Corporate Presentation 2019

Sep 4, 2019

Slides

Thank you everyone for joining us. It is my pleasure to announce the final presentation of today from Levi Strauss. Joining me today are Chip Berg, President and CEO and Harmit Singh, CFO. We're going to start with a short video with some highlights from the brand and then the team are going to launch into the presentation to tell you a bit more about the company. Good afternoon, everyone. I'm Chip Berg. I'm the President and CEO of Levi Strauss, and Harmita is here with me. I want to open by, 1st of all, welcoming you all. You may think you know this company. The company has transformed though over the last 5 years. This slide is just a snapshot of where we are as of the end of last fiscal year, a little bit more than $5,500,000,000 in sales. We truly are a global company. We have operations in 110 countries around the world, global supply chain. Our big brand is Levi's. It's, as you can see on the slide, about 86% of our total business. We skew towards men's. But our strategies have been to really diversify this business and we'll talk about the transformation that's happened over the last couple of years. Our strategies really are working. Across the top of this page, I'm not going to read everything on the slide here, but when I joined the company 8 years ago, almost 60% of the company's business was in the U. S, 58% was U. S, 48% of our business was U. S. Wholesale. And the strategies that we put in place were to diversify our our business into faster growing parts of the business and higher gross margin parts of the business. So, our first strategic choice has been to drive that profitable core. It generates most of our earnings and most of our cash that is our men's bottoms business, our top 10 wholesale customers and our top 5 most mature markets. Those are big, well established, high market share businesses that generate a lot of earnings and a lot of cash. It's necessary but not sufficient because it's going to grow at low single digits. So the idea is keep that business healthy, take the cash that's generated from that business and pour it into the other parts of the business where we have much higher opportunities to grow. So drive the profitable core, the second big choice is expand for more. Those are businesses where we were underdeveloped. Our women's business is the first big choice there. And you can see on the slide, we've been growing our women's business. In fact, we've relaunched it back in the middle of 2016 and it has grown 16 quarters in a row, double digit growth for the last 10 quarters. We're expanding for more in tops where we were also way underdeveloped and expanding geographically into the international markets. And you can see on the slide that those businesses have been generating double digit growth for the company. The 3rd big where to play choice is to become a leading world class omnichannel retailer. We have about 3,000 doors globally. We've been investing in retail. We've been investing in e commerce and we've been investing in creating that seamless consumer experience. And you can see the results there. Our DTC business has grown 12 quarters in a row double digit growth. And we're in control of the brand in that environment. We're creating direct consumer connections both online and in our stores and it is still a significant opportunity for us. And then the last big choice is drive operational excellence, code language for takeout costs so that we can invest it back into growing the business. These strategies are working as I said. Direct to consumer is a really important part of our strategy. We do have as I said about 3,000 doors globally of which we own about 825. The rest are done mostly through franchise partners. We have some markets that are completely owned and operated like the U. S. And the U. K. We have other markets that are entirely franchised like Portugal. And then most of our markets are a combination of owned and operated and franchise partners. We're seeing really strong growth there. Our direct to consumer business delivers a really good return on invested capital. Our ROIC as a company is kind of in the mid to high teens and our DTC business delivers that same kind of return. We're driving innovation in retail and I really do believe that there is still a place for brick and mortar stores. Our brick and mortar stores are working. Our mainline stores, we've got our new flagship right down the street at Times Square. