioned, our values are core to everything we do. And in the case of DTC, 2 of our top priorities are refugee support and sustainability. In Europe, we have years of history with refugee support, starting with the large migrations from the wars in Syria and Afghanistan. So in Eastern Europe, we've rapidly changed selected stores to become Ukrainian refugee supply centers. We've also given our employees paid time off to support them, to support the refugees as they migrate West, and we're actually employing refugees as we speak. And in terms of sustainability, we showcase product concepts like waterless. We communicate brand campaigns, including buy better wear longer, we promote reusability with our tailor shops, and we're testing circular resale concepts online. When we add up the key priorities of our DTC strategy, even with market headwinds, we have a number of paths to grow profitably, growing physically, digitally and a combination of the two. We believe we have a realistic strategy with concrete actions for DTC revenues to almost double over the next 5 years to $4.7 billion, reaching 55% of Levi's total revenues. Thank you. We hope you'll join us as we live in Levi's. Thank you. [Break]

Welcome back. Just to give you guys an idea of the rest of the day. Up next will be Santiago, he'll give a Dockers update, followed by Michelle on Beyond Yoga, then we'll move into supply chain, followed by Harmit, and then we'll move into Q&A just before 3. With that, I'll turn it over to Santiago.

Hello, everybody. I'm Santiago Cucci, and I am the CEO of Dockers. I started my career at Quiksilver and Tommy Hilfiger. And 9 years ago, I joined Levi Strauss & Co. in Paris as a Managing Director for Europe South for both brands, Levi's and Dockers. 4 years ago, I was honored as I've been asked to move into the U.S. and lead all the activities for both brands, Levi's and Dockers. I'm mentioning these 2 brands because I always expressed to Chip, my frustration of me being able to dedicate more time for Dockers because I always believe it deserved it. At beginning of 2020 when the company decided to execute Docker about, I naturally raise them to say, "Hey, I want to run the project". So why I was already so optimistic about the project? Simply because coming from Tommy Hilfiger. I know the casual wear market, I know it's a very big market. It's more than 500 billion men and women. And I know there is a spot for a West Coast California cool brand versus the other brands, versus the East Coast 3P brands. What I found it's a brand which was not loved anymore. What I found is a brand which was very focused on workwear, very functional and which was mainly focusing on classic guys, 45 years plus. The business model was mainly relying on wholesale. It was 85% of the global revenues and mainly in the U.S., which the U.S. businesses were 66% of the global revenues. At the end, the business model and the gross margin was 36% 5 years ago. The first thing I did when I took the position is to hire key talent and make them responsible for the key functional and operational positions. I did it like a private company investments, and we are all paid only on the Dockers results. And believe me, we are obsessed by the bottom line and by the value creation. The second thing I did is to enlarge the consumer base and to reach younger consumer. We made very nice products for them. They are stylish, they are sustainable, and they are very suitable. Two, our ambassadors are very in line with our values, and I would say that our values are very in line with our ambassadors. So we are producing very nice and authentic assets. Three, our collaboration are cool fresh and now always been with the intention to elevate the brand. Four, our digital ecosystem is in line with our longer consumer expectations. The third big thing I did is that I took the lead and I led by example in my stores. I express the lifestyle aspect of the brand. And today, DTC is 30% of our business. Then we were able to show in the correct way of all our categories. Tops are now at 16% of our global revenues, but they are 40% in Latin America. There are 20% in Europe, which means that when you focus on it, when you are going to build the right visual stories, it's working well. The same with women. We just started it, but it's only so it's just 4% of our global revenue. But where we are focusing on it, it's already 23% average in our Madrid stores. It's 30% of the men's revenue in the 13 stores we opened at ECI, working less in Spain for the last month with less spaces, less personnel. At the end because we are more DTC, more international, our business model is more profitable. Our gross margins are now at 46%. So we gained 10 percentage points in the last 5 years. For the first time in '21, the EBIT was positive, much more positive than in '19. Tomorrow, it's very easy. We are going to continue exactly the same thing, which by the way, I'm sure reminds you what are the key strategic point at LS & Co. We have a 46% gross margin business model. We want to cruise at 50% levels. We want to continue to develop our younger consumers. They have to be more than 50% than our consumer base. We want to leave with our DTC, and DTC needs to move from 30% to 40% of our global revenue. We want to expand the international. We did a very big progress. We moved 13 percentage points for the last 5 years, but we still want to grow to 55% of our global revenue. And at the end, as I said, we want to be much more life style. We want to grow our categories. Now let me take you into details, so you can see how it's going to happen. Let's start with our collaboration and ambassadors. Our collaboration and ambassadors are very authentic. In terms of ambassadors, we are not looking for the most viewed or people who have the most followers. We are looking to ambassadors in line with our values, in line with the fact that we want them to be engaged with us, naturally, not for 6 months, but for the next 3, 4, 5 years. Matthias Dandois is a good example. It's a 9-time world champion BMX rider. So he is bringing to us this community is the street community is -- X game famous participants. So he's bringing all these street rider community to us. Maud and Joan are a good example, but the surfers we are working with across the globe are not only surfers. There are strong personalities, engaged in sustainable projects, cleaning dishes or even now for Maud and Joan able to work with Jon for the wasteful water project, which is the main project we are supporting and I'm so proud of it. We are giving access to drinkable water across the globe. You can see that here. I mean, they are all elevating the brand. It's a real partnership. And in the 3 cases, you can see here, Malbon, Transnomadica, Dockers Vintage, AUR was $150. So that's again a beauty in the way that our brand is so democratic that we can sell at $39 and also sell at 150% -- at $100, sorry. And these 2 consumers are coexisting. There is no issue in that. That's how you see a run is strong. Our values are very simple. It's planet and people friendly. Planet friendly, because it's in our roots, because we depend on LS & Co. organization. And we are not planet friendly because it's trendy for the last 2 years. We are planet friendly since more than 20 years. So today, our spring summer '22 product line, you are going to see is 94% what or less. 1/4 of the products using recycled fiber, concerning people friendly. I'm very proud that with Jon, we did 11 projects across the globe. Personally, I was with Maud and Joan in Mexico, and we give access to drinkable water, just giving access to drinkable water, which is so basic and essential. And there was a lot of emotion, of course. But the asset we produce surrounded to us is so authentic, so beautiful. I think it connects very well with our younger audience. Now DTC. When I say we took the lead in how we want to express the brand, I think the images here are very strong. What you can see on the bottom right is the new expression of the brand. It's visually very efficient and it's basic and [indiscernible] with a lot of immunity, we can provide the best shop and to our people -- sorry, the best shops to the people. And it's just a question of visual story. And here is a perfect example. It's basic, but it's not -- it's easy to say, it's very difficult to execute. But look at the numbers. In our 66 retail doors across the globe. Our retail sales in '22, that's an estimate, will grow by 30%. Our fleet gross margin will be 70%, the EBIT margin would be 20% to 25%. And DTC was 9% 5 years ago. It's 20% already. So it's an 11 percentage point gain, and it will be at 25% in 2027. Dockers.com, I mean, in line with our stores, dockers.com is also moving forward. We refreshed it. It's not any more about promotional prices, it's about stories, refreshing the site very -- with a lot of activity almost every day. You'll find stories, you'll find prices, but the quality of connection is totally different. We are present in the U.S., in Europe, in 10 countries, in Mexico, Chile. Our sales for '22 are plus 30% in the same -- this channel was only 4% in 2017, at 7% today, and it's going to be 15% in the next 5 years. We are partnering with Shopify in Europe and the U.S. So we believe the experience we are providing is in line with our younger consumer expectations. Internationally, as I said, it was 34%. But only 5 years ago, now it's already 47%. It's a 13 percentage point gain, and we are still having a lot of white spaces across the north. Germany and U.K. today are not covered. And we know from our digital partners like Zalando that we have a lot of consumers in Germany. So we are working on it. More to come. I think we will have very strong partners coming on board in the coming months. That [indiscernible] said, we are not present in Brazil or Argentina. Asia, what about Asia. We are not in India. We are not in the Middle East, we are not in Japan. Category expansion. Tops, 16% of the global revenue today, it has to be 25%. It's already 40% in Latin America, 20% in Europe, and it cannot be 25% in the next 5 years. Women with the good results we have, we just launched it in Amazon U.S. 2 days ago. So we have a lot of expectations. Our products are very good. Women are already 35% of our shoppers at dockers.com. They know the brand for its quality and its capacity to win innovation. She's going to be on board to have to find the perfect, she know the perfect shop. That's why we plan women at 20% in 5 years. And then why you should be with me on this project? One, because we have a strong, dedicated Dockers team. We all have a lot of experience. We were at Levi's, and we were successful already at Levi's. We know what we are doing. We are dedicated, accountable and already providing good results. Very strong results, 30% in '21, and we plan to believe to -- sorry, to deliver 30% in 2022. You know the business model. And in 2023, we presented already our summer collections. Feedback is very, very positive. That's why I'm so confident. In terms of margin because we diversify our channels more DTC, more international. Then gross margins are going up. We plan to close, as I said, at 50% of gross margin. And it's normal. I mean it's in line with the casual wear market, which is so big, $500 billion. There is no reason that the company like Dockers supported by LS & Co. cannot be part of the key players on this market. Our strategy are working. It's not a revolution. It's very easy. So that's why I believe you should be with me in this project. Thank you very much. And to finish this long model, you will have a 45-second video in which everything is in motion. Thank you very much. Bye-bye. [Presentation]

Please, welcome to the stage Beyond Yoga Co-Founder and CEO, Michelle Wahler.

Hi, everyone. I'm Michelle, I'm the CEO and Co-Founder of Beyond Yoga, and I am so excited to be here. Thank you guys so much for joining us. I'm really excited to share with you the Beyond Yoga brand story and what's next for us and our vision for working with LS & Co. So we joined up in September of 2021. And Beyond Yoga is a 17-year-old brand. And as you know, Levi's is a 169-year old brand. And the story that I'm going to share with you is the Beyond Yoga business as it is today. So it's just the first chapter of our brand journey. I believe Beyond Yoga can be a $1 billion brand. And I'm so proud to say that Chip and Harmit and our colleagues at Levi's, all share in this belief in our potential. Beyond Yoga is a female-founded female-led activewear brand that I co-founded in 2005 with Jodi Guber Brufsky. From the beginning, and before it was cool, we set out to make a size-inclusive clothing line that fit all shapes and sizes that made people feel amazing, and that's exactly what we did. We celebrate you as you are today. We don't want people to feel like they have to workout to fit into their workout gear. So we create super soft, incredible products for your round the clock late style. And we dress you for your toughest workouts, for lounging, hanging out with friends and absolutely everything you need to do. And we make the clothing that takes you beyond. All right. So since day 1, we've set out to build a team that reflects our world. We have advertising and imagery that reflects our team. and sizing that reflects the shape and sizing of all women. We committed to never photoshop a woman's body and at Beyond Yoga, everyone is welcome. We are an extremely product-focused brand. Our intensely loyal and high repeat customers love us because we consistently deliver high-quality, high-performance, buttery soft products that people love. I couldn't be more proud of what we've built for ourselves and for our consumers. So speaking of our consumers, our core customer base is 25 to 44 years old, but we appeal to all ages. And like our name implies, we are well Beyond Yoga. Our consumer is wearing our clothing for all activities from working out to lounging in absolutely everything in between. A survey of over 2,000 customers, let us know that 68% of our consumers are wearing our clothing for working out and nonworking out activities. We have maternity and we are now expanding into men's. And our research shows that our customers gravitate towards premium brands and are willing to pay more for quality. They care about the environment and as a brand, so do we. So sustainability is extremely important to our team. We're very focused on responsible manufacturing. And being produced predominantly in the United States, has allowed us to do a few things. Number one, it allows us to have a lower carbon footprint; number two, it allows us to employ our local community, and it also allows us to navigate an ever shifting supply chain. Our supersoft fabrics are 1 of the main reasons that people love Beyond Yoga. But what's really interesting to know is that 90% of our fabrics are either BlueSign certified or Tencel, lenzing or recycled. And our vibrant prints use waterless printing technology, and all of this helps us be soft on the environment. So let me give you some insights into our performance and our business. So over the last 3 years, our revenue has grown at an over 30% CAGR. We have grown organically with discipline, and we have been profitable. [indiscernible] to say that we did it the old-fashioned way. And we have had over 60% gross profit margins, and we have really just invested everything back into our business so we could continue to grow. In 2021, half of our business was done direct-to-consumer, which was all on beyondyoga.com. And the other 50% of our business was done through wholesale. And a large part of our wholesale business is done through digital channels. So roughly 70% of the business that we did came through digital channels. We're extremely proud of what we've built and excited for the opportunities ahead of us. So let's talk about this market size. We are on track to surpass $100 million in sales this year. The opportunity in the U.S. is tremendous, and it's our largest market currently. But internationally, we only have 5% of our sales coming from outside of the U.S. So there is a tremendous opportunity there as well. Consider this. the global activewear market is projected to grow to $240 billion this year. So we have a clear path on how we're going to capitalize on this market opportunity using 4 strategic levers. Firstly, we are going to be investing in talent to achieve capability and scale. The next 3 levers are growing brand awareness, category growth and international expansion. So how are we going to invest in talent to achieve capability and scale. So first, I want to say I am so proud to say that almost 100% of our team stayed on with us through the transition. And as a testament to how excited our team is about the Beyond Yoga Levi's partnership and what we know that Levi's is going to bring to the table. I am constantly impressed with the incredible people who want to be a part of the Beyond Yoga team. And the fact that we're over 85% female that we're incredibly diverse and extremely committed to our values, makes it a very compelling place to work. And then you factor in the Levi's component and the incredible recruiting strength, and we are building a powerhouse team for the future. We have already added since September 30 new people to our team across all areas and all departments, and we've hired new leads for our e-commerce business and for our brick-and-mortar stores. We are investing now for the future, and we have just begun. So the second brand lever that we are going to pull is growing brand awareness. And so prior to the acquisition, we grew extremely organically. We were relying on customer word of mouth. We were relying on people discovering us at our wholesale partners and from performance marketing. Now that we're part of Levi's, we're very excited to take a page from the Levi's brand playbook and build campaigns and really amplify our message of inclusivity and comfort through social with building community and influencer engagement, through events with activations and pop-ups and wholesale marketing and through technology with live stream connected TV and deeper investment in performance marketing. The third lever we have to pull is category growth. So we aim to expand our categories through constant innovation, but balanced with a healthy core offering of incredible staples. We offer monthly product drops introducing new silhouettes, new colors, new fabrics, and we have over 500 SKUs per season. So there's 3 areas I'm going to talk to you about today that are areas for expansion and market opportunity. We've got maternity, dresses and men's. So we see some of the highest lifetime values come through our Beyond the bump segment, which is our maternity line. And we see that women are spending more as they transition from their pregnancy through to our core product, becoming loyal and repeat customers. Our Beyond the bump segment is really popular with women who are staying active during their pregnancy, and women are gravitating towards our buttery soft fabrics at a time when they really need to feel a little extra comfort. Beyond the bump is 1 of our fastest-growing categories online and 3 of our top 10 styles on beyondyoga.com are maternity styles. We've also recently included expanded to nursing tops because of the success that we've seen with maternity and what we've heard from our consumers that they are looking for this. So this is another way that we can continue to support our women throughout her entire journey. All right, dresses. So last summer, we introduced a small capsule of dresses that our customers couldn't get enough of. This year, I'm very excited that our new expanded dress assortment has made a significant increase to our online sales. Our customers are loving the flattering silhouette, and they also like that we have pockets. So I was curious about how we were having all this new business and that it was driving so much sales. So I wanted to look into who's buying this category for us. And it was really interesting to see that almost 50% of the people buying our dresses on beyondyoga.com, where our existing customers who were willing to try a new category with us. And the other half of the people were completely brand new to our brand. So these insights help inform our customer acquisition strategy and our retention and help us figure out where we need to deploy resources to maximize sales. And thanks to an extremely successful Father's Day capsule that sold out in record time last year, we have decided to officially expand into men's. And we launched in 2022 on beyondyoga.com, and the demand has been organic. Women have been wanting the same buttery soft fabrics and incredible reliable products that they know for the men in their lives and men have been asking us, why are you holding out? So we have finally gone ahead and done it and it has been tremendously successful. We have close to 85% sell-through within 2 weeks of many of our launches. And some of our products are selling out within a matter of days. And right now, you can only find our men's line at beyondyoga.com. But starting in fall '22, we will be expanding to some of our key wholesale partners, and you'll be able to find the men's capsules at REI, CorePower Yoga and Bloomingdale's. All right. So now I've told you what we're selling. Now I will tell you where we will be selling it. So our fourth lever is channel and in international expansion. So very excited about what we've built to this point, but there's so much opportunity, and I can't wait to introduce more people to Beyond Yoga. And how are we going to do that? We are going to do it with a deeper presence at wholesale. We're going to double down on what we're doing on beyondyoga.com. And I'm very excited to share that we are going to begin testing and then scaling brick-and-mortar stores, but I'll talk about that a little more in a minute. And then we have tremendous opportunity in the international market. So right now, only 5% of our business is coming from outside of the U.S. So there's a lot, a lot of opportunity and feel very fortunate to be partnered with Levi's, who has a very great hold on the international market and can help navigate us through this. So right now, we're being very strategic, making sure to open new markets with premium placement and high visibility. So when it comes to wholesale, we have a tremendous network of premium wholesale partners. And they range from big to small. We built very deep authentic relationships with our studio partners like Pure Barre, Barre3 and CorePower Yoga. But beyond the studio, we work with large outdoor retailers like REI and [ shields ]. We work with department stores from Nordstrom to Bloomingdale's. We're in high-end spas, like the Four Seasons, and luxury gyms, like Equinox, online pure plays like REVOLVE and ShopUp. So we're really proud of this diverse network that we've built. And we also, in the very near future, you'll be able to find us on college campuses as we are starting a new partnership with college bookstores. So currently, we're in over 2,000 doors, but we have a very large runway for growth. And this growth is going to come from new accounts, category expansion, like the ones I shared with you a few minutes ago. our elevated brand presence through shop-in-shops and premium placement on the floor and then door expansion. In some of our great partners like Nordstrom, we're not even in all of their doors. I think currently, we're in less than 50% of the Nordstrom. And there is no reason we shouldn't be in all of them. So we are very, very proud of our diverse and premium placement. And it is a point of pride for us that we keep our products premium and nondiscount oriented. And we have relationships with our customers that we are building and it's from this diverse network of places where they're finding our amazing products. They're seeing us at their studio and their gym, but then they're seeing it when they go on vacation. They're seeing it when they go into their favorite boutique. And so we're really creating a great relationship with the customer that's always backed with amazing products that makes people feel amazing. All right, on to direct-to-consumer. So e-commerce is a huge area of growth for us, and it will continue to be. We have a digital focused mindset and 50% of our revenue is coming from the beyondyoga.com. We're powered by Shopify, which gives us tremendous flexibility and agility. And they've been a wonderful partner as we've rapidly had to grow in scale, and they've been there with us every step of the way. I'm very proud of our repeat customer numbers. They're very strong. Our core customer purchases 3 times within a 12-month time period. And the future is omnichannel. So very excited to say that we are going to be expanding into brick-and-mortar stores. And we're going to use the foundation that we've built from our wholesale partners to our e-commerce to really leverage an amazing experience at brick-and-mortar for our consumers. And we're going to use the data that we know about our customers, where they are, make sure that we're opening stores in the right places to serve our existing consumers, but also to expand and build brand awareness. So today, I've introduced you to Beyond Yoga as part of the LS & Co .portfolio. I've shared with you our brand story, the market opportunity and our priorities for growth and innovation. As a founder, I am extremely connected to the Beyond Yoga brand and the products that we deliver on behalf of our loyal customers. I'm so proud of where we've been, but I'm even more excited about where we're going. And thanks to the partnership of LS & Co. and the investment in our -- of capital and resources Beyond Yoga is poised to be a household name in the athleisure market. $1 billion future is ours for the taking. Thank you. And now I'll turn it over to Liz.

Thanks so much, Michelle. Hi, everyone. My name is Liz O'Neill. I'm the Chief Operations Officer. I joined LS & Co. in 2013. And prior to that, I held roles at Gap, Disney and Abercrombie & Fitch. I am going to be taking you through our supply chain and sustainability strategies as well as taking a moment to do a bit of deeper dive on how digitization is coming to life across our product operating model. But I will start with supply chain. So to begin, let's just take a look at our current supply chain network, both from a manufacturing and a distribution perspective. Within manufacturing, we truly have a global footprint. We operate in 28 different countries. We have very strategic partnerships, and we have a very diversified production footprint. We tend to work with strategic partners that, in many cases, have multi-country footprint. This happens to be very important, especially when you have a lot of disruption in the supply chain that helps us to move our productions quickly from 1 country to another, if needed. And our sourcing footprint is also a good mix of both low-cost offshoring options as well as closer to market options that are faster and more agile. And just a quick note, although China sort of looms large on that map, it's in the lighter shade of blue because it's actually a very small percentage of our sourcing. It's actually only 3% of our total global footprint, and it represents less than 1% of what we bring into the United States, so quite a low risk for us. Now moving on to our distribution network. It is also truly a global powerhouse. We have 35 distribution centers. It's a mix of owned and operated and 3PL across the globe, and we determine whether we're going to own and operate our own facilities or use third-party partners depending mostly on the volume and complexity of the market that we're talking about. We process both from a manufacturing and distribution point of view. We process more than 200 million units a year, and we service 9,000 customers. All right. Now I will not bother to tell this group about how much disruption has occurred in supply chains over the last 2 years, you guys are all well aware. But this is just a moment for us to show you how our supply chain has serviced our business despite all of those disruptions. So these metrics are a comparison of 2021 performance versus 2019. So across several different dynamics, whether it's margin, whether it's inventory health or whether it's our ability to really match supply and demand and chase into additional volume, we've actually survived very well, all things considered, especially given all of those disruptions that have really wreaked havoc. So we feel like we have set a very good foundation and we're just setting the bar higher as we move forward. So margin. It would not be a supply chain presentation if I didn't talk about cost and margin. We have spent the last 5-plus years really managing our costs, really ensuring that we had the best cost possible in order to protect and expand margin. And that is our supplier relationships. That's based on our sourcing strategies. That's based on our leverage of our scale. But right now, with inflation, with commodity, with pandemic-related logistics cost increases, purely managing costs is just not going to get you far enough. So we are really thinking about how do we continue to leverage our scale and how do we really think about productivity as our primary lever for managing margins. So this shows up in 3 buckets. The first 1 is assortment optimization. How do we have consumer relevant commonality, meaning where do we have all of our markets pouring their volume into specific key item programs, how can we build that real critical mass that can give us the depth and conviction in our product buys because that depth and conviction gives us the scale to leverage across our assortments and to leverage in our negotiations. And then stepping 1 step deeper into our product processes, before we even get to the assortment optimization, we're actually building products. And the basis of those products are our raw materials. So we are very focused on rationalizing those raw materials so that, again, we have that cost leveraged. And so that if we can have more products built on those big fabric platforms, then we have the ability to get in and out of those products. We have the ability and the flexibility to move in and out, to adjust to different forecast, to adjust to different demand because we have the material stage against many products at 1 time. So this, again, it improves our speed and our agility, and it gives us cost leverage in our negotiations. And then finally, and I'll talk about this a little bit more later, we are also leaning into AI-enabled forecasting. This allows us to be more predictive instead of reactive. And this, again, it allows us to really understand where those buys are going to be to give us leverage in our negotiations, and it also just increases our ability to match supply and demand, which helps us to sell more at full price, again, protecting our margin. All right. So I've been talking about today. But now I want to switch and talk about tomorrow, talk about what are the strategies that we are going to lean into as an operations group to really ensure that we can support this growth to $10 billion. And it's both building on our foundational capabilities that I've been taking you through as well as building the capabilities and capacity for the future. So these growth strategies show up in 3 pillars: capacity, just building the sheer capacity that we need to service a $10 billion business; resilience, how do we have the infrastructure and the processes and the tools to ensure that we can whether whatever storm comes our way and come out the other side of it winning; and then agility, better, stronger, faster with a big emphasis on faster. How do we ensure that we can be as fast to market and as responsive as possible. All right. So I'm going to spend a little bit of time on each of these to make sure that we're clear about how we're managing. So again, capacity. It's relatively straightforward. We need to build the capacity to both produce and process the volume required for a $10 billion business. Within distribution, this is going to show up with 2 new facilities being built and opening in the next 2 years in both Europe and the U.S. This is also the growth of our omnichannel capability from a distribution perspective, meaning that all products and all channels can be serviced under 1 roof, which gives us not only flexibility and efficiency, it also gives us an ability to really leverage our inventory as much as possible. We're also going to continue to optimize our Asia distribution network to ensure that, again, we have as much flexibility and leverage as possible. And of course, we, at the same time, need to expand our store base to manage that increase in volume. And although we will absolutely start with our strategic vendor partners, we always do, they are our first stop. We are also continuing to look at emerging production markets to ensure that, again, we have that diversity, we have cost competitiveness, and we have capabilities that we need to build for the future. Next, let's talk about resilience. Again, if the last 2 years have taught us anything, it's that we have got to be able to pivot. I've talked to you a little bit about how our sourcing, manufacturing and distribution strategies are going to allow us to pivot, but really, we're thinking more about how our teams are going to be able to pivot. How do we provide them with the flexibility to be able to move through their work as easily as possible so that they can change with the changing dynamics that are coming at us just about every day now. We think about this in a few cases. One, foundational investment. We have big tools that our teams use every day. We know we need to keep these tools really servicing needs of those teams and ensure that they are as easy to use as possible. So although we're looking at digitization for the future and a little bit more advanced tools, we know we need to support that foundational investment right now. This also means we're really looking at efficiency, whether it's efficiency in our work, whether it's efficiency within the 4 walls of our distribution center, we know that, that efficiency also breeds resilience throughout the ecosystem. And then finally, and again, I'll talk about this a little bit more later. We really need that end-to-end connected ecosystem. We need all of our tools to talk to 1 another. We need visibility up, down and across the supply chain to ensure that we really understand how we can make the very best decisions when things start to change and things get a little dynamic, the more you have at your fingertips, the more connected you are all the way across your value chain, the better decisions you can make and the more agile you can be. Speaking of Agile, as we move into Agility, as I said, better, stronger, faster, with a big emphasis on faster. We know that being agile is the key. It's sort of the bouncing off of resilience, okay, now you're resilient. Now you've got to be fast. You've got to be flexible. You've got to be able to react quickly. You have to be able to predict better than you can react even. And we are really leaning into digitization as the foundation of how we're going to build agility. We know, again, our teams need to be flexible. They need to have tools that are flexible. We need to have different ways to bring product to market. So we need to be faster. We need to be able to make decisions closer to our consumers, and we need to be able to overall respond from a logistics point of view as well as be very, very predictive from our forecasting point of view. So I won't spend too much time here because this is actually going to lead me into a little bit of a deeper conversation about digitization and why we're doing it and how we're actually going to embed it. So the need for digitization. You've heard Chip talk about this as 1 of our big strategic focuses for the future. We know that we need to become digital in order to compete and in order to continue to excel. So why do we need digitization across our products, go-to-market ecosystem? One, as I just said, we need to have the ability to take different products to market at different speeds. We need to be able to service different customers differently. We need to be closer to the market so that we can be close to the consumer and make our decisions as accurately as possible to service our customer and consumer needs. We need to be able to deal with these so-called black swan events that are no longer once in a generation, they seem to be happening about once a month at this point. And we know that data fuels growth. The more you can digitize, the more you can get your hands on your data, the more you can get your hands on your data, the more you can use things like AI and machine learning to really optimize your decision-making to fuel growth. And I'll talk about this a little bit more in a moment, digitization also supports our sustainability strategies, which is sort of a bonus on top. And I won't spend a lot of time on this because it's quite intuitive, and I think you all know. But digitization provides value all across the P&L, whether it's from an ability to grow faster or an ability to manage costs, it is definitely one of the most important strategies that will help us to protect our profitability. Now I am sure that you have heard many presentations recently that have focused on digitization. It is 1 of the things that a lot of our peers in the industry are starting to focus on, but it's not always obvious how this is going to manifest itself. How are you actually going to do it? So I want to spend just a moment showing you how this sort of weaves all the way through our operating model. We really think of digitization as the red thread that ties together our strategic pillars of capacity, resilience and agility, and we are distorting our resources and really investing in each of these to ensure that we are getting to a truly digital operating model. within capacity. This is robotics. This is optimizing RFID, and this is really leaning into automation wherever possible and also looking at future automation possibilities, especially in the realm of manufacturing. Within resilience. These are the primary tools that we use to do our job, product life cycle management, supply planning, matching supply to demand, costing, giving us the ability to run cost scenarios, giving us the ability to marry costing scenarios our sourcing strategies. All of these things provide us the ability to move more quickly and to actually make better decisions in the face of changing dynamics. And then within the Agility bucket, this is all the way from digital design to digital delivery. How do we do this completely digitally across the ecosystem, whether that's 3D rendering of our design images, transferring those design renders into an assorting tool, whether that is having that assorting tool feed a predictive forecasting tool or leveraging our logistics and transportation platforms to ensure that we are able to make decisions as quickly as possible and as close to market as possible. And it's also worth noting here, in several cases, whether it's digital design or assorting or predictive forecasting, we are building our own tools. And we believe that they have intellectual property that will also protect us and give us a competitive advantage for the future. And although not quite as intuitive, digitization also supports sustainability, whether it's by helping us reduce waste, whether that's with fewer samples because we're designing digitally instead of physically or fewer samples being air freighted all the world or the ability to better match supply and demand to be able to reduce overproduction and reduce waste. It also helps us to improve our transparency. We can leverage traceability platforms that help us understand where our products are being made, how they're being made, by whom they are being made to really have that true, true visibility all the way through our value chain. That's so important. And then lastly, it also allows us to leverage our data and deleverage technologies like blockchain that help us to optimize our social and environmental objectives and help us also truly be able to measure our impact over time. All right. This is a good transition point into sustainability. I just talked about how digitization supports our sustainability strategies. But now I'd like to take a moment to talk you through our overall sustainability. You've heard Chip talk about sustainability today. It is truly woven into everything that we do. You've heard Karyn Hillman talk about how sustainability shows up in our brand commitments. And now let's take a moment to look at our biggest strategies in sustainability and ESG. We break our strategies into 3 groups: climate, consumption and community. And this framework helps us to really focus our energy where we think we can have an impact and how we need to show up today as well as how we need to show up in the future. Now I'm not going to take you through every single 1 of these. They are all big programs in and of themselves. But I will focus on just a few where I think we're -- we have a unique approach at LS & Co. Starting with Climate. Climate really is the crisis of our time. And one of the places where we are trying to set a very high bar is within our emissions target. So we have extremely aggressive science-based targets across our supply chain in an effort to reduce our carbon emissions. We are trying to be a leader in this space. There are challenges in this space, but we feel like we've got the right programs and the right partners to truly make an impact. And in supplier financing, we are actually developing and implementing some truly unique and innovative supplier financing programs in partnership with the IFC and with HSBC that are designed to give our suppliers access to capital that they need in order to invest in improving their sustainability objectives. And then moving over to community, our worker well-being program, which is near and dear to my heart, we have touched more than 200,000 supply chain workers globally so far and hoping to continue to increase that. But even more importantly, we're really focused on impact here. It's not just about how many people do you touched, but it's how much of an impact can you make on their lives? How much can you improve their well-being? And to that end, we've actually been partnering with the Harvard School of Public Health to really help us understand very objectively, how are the programs working? Where are they making a huge impact? Where do we have gaps? Where we need to improve? And how do we ensure that we continue to measure that impact over time so that we can maximize how much we can improve the lives of our supply chain workers worldwide? And of course, it goes without saying that program is completely open sourced because we want everyone to share in our learnings, and we want everyone to share in our program so that they can be utilized outside of the LS & Co. factories but in supply chains worldwide. So thank you, everyone. Thank you so much for joining us this afternoon. I hope that this has given you a little bit more insight into our supply chain, digitization and sustainability strategies. And I would love to leave you with just a few key takeaways. The first is our supply chain is truly a competitive advantage. I feel very confident in this. We have weathered the storm over the last 2 years very well. We have a terrific foundation and we have the right strategies of capacity, resilience and agility for the future that are going to help us to support that $10 billion in revenue aspiration. We are continuing to protect our margin. We are focused not only on cost, but we are also continuing to leverage our scale and productivity to ensure that margin always stays at the forefront. Digitization really is our key, key focus for future-proofing. We know that, that digital ecosystem helps to provide the continuity that will really help us to keep capacity resilience and agility, all linked and optimized. And of course, sustainability, it is core to our values. You've heard about it all day long. It really is woven into everything that we do. And we know that sustainability is not only good for people and planet, it's also good for business. So thank you, everyone.

Please welcome to the stage, CFO, Harmit Singh.

Good afternoon, and thanks for being here with us today. I'm Harmit Singh, the Chief Financial Officer of Levi Strauss & Company. And I've been with the company since 2013 as we transformed Levi's and Dockers, tapped the public markets for the second time in 2019, acquired Beyond Yoga and are emerging stronger since the pre-pandemic days. I'm lucky enough today to be also wearing all our brands. I have Dockers vest, a crook pullover from Beyond Yoga and the wonderful Levi's jeans and the New Balance shoes. Over the next 30 minutes, I'm going to walk you through the details of our new growth algorithm, our capital allocation priorities and our long-term targets and explain why I'm so excited about our future. This one simple thing you need to notice from my presentation, and that is what needs to go up is going up. And what needs to go down is going down. As Chip mentioned, we are well positioned to win. There are 4 messages I would like you to walk away today with. One, we have a history of delivering our financial commitments and are structurally a stronger company today. Two, we have a bold, achievable growth algorithm with clear drivers to accelerate growth against both the top line and the bottom line while delivering shareholder value at a faster rate. Three, over the years, we've also demonstrated that we are disciplined capital and resource allocators. And fourth, with the structural improvements we have made, we have the ability to deliver in both good and tough times. Let's start by looking at the growth model that we shared in 2019. Here, you can see our previous growth algorithm, which we introduced when we went public in early 2019. The growth algorithm committed to mid-single-digit growth, modest growth in EBIT margins, growth in dividends and a share repurchase program to offset dilution. Overall, we aim to deliver 9% to 10% annual shareholder returns. What was not included was an acceleration in share repurchases if the company performed well and acquisitions. Well, we have done both. We've been hard at work through the pandemic and have been purposeful and intentional positioning our brands and business for strong growth as we emerge from it. We have optimized distribution, invested in digital and DTC capabilities, accelerated our product leadership, which has enabled us to drive trends as the market leader. The impact of the work by the executive team and our broader leaders is reflected in the results we're delivering and in our outlook for strong growth and profitability this year. As a result, we returned to our growth trajectory in 2021, surpassing pre-pandemic revenue levels. And in 2022, despite all the headwinds, we are again driving strong double-digit revenue growth, higher profitability while returning substantially more capital. We also surpassed the 12% adjusted EBIT target we shared during the IPO, a few years ahead of our expectations, and we expect to improve upon that. As an organization, we have embraced revenue, profit and cash growth. And I'm really proud of this. We have an ambitious plan to accelerate growth, to expand margins, to generate cash flows and deliver 10% to 12% higher value to our shareholders annually. Importantly, we also have the team and a strategic plan to deliver it. I will discuss this growth algorithm in detail through the rest of my presentation. As we look ahead to the future, we see our competitive strengths and powerful tailwinds propelling our business forward. The trend towards casualization that began well before the pandemic is gaining momentum across the globe, and denim has and is expected to be a key beneficiary which we will continue to capitalize on. And on top of that, we're still in the early innings of a new denim cycle towards looser, baggier fits. Our diversified business model allows us significant flexibility while minimizing our exposure to risk in any one region or channel. We see several significant opportunities to expand and continue diversifying our business, including growing women's, tops and international businesses, all of which are growing quickly. Collectively, these opportunities are gross margin accretive. Our balance sheet is extremely strong. Today, we have ample liquidity of $1.6 billion, and nearly no net debt. Our strong financial position has enabled us to reinvest in our brands and businesses, setting up to deliver strong growth. It will also enable us to return capital to shareholders through dividends and share buybacks. And our core product, which makes up the majority of our inventory is seasonless, carrying minimal markdown risk while positioning us well to meet changing consumer demand despite the external pressures. Like others, we're also navigating headwinds, including supply chain disruptions, inflationary pressures and the ongoing impact of COVID-19. As I mentioned at the outset, we believe the strength of our business will allow us to continue to deliver growth in both good and tough times. Over the last several years, we have rationalized our global distribution, being selective about where our products are sold while at the same time, taking control of how our brands and products are sold by accelerating our direct-to-consumer and wholesale channels. The flexibility of our nimble sourcing model that Liz highlighted a moment ago, has enabled us to effectively navigate supply chain challenges. The strength of our brands and our operational excellence has allowed us to take selective price increases without materially impacting demand. And we see more opportunities to offset the potential impacts of rising inflation on the horizon. Our global diversification has also allowed us to continue to deliver profitable growth with minimal disruption from the ongoing conflict in Ukraine. And with a significant opportunity in large and growing categories such as women's, tops, international as well as our direct-to-consumer channel, we believe we can grow despite the lingering effects of the pandemic. We are off to an excellent start in 2022. Our quarter 2 ended this Sunday, and the ink is not dry on our results as it takes a week or so for us to close our books based on trends that we are seeing and despite the higher foreign exchange headwinds, since when we reported our quarter 1, 2 months ago, we are currently very comfortable with meeting our expectations for the quarter and are also reaffirming our full year guidance range for both the top line and the adjusted EPS as reflected on the slide. As a reminder, this year, our tax rate normalizes from '21's low base. Excluding this impact, the year-to-year growth in adjusted EPS, embedded in our outlook would be higher by approximately 16% to 20%. Now turning to the years ahead. As you heard throughout the day, we have our sites squarely set on the future. Consistent with what I shared a moment ago, we expect growth to accelerate and margins and cash flow to strengthen in the next 5 years. We now see annual revenue growth of 6% to 8% to reach between $9 billion to $10 billion by 2027. We also expect gross margin improvement of 30 to 40 basis points per year to deliver 60% gross margin by 2027 and modest SG&A leverage over the time frame, enabling us to deliver an adjusted EBIT margin of 15%. Combined with below-the-line leverage, we expect to grow adjusted diluted EPS to $2.70 by 2027, representing a 70% to 80% increase over our current year EPS outlook. We will do this while also reinvesting for future growth as we invest in stores, in technology, brand building, marketing and potentially M&A. While delivering 23% in ROIC. We also expect to generate strong returns for our shareholders over the next 5 years, as we aim to return 55% to 65% of our free cash flow to shareholders in the form of dividends and share repurchases. Helping us to achieve a target total shareholder return of 10% to 12% annually. Our path to shareholder value creation is clear. As you can see here and is based on plans shared by my colleagues. Overall, we intend to accelerate growth, accelerate profitability accelerate capital return to shareholders, all contributing to accelerating TSR. Let's start by walking you through our plan to drive growth while -- which we will do by prioritizing 3 key drivers: leading with the brands, putting DTC first and diversifying our portfolio. As I noted a moment ago, we have a strong track record of delivering growth, which you can see here. We outperformed our prior plan for 4% to 6% top line growth as for the 4 years, pre-pandemic that is 2015 to 2019, our sales grew 6.4%. This included a decline in U.S. wholesale and Dockers, both of which will be growing over the next 5 years. We now plan to grow even faster, and this acceleration is achievable. Compared to our plan, this includes acceleration for both the Americas and Asia. The Americas is expected to grow mid-single digit with growth led by the U.S., driven by the acceleration of our direct-to-consumer business as we open new next-gen stores and grow e-commerce, while at the same time growing our strengthened healthier U.S. wholesale business modestly. Asia is now expected up high single digit to low double digit as we have seen recently. This growth will be direct-to-consumer led across key countries in Asia as we open and expand more dose and grow e-commerce. Europe's momentum continues, and we expect to see continued high single-digit growth. Our other brands segment is expected to see growth in the mid- to high teens. This will be led by sustainable growth Dockers is now on and a strong runway for growth at Beyond Yoga. Overall, our brands are expected to deliver 6% to 8% growth over the next 5 years. Let's break this out by channel and category. And as you can see, our direct-to-consumer expansion is the key driver of the acceleration. Direct-to-consumer is expected to grow in the mid-teens above our prior plan, owing to the global brick-and-mortar expansion and accelerated e-commerce growth that Seth spoke about. And our wholesale channel is emerging from the pandemic healthier and strong, and there, we expect growth to continue in the low single-digit range. And as Karyn discussed, we expect both our tops and women's businesses to set the pace for growth with each contributing low double-digit growth over the next 5 years. I will go into greater detail of our total company channel and category expectations momentarily. Levi's is the most iconic American apparel brand in the world with a strong 150-year history and deep consumer connections globally. We are focused on continuing to grow the Levi's brand by focusing on 3 key initiatives. First, amplifying the core; second, diversifying into lifestyle; and the third, driving brand heat. We expect these initiatives to drive annual revenue growth of 6% to 7% through 2027 for the Levi's brands, which include our value brands, Signature and Denizen and contribute an incremental $2 billion to $2.5 billion in revenue over that time frame. And not only will the execution of these initiatives drive growth, we also expect them to contribute positively to our profitability. We expect our premium positioning to support higher AURs in both the wholesale and direct-to-consumer channel, while delivering and providing a lift to gross margins. As you heard from Seth, we will lead with our successful direct-to-consumer business with an objective of our direct-to-consumer business, generating 55% of the total company revenue by 2027, which is up from 40% today and just 22% when we began this journey in 2011. We will do this by delivering strong growth in both our brick-and-mortar and e-commerce businesses. I will walk you through the details of each. We expect our brick-and-mortar business to grow at a 10% plus annual rate over the next 5 years, driven by the opening of new doors and improved productivity from our existing global fleet. We see the potential to reach 1,550 company-operated doors by 2027. As we open about 80 net new doors each year, which now includes new Dockers and Beyond Yoga doors. This is slightly higher than the 70 net units we added annually between 2015 and 2019. Owing to brick-and-mortar strong margin profile, we also expect its impact to be accretive to gross margin. Now turning to company operating e-commerce. We plan to triple our e-commerce business, which is a huge opportunity for us over the next 5 years. This channel should represent 15% of revenue by the end of 2027, up from 8% at the end of 2021. It will also represent approximately 30% of our total direct-to-consumer business. So how do we plan to achieve this? By doing a couple of things. First, improving the functionality of levi.com. Second, enhancing the consumer experience with faster delivery times, free shipping on returns for members and unique products only available on our sites and apps and expanding the rollout of our successful app to more countries from 9 today to over 20 over the next 2 years. We are focused on delivering stronger channel economics, both by scaling volumes and leveraging costs, especially as we take distribution in-house. Overall, we expect our fully allocated EBIT margin for our e-commerce business to expand from mid-single digit today to low double digits by 2027. Even with the faster growth we have delivered over the past decade, we still see tremendous opportunity to expand in several underpenetrated high gross margin areas, particularly women's apparel, tops, international and other brands. This is one of my favorite slides. And as you can see, these growing areas of our business have become large franchisees for the company. And we see significant runway to grow each of them at high single digit to low double digit over the next 5 years. I will talk more in detail about each of these underpenetrated, but high gross margin categories. In 2022, women are expected to represent 1/3 of our global revenue, and it is one of our fastest-growing areas. Over the last several years, women has outgrown men more than 7x, and our goal is for women's to generate more than 40% of Levi's brand revenue by 2027. And we believe we can deliver women's compound annual growth in the 11% to 13% range through 2027. Over the last several years, we have delivered strong growth in tops. Tops have grown from just 11% of total revenue in 2015 to an expected 21% this year. This is a large and growing global market opportunity sized at $460 billion. And with our strong brand equity and vast global distribution network, we are well positioned to capture more of that opportunity. To do so, we are taking a more lifestyle approach as Karyn shared, and we are expanding our offerings to meet the desire of modern consumers. Our goal over the next 5 years is to grow tops from just over 20% of total sales to 1/4 of our total company revenue by 2027. Representing 11% to 13% compound annual growth rate over that time frame. The bottom to top ratio, which was 7:1 in 2012 and is tracking at 3:1 today will be around 2:1 by 2027, well on our path towards a 1:1 ratio. Now let's turn to the diversification of our portfolio. The Levi's brand has always enjoyed a strong international falling. And today, we have a presence in 110 countries around the world. The brand's premium positioning abroad, enables us to be a leader in many categories, including tops and accessories. Levi's is the #1 denim brand in several key markets, and we're driving growth across categories, channels and genders. We believe international has the potential to grow 8% to 10% annually in revenue by 2027, up significantly from the $3.5 billion in sales we will generate this year. Hence, within the next 5 years, we anticipate that nearly 60% of total company revenue will come from outside the U.S. Dockers and Beyond Yoga represents significant opportunities over the next 5 years, with potential to approach $1 billion by 2027 and together represent over 10% of the company revenue. Based on the plan, Santiago shared a moment ago, we expect Dockers to sustainably achieve mid-teens growth annually over the next 5 years. We're also investing to significantly expand the size and distribution of Beyond Yoga, as you heard from Michelle. As a result, we expect Beyond Yoga to grow even faster at more than 20% compound annual growth rate over the next 5 years, and we believe it has the potential to deliver several hundred million dollars in incremental revenue from 2022 to 2027, putting it well on our path to become a $1 billion brand. We plan to deliver significant margin improvement over the next 5 years with 30 to 40 basis points of gross margin expansion per year, driven primarily by the structural benefits of mix shift to our higher gross margin direct-to-consumer and international businesses. We will also maintain our discipline around spending. And as a result, we expect to achieve modest leverage on SG&A, even as we invest in marketing and expand our direct-to-consumer business with investments in e-commerce as well as we opened retail doors. Below the operating line, we expect to continue to generate cash flow, bringing us into a net cash position. This slide highlights the puts and takes on gross margin and EBIT margin. Gross margin drivers are largely driven by mix and are structural, as you can see on this chart as our gross margins get to 60% by 2027. As you can see here, geographic, channel and category mix, which are structural in nature, are the predominant drivers of gross margin increase. All other factors, broadly net to a flat impact. Given our accelerated growth, we plan to modestly leverage SG&A despite higher A&P and direct-to-consumer expenses as we open retail doors and grow e-commerce. Higher gross margin and SG&A leverage drive higher EBIT margins, which we believe will grow to 15%. The third facet of our algorithm is to accelerate cash returns to our shareholders, which we will accomplish through a commitment of a higher dividend payout and a larger share repurchase program. Let's talk about this in greater detail. We believe that the strong cash position we are in today, together with the incremental growth and improving cash earnings, we expect over the next 5 years will enable us to further enhance shareholder returns. Today, we are introducing more clarity on our capital allocation priorities. Our first priority is reinvesting capital to grow the business. We expect to spend between 3.5% to 4% of our revenue on capital expenditure. Second, we will maintain a dividend payout ratio of 25% to 35% with dividends growing in line with net income. Third, we will evaluate high ROI organic and inorganic acquisitions that support our current strategies. Our fourth priority is to repurchase shares with the goal of offsetting dilution and/or opportunistic buybacks while keeping an eye on the public float of our shares. Overall, our aim is to return 55% to 65% of our free cash flow in the form of dividends and share repurchases. Towards this end, our Board, who are very supportive of our strategies and the accelerated growth algorithm, yesterday approved a new $750 million share repurchase program, which we plan to complete and execute over the next several years. Our operations strategy, combined with our financial discipline and a commitment to returning capital to our shareholders is expected to drive strong total shareholder returns over the next 5 years. In addition, we believe strategic M&A will be an important part of our TSR model going forward. Soon after Beyond Yoga begins to accelerate, and we earn the right to buy more. We will explore acquisitions that are complementary to our current strategies and that had the potential to scale and create value. These opportunities will be reviewed in a disciplined way through our 3 key filters: Cultural fit like Beyond Yoga is, strategic fit and financially accretive. The categories that we will explore are tops, women's, outerwear and footwear. We will also evaluate capabilities that advance and scale our digital transformation. We expect ROIC of 23% plus. And in 2023, this will be included as part of the long-term incentive plan for our leaders. Since M&A is difficult to predict, we have not included acquisitions in our base growth algorithm. But when executed and scaled like the most recent Beyond Yoga acquisition, we believe this can accelerate our TSR even further. So in conclusion, we have a tremendous opportunity ahead of us. Our strategies are clear and we have the right team to deliver. We have a diverse portfolio of brands and have the potential to add others over time. Our bold, achievable and accelerated growth algorithm balances revenue, profit and cash while creating value for all our stakeholders. We are a cash generating machine, disciplined capital allocators and generate high ROIC. Our team has never been more excited about the longer-term outlook for this company. We are glad to have you along for this journey. Thanks for joining today. And with that, I will now open the session for Q&A, which will be moderated by Aida Orphan, our Head of IR. Aida, come on.

On the website, but we can go ahead and start with people in the room. If you have a question, please raise your hand and we'll have someone come over. If you could please introduce yourself and your company.

It's Bob Drbul from Guggenheim. Do we get 5 questions, Aida?

One question.

I understand, sorry. I guess, Chip, on the Levi's brand, can you talk a little bit on pricing opportunities that you see in men's and women's, tops, anywhere that where you are today and what you think you can achieve over the next few years, I guess, 5 years if you have?

Yes. I mean we're -- it's a good question, Bob. I think everybody knows, and we've talked about it over the last couple of earnings calls that we got going on pricing as we saw costs starting to go up. So we started taking pricing over a year ago now, and that's reflected in our AURs right now. We're up 10% calendar year-to-date. We're watching the consumer really closely. I think whereas in our early stages of pricing, we took kind of broad sweeping price increases. As we go forward from here, we're going to have to be much more surgical about it. Inflation, you guys are reading the same news as I am, seems to be impacting, especially the lower end consumer. And we're watching it very, very carefully, but we still have pricing opportunities. And this is where data and data science is really helping us. We can be much more surgical about pricing. We're also pricing behind innovation. A good example is the Circular 501 that we launched and talked about on the last earnings call. It's a completely recyclable 501 and 50% of its content is made from recycled denim fibers, and we are pricing it at a premium. So as we introduce newness, that's a great opportunity to leverage pricing. I guess the other part of our business, where I think we still have quite a bit of opportunity, and we know this from our own brand equity studies is on our women's business. We've got, I think, by far, the best women's brand out there, and we're still much less expensive than many of the premium brands that we compete against. So we've got opportunities there as well. So we're watching it closely. We're likely going to have to take more pricing unless inflation really comes down very, very quickly as we go forward. But we know we've got opportunities, but we're going to have to be a little bit more strategic about how we do it. .

Chip, can I just -- as you build a growth algorithm because as you guys go back and think about how we're going to get the growth. The way we think about it, I mean, you saw my gross margin chart, pricing and AUR increases offset inflation, and that doesn't necessarily driving increase in gross margin. If you think about the growth the 6% to 8% and you can figure out where you model our growth going forward. But we think about 1/3 of that growth comes from expansion of doors and 2/3 of that is split equally between AUR increase and unit volume. And of the AUR increase, Chip talked about pricing driving most of the AUR increase. As we think about it going forward, is the AUR increase is largely driven by mix, by geographic growth and less pricing. And if there's an opportunity to price further, as Chip mentioned, surgically, we will do that.

Matt Boss, JPMorgan. So Chip, you cited the Levi's brand as stronger today than any time in your tenure. I guess maybe high level, what's the global state of the union today for the consumer if we think about your brand and your category, maybe thinking about the U.S., Europe and Asia? And just what's your confidence laying out today's top line outlook? Just given the dynamic and changing backdrop?

So it's a great question, Matt. I guess in a very oversimplified kind of way, here's how I think about the growth algorithm. Prior to the pandemic from 2015 right up until the pandemic, we were growing at the high end of that 4% to 6%. And that was with a denim category that wasn't growing as fast as it's growing today without the benefit of the new denim cycle. That was with Dockers still being a drag, and that was without Beyond Yoga in the portfolio. The Levi's brand is stronger than it's ever been. We're gaining share on women's. It's strong globally around the world as we measure our brand equity. Despite taking price increases, we're still seeing as a very good value. And so I kind of take a look at it with now we've got the tailwind of casualization. We've got the tailwind of the new denim cycle. We've got the Levi's brand really clicking on all cylinders. You heard Karyn talk about how we're just resonating with consumers today, the brand heat that we're bringing. You put all that together and you throw in a growing Dockers business, you throw in the opportunity that we have with Beyond Yoga, I take a look at that and go 6% to 8% should be very reasonable. We are watching the consumer really closely. But today, every signal we are seeing is still very robust. That's what gave us confidence in being able to reaffirm our guidance for this year. The demand signals that we're seeing from around the world are very robust right now in the levi's brand. So we're very confident about it. And hopefully, that's showed through the entire team today.

Paul Lejuez, Citi. You guys mentioned that you bought back some businesses. I think Romania, Thailand, and you have a lot of doors that you don't operate currently. So I'm just curious how much is that going to be part of the go-forward plan. What do the economics look like when you take in one of those businesses, and is that built into your long-term algo? Or would that be some upside on top of that?

I'll answer what's built into the algo, and then Seth can talk about what really happens when we -- when his team takes back the business, which is outstanding what they do. But in terms of the algo, we haven't built in a lot of organic acquisitions. As you think about the growth algo in 2019. At that point, we were looking at buying back and these large market, 80 stores. Thailand was still out there. We knew that the license was expiring. Romania was out there. So we thought strategically, those are the ones that we can actually count on. Thinking forward any buyback, whether it's franchisee buyback, if they're not doing a great job, they do a great job, but if not, we think we can -- we'll take a look at it. We have the capital and we have the execution capability. So that will be an addition.

Yes. I think we look at each one to -- in each case as agreements come up for their end dates, and we look at them and decide what's our ability to leverage our own DTC expertise and accelerate the growth looking at the profitability, looking at the risk of the marketplace and deciding. But like I said in the presentation, I mean, we've been pretty good when we go after it and decide that we've got the opportunity. And then our teams in each of the regions are really good about -- again, going back to the team comment, we're pretty good about being able to leverage our existing team and our bench to be able to put some key leaders in these areas so that it's not just about making the decision, it's being able to ramp the market up relatively fast. So on those fronts, and we'll continue to look at it. I mean it's hard to say right now where those opportunities will come up, but I'm sure there'll be more of them.

I mean I guess the last thing I would add is nobody should be able to run Levi's better than we can. So where we've got opportunities to take the business to the next level.and we have an opportunity to take that business back, we will. We do have some amazing franchise partners in some parts of the world that do really a great job. In fact, we learn from them sometimes. They're great retail operators. But in the case of Thailand, that was a long-term license agreement that wasn't really going well. We thought we could do much better in the market than what they were doing. And when the license agreement expired, it was on a rolling 5-year basis, we decided we're pulling the plug and we're going to bring it in-house and do it ourselves, and that will represent real revenue upside for us. In fact, Nuholt is in the room. He's the Managing Director for Southeast Asia, and he was the guy behind pushing for taking that business back, and we're very optimistic about it. But when you look at the Andy's and some of the other businesses that we've taken back, they've been great deals for us, really delivering a real solid return.

Are there any big ones that aspires it?

Not really.

No, nothing on the horizon in the next 5 years.

Nothing big. It might be a franchisee here or there, but nothing of the scale of like a Thailand. But Thailand, we just took over. I mean, literally, I think, it was March 1, May 1?

April 1.

April 1. I was right, somewhere in between March 1 and May 1. April 1, we took that business back. And we'll probably have 50 to 100 doors in Thailand over time, and we'll be taking all the revenue instead of licensing fee on it.

Laurent Vasilescu from BNP Paribas. Chip, Harmit, I want to follow up on the DTC strategy. I think you called out that you want to add 400 doors over the next 5 years. If you can give a little bit of color across the portfolio of brands, how much Beyond Yoga will add mainline stores versus outlets and maybe a little bit of color on the geography composition of that addition. And then, Harmit, a question on EBIT margins, how should the EBIT margin profile evolve for the overall DTC strategy?

Sure. So in terms of doors, we are saying 400 doors.over the next 5 years. So you do the math about 80 doors a year. We've been on a net basis because we do close doors, on a gross basis, we're opening over 100 doors. In the past 5 years, we didn't open very many Docker doors and there was 0 Beyond Yoga doors. So the acceleration is really driven by Dockers and Beyond Yoga. In terms of the mix in the past and going forward, the mix has largely been mainline versus outlet. So that doesn't change. But international in the U.S., it will change. And as you know, I think, Chip talked about it and Seth talked about it. In the U.S., we have 51 mainline doors, right? There are cities and trade zones that don't have doors. So we're going to add about 100 doors. We are right now -- by the end of this year, we should have about 70. Of that 70, about 45 other new next-gen 2,500 to 4,500 doors that allow us to 4,000 square foot door. That allow us to assort the product the way we like it. And what we are seeing is the consumer is reacting to the way we assort the product. So if we -- these doors, it's -- the product has sorted 50% women, 50% men, and our volumes are 50% women, 50% men as we accelerate our tops focus, I think that you will see it. So as you think about this going forward, a higher percentage in the U.S. and international. And where is it opening internationally, largely Europe and parts of Asia. And so that's how we're thinking about doors. On your second question about EBIT margins, our growth algorithm, the 6% to 8%. What we have -- what we like to do is grow this business steadily but consistently and sustainably. So as you think about EBIT margins, our thought is that you can expect a reasonable growth, okay, on EBIT margins every year. There may be higher inflation in the short term, and that may be a little lower. But at some stage, inflation does come down. Cotton, for example, is on an all-time high, right, today. But it's not going to be like this for the next 5 years. So at some stage, the pricing that we've taken, the productivity and efficiency that we have built in will start translating more to the bottom line than maybe in the short term. So that's how we're thinking about it. But the focus is very simple. I think during the IPO, we were asked, you're saying you're going to get to 12% plus, when, right? All of you said when. And we said, just believe us we'll get there. Well, we got there faster than we thought. And now we are confident that we can get to 15% over the next 5 years. And so that we're laying that out.

The only other thing I would add, Laurent, is Beyond Yoga, the big opportunity, the big unknown though. We have exactly 0 stores today and with plans to get a couple open here, hopefully, over the next half year, several months. And as we learn about Beyond Yoga, structurally, it's a really strong business from a financial standpoint. If you haven't already wondered over there and felt the product and really experienced it in the color pop and everything else, it's a distinctive brand, and we're going to have to see how that goes. I mean if it takes off maybe we do more stores. We'll see. But that's the big unknown. And I'm really personally very excited about the opportunity there. On Levi's, we've got a model now that works, and we're delivering a really strong return on invested capital on those stores, and we're cranking them out. So we think the profile right now is the right profile and we'll know a lot more after a year, 1.5 years with more Beyond Yoga stores.

Let's do Brooke and Dana, and then we'll take one from the webcast.

Brooke, Dana, somewhere -- there we go.

Brooke Roach from Goldman Sachs. I would love to hear how you're dimensioning -- dimensionalizing the plan for your marketing spend over the course of the next few years as you look to improve the brand. And I think, Harmit, you mentioned higher A&P spend in your SG&A plan. So I'd love to hear how you're thinking about that and maybe the sequencing of that over time.

Sure. In terms of -- I'll do the percentage. So this year, we think we'll spend a little over 7.5% in advertising. I think in 2014 and '15, it was in the high 5s, okay, 5.8%, 5.9%. So it has steadily grown and show as the top line. Most of our spending is towards digital marketing. As we think the next 5 years, we're thinking the 7.5% scales to about -- a little 8.5% or so. That's the thought. Where is that going to go? It's going to go towards building the wonderful brands we have increasing brand awareness as Beyond Yoga starts scaling. So that's the thinking. The other thing that we don't spend a lot of time, but it's a great brand builder. If we have 400 more doors or as Seth said a lot more doors than a remodel, that's great for the brands. And so I think as you think about spending on the brands as -- as well as advertising. In terms of how we spend, Chip?

Yes. I'm the brand guy, so I'll talk to how we'll spend it. But I guess the thing I would say is we're incredibly disciplined when it comes to our marketing spending. We actually -- I took a page out of the P&G playbook. We measure our marketing return on investment. I can tell you what our top investment is in marketing, what our #2 investment is on marketing, and we're very disciplined about it. And I can say unequivocally that on Levi's, we still have an opportunity, we have the curve on return on investment on our marketing dollars has not even started to flatten. So we know that there's upside opportunity there that will deliver a return. And so we've got opportunities on Levi's, clearly, opportunities on Beyond Yoga as we really define what the brand stands for, which is the work that we're doing right now. And we will make investments on building the brand there because driving awareness and getting people to experience the product is going to be key, driving trial. So -- but we will always be disciplined in this. And if it goes beyond 8.5% and we go to 9% or 9.5%, we'll probably be promising more volume and more revenue to go with it, because it has to deliver a return. And so what's in the algorithm right now is 8.5%. We're going from 7.5% to 8.5%, and we will get there methodically and in a very disciplined way.

Dana?

Dana Telsey from Telsey. So I think the words of the meeting are fast and acceleration we've heard throughout in all the presentations. As you think about AI and technology that you've incorporated to drive this fast and acceleration, where the biggest buckets come from on the gross margin and on the SG&A side leading to the operating margin improvement?

So in terms of as you think about gross margin, you think about SG&A, gross margin, I think, Seth talked about how his team is actually using the algorithms and machine learning to determine the productivity and assortments, productivity on when to mark down when not to and importantly, where to price and where not to. So it's clearly going to be helping gross margins from that perspective. It also drives more productivity, so it reduces waste. On the SG&A side, digitization or automation the way we are looking at it is driving productivity. Today, there's a war for talent and talent is winning, right? And so as we upskill people, we're upscaling about 100 folks or more every year through upskilling programs, Katia is here and she can share more during the cocktail hour. But what that is leading to is people are moving away or spending less time on work that's really manual-intensive and doing stuff that's really analytical, and I have a couple of examples in my team who are actually building AI and algorithms helping in financial forecasting, predicting prices of commodities, et cetera, which is unbelievable. So I think that's where the SG&A productivity actually comes in. And Liz talked about productivity, driving AI and digitization, driving productivity in supply chain, weeks -- I think, Melissa is here, and she runs our Signature and Denizen brand, and value brands, you couldn't price even though commodity was high. So what they did is they drove productivity. For example, they were using 83 different fabrics, they took it down to 40-plus fabrics. And that drove productivity and they didn't have to take price, we're able to offset some of the cost increases. So I think that's going to be a big play. But Seth, would you like to add something since you see this live?

It's really sort of permeated each part of the commercial process all the way along from site selection to our stores. I mean there's a lot less guesswork now we actually have hard data. And culturally, we sort of made the shift where we're beginning to get to the point we trust what the models are telling us and it's making decisions a lot faster. But I just sort of gave you a small portion of the quiver of everywhere we're trying to use AI now or just better data decision-making, but even the example I gave were just a temperature shift. If we're quickly able to redirect assortments and see a single-digit revenue increase like immediately, just because of a temperature shift with stores, that's just sort of the next frontier of this in all the decisions we make. And we have a lot of denim in our stores right now, obviously. But as we look at the productivity of our stores, if we're able to take some of that stock away and move in all the new categories, I mean, again, the productivity of each of the existing stores goes up. But it's sort of fun not only watching as Harmit said, Katia and her team are providing us with a lot of different areas to test, but watching our teams embrace it and start to use it, it's pretty exciting stuff.

I don't want to belabor this, but the other thing I would say, we're still taking baby steps when it comes to the full potential of data and data science. We are still in the very, very early stages of this, but what we're seeing is really powerful. And the truth is everything can be turned into data. When we get designers designing electric -- digital files, if they're putting destruction in a knee that becomes part of the digital file. And as you do this repetitively over and over and over again, you create more data. And then you can link that to sales and you can begin getting predictive analytics and predict where the trends are heading, analytically. I think the best example right now that we've got is how we're matching supply and demand, which Liz talked about. Think about the complexity in this business, right? Waste times length, the number of SKUs, and it's basically like we're selling fruit. Every 6 months, half of the line goes away, we're fortunate because half of our line carries over every season, 501 stone wash doesn't go out of style from season to season. But seasonal products and fashion products come and go, and our ability to better predict demand and predict what we need to produce reduces markdowns. And so that is huge for us. And we're getting pretty good at it with data science. And again, we're still in the early innings of this. So I think the potential is enormous here. And I think we're pretty far along. We're further ahead than I think most in this industry. This industry has always been kind of -- they talk about art and science, but it was mostly art. It was mostly a lot of best guesses going into things. And now we're really leveraging data and making the most of it.

And full disclosure. So that's all the upside but there's investment. So if you think of capital, our ERP program is going to cost. We've already -- and I'm the executive sponsor of the ERP program. We already now implemented in Mexico and Canada, but it does cost an arm and a leg. It's over 5 years. Digitizing and scaling also, we are hiring talent and hiring talent on a very fast pace, that also costs money. Having said all that, the outcome, we believe, will make a huge difference to us as retailers. And we're planning the effort in a lot of areas. So I think that's the offset.

All right. We have about 10 minutes left. So I'm going to move to a question from the webcast from Jim Duffy with Stifel for you, Harmit. What are the challenges to closing the margin gap with the digital business, which just disappeared, the question just disappeared.

The e-commerce business.

Is it the e-commerce?

Yes, regarding.

So I think we started scaling up e-commerce, I'd say, in 2000 -- late 2013, early 2014. It required a tremendous amount of investment. We had outsourced the front of the house. We had outsourced fulfillment. Basically, we had 3 people in-house. So we had to build a team, we had to take the technology in-house. And now we are taking fulfillment in-house because we think the major inventory efficiencies, if we are able to see across channels. So most of the heavy lifting on the e-commerce in terms of investments has been done. What has happened over the last couple of years is, we've been able to scale volume. So the e-commerce business has grown 50% since the pre-pandemic days. It used to be 2% of our total revenues 8%. So I think as you think about this longer term, it's -- the reason we feel comfortable that the low or mid-single-digit EBIT margins, which are fully allocated. Okay. We look at it fully allocate all technology costs, all advertising costs, it's not at a regional level. So at Seth's level, the numbers are in the high -- in the mid-double digits, at our level because we allocate all costs, it's in the mid-single digit. We think the 2 ways we drive leverage. One is volume, and we feel good about where we think we can take this. And the second is, as we bring things in-house like distribution, we're building a digital distribution center in the East Coast. We've already taken the West Coast and the U.S. back in-house. And in Europe, we're building an omnichannel digital distribution center. So I think those things will drive the efficiencies over time.

And we've said before, I think, we said in our earnings call, maybe 2 or 3 quarters ago, that as we double the e-commerce business, it gets to parity EBIT margin with the rest of the company. You saw the plan, we're going to triple it. And as it scales, it's basically just the variable cost. So it becomes even more profitable over time.

All right. Let's take a couple more questions in the room right here on the right.

Jay Sole, UBS. Harmit, you made a comment that I don't want to overlook, which is you feel really comfortable with the second quarter, the outlook that you provided, which is interesting given some other denim companies have not had a strong second quarter. So it's an impressive data point that you gave. I think everybody's heard Walmart and Target talk about a lot of excess inventory they've built up. How do you feel about the inventory situation, not just within those channels, but in general, given everything that's going on in retail right now?

Yes, Jay, we report earnings in a month, and we'll give you a lot more clarity on the puts and takes. But in the U.S., even today, we are chasing into inventory, okay? If we had inventory ready to fulfill, we could sell more. And that's across all our brands. So I think that gives us confidence that there's still demand for brands like ours. I think as we think long term, will we be living with the supply chain interruptions. Our view is definitely through this year. Things start getting better probably in 2023. We still -- if you look at cost, we have locked in cotton for this year. We're in the process of locking cotton in for the first half of 2023. So we'll give you more details, but we feel really confident about the year and that's where we reaffirmed our full year guidance. The reason we didn't talk about the quarter is we don't give quarterly guidance. And that -- so it was our expectation that referred to as against quarterly guidance. And so -- and we think longer term, that's where we're laying our longer-term targets.

All right. Omar, back, left.

Omar Saad from Evercore Partners. Quick question, Harmit, could you -- a quick follow-up on the DTC growth algorithm, which accelerates from the last stretch. What are your underlying same-store sales assumptions for that? And then also, Chip, can you dive in deeper on China, where is the brand in China? It's obviously a huge opportunity on paper, billions of tops and bottoms being worn there every day. What's the hurdle from Levi's being a big brand there?

I was wondering who would ask the question on same-store sales. We don't report same-store sales, but as you saw from Seth's chart, it's going to grow, and it's going to be positive. The 2, 3 things that really make us confident that it will happen. One is expansion of existing stores. We have had a lot of success as we remodel, but expand and get more floor space because we have the products, and we're trying to build more of a lifestyle brand. And the second is all the productivity initiatives that Seth talked about. That has to lead to the right outcome. And so that's how we're thinking traffic today is still down relative to pre-pandemic levels, but we're making -- we're offsetting that through higher conversion and higher UPT. And the plans we have will probably drive same-store sales. Seth, would you like to add anything on it?

No. Just I guess one point of color on productivity is a few years ago, we were begging landlords for good floor space. But I think now based on the strength of the brand, and our financial position, landlords are coming to us first for the best space. And so that helps productivity right there in addition to everything Harmit mentioned.

And the one thing I'd say, and I'm sure other brands have done this, but because we were opening stores, even during the pandemic, we were fairly successful in negotiating lower rents. And especially as renewals happen and we open new stores. So structurally, I think, rents are down 10% to 15%, depending on the area relative to pre-pandemic. And that helps us offset, let's say, traffic doesn't come back at the same rate. That will help offset some of the structural economics.

So real quickly on China. China, as I think everybody knows, is a little bit less than 3% of total company revenues. Still a huge opportunity, but traffic in China is still down 40%, 50%. The lockdowns and the 0 COVID policy for -- continued disruption and call it, lack of confidence in making significant investments in retail. The leases in China are 3-year leases. And I don't want to enter into a lot of leases if cities might be shut down often on for the next 2 years as this pandemic lingers on. And so we've moderated our expectations as Seth appropriately said in the near term. And we're managing our investments in the near term because of lower traffic and because of the risk of their 0 COVID policy impacting retail revenues. Having said that, it's still a long-term opportunity for us. We don't have a lot of that built into the growth algorithm. We've got...

Less than 5%.

Less than 5% of our business in 2027 is going to be China. To be clear, I think, China still represents, as you said, there are a lot of t-shirts and a lot of jeans being worn in China. It's still a huge opportunity for us. But again, back to being financially disciplined, being buttoned up to make a big, huge investment and bet big on China with the zero COVID policy with traffic still being down with 3-year leases, we've just kind of -- we're keeping our cards close to our vest until it's time to invest again there. Having said that, the brand is really strong there right now. And we still have a business, and it's doing okay, and the brand is really, really strong. We're connecting with younger consumers in China and we're seeing that in our brand equity measures for China.

All right. Why don't we do 5 more minutes? There's questions. Kenny, the one in the middle?

Michelle, please don't ever put your fashion brilliance and question by letting Harmit wrap the cloths. So...

I thought you wanted to buy this one.

Yes. No, I do, actually. And so that's -- the question is, if you're trying to jam Beyond Yoga and really get the awareness of, Chip, have you thought about in the Levi's stores or on the website, I mean, I do have to say, Harmit, the top with the Levi's doesn't look bad. So as you're going for splash and impact early, have you thought about combo?

We've talked about it. We are trying to leverage Levi's as much as possible. In fact, if you've ordered from levi.com here lately, you've probably gotten an insert with a 20% offer to try Beyond Yoga. So we are trying to leverage the big mothership brand with the Little Baby Beyond Yoga brand that has so much potential. But as far as putting Beyond Yoga into our stores, we haven't gone there yet. And it's -- the great thing about owning your own retail stores is everything can be an experiment. And it's something that maybe we'll consider giving it a shot and seeing how it does. We've tried it before on Dockers, didn't work so well, but Beyond Yoga could be a different case. And so maybe it's something to try. Having said that, the first priority is getting a Beyond Yoga store and a couple of Beyond Yoga stores up and going, and then figuring out how else can we leverage the big mothership of Levi's to drive awareness and trial on Beyond Yoga.

What do you think of stores, Michelle, Beyond Yoga stores?

Very excited for us to open retail stores. It's been something that we've wanted to do to help people understand our brand more. I think that I'm excited for you all to come and touch and feel some of our products because feeling of the fabric is really -- it's very important to understanding the brand, and I'm excited to have an opportunity to really showcase all that we have to offer from our mainline to our plus assortment to our men's and our maternity and our sleepwear. So we have a lot of categories that it will be nice to showcase, and I think people will get a better sense of it in person than they do online.

All right. Let's take one last question.

Chris Nardone from Bank of America. I was actually going to ask a couple more Beyond Yoga questions. Shorter term, I guess, year-to-date, how has demand trended in that performance athletic category relative to your expectations? And then longer term, do you think you have a ton of more opportunity in the U.S. with various wholesale partners? And then internationally, what are your plans to kind of scale the business and brand awareness, which I'm sure is quite low today?

All right. well, yes, I think, we have a ton of opportunity left in the U.S. So I don't remember what the first part of the question was. But we...

Yes. I guess the first part was just how is demand in the athletic performance category trended year-to-date?

Perfect. It's trending up, and we're seeing -- I'm really excited to see the performance specifically online. We have double-digit growth. We're coming off of our best months. And we are very strategic not to be discounted except for the promotion with Levi's. So it's exciting to see that we're continuing to see a lot of demand, and we have a ton of opportunity in the U.S. We have a bunch of partners that we are just starting up with, but we've been very strategic to make sure that we are only going into places that are going to have premium placement where we're not going to be discounted and that are going to help tell our brand story in a better way. But like I said in my presentation, there's so much opportunity in terms of expanding within the doors we're already in. For example, we're -- in REI, we're in all doors, but not with our men's category. We're only in, I think, it's going to be 9 stores to start, but the opportunity there is tremendous. And I gave the reference of Nordstrom where we're in less than 50%. So you just switch that lever real quickly, and we're off to the races. And internationally, we have a ton of opportunity only 5% at the moment. And we haven't done any external marketing. We haven't done anything from PR or partnerships -- or really it's all been organic. So there's a tremendous amount of opportunity, and we're in really great accounts and the ones we're in have been very successful. So we're just going to continue to build that brand awareness. And the sky is the limit.

Yes. I would add just a couple of things here. First of all, this category in the U.S. is bigger than denim globally or about the same size as denim globally. So it's a huge category just in the U.S., and we haven't even opened our first store. We haven't even turned on advertising. So we need to be patient a little bit to build a model that is very scalable, okay? And you guys can go back and study the other guys in this category, the other big ones that can remain nameless here. But they took their time to build it in a disciplined way, build the brand and then began to scale it globally. So the international business, we're going to drop seedlings with great wholesale customers in key markets to begin building -- putting the seed in the ground to begin building the brand. But near term, the biggest opportunity is really building a model for this brand that can scale based on the biggest market for this category, which is still the U.S. by a long shot. And that's where the bulk of our focus is going to be over the next couple of years. And there's huge opportunity here in the U.S. So that's how I would think about it. The international thing, dropping seedlings, but don't expect us to show up with 25 stores in the U.K. next year, not going to happen. So we're going to do it again in a very financially disciplined, buttoned-up kind of way because that's how we roll. Okay. Should we wrap here? I look at my watch, you guys stayed actually an extra 10 minutes. Thanks a lot. It's great to be able to do this and to see so many of you in person. We have a bunch of folks here that go beyond my executive team. So kind of experts in different parts of their business. There are their pictures and their names. And they're going to be floating around. We're all going to be floating around. We've got drinks and some snacks and stuff. You can catch us informally spend more time with the product. If you haven't had a chance to go walk the floor and see the product, now is a great time to do it. And thank you again for being here. Thank you for being here on the webcast. Thanks for all the great questions, and thank you very much.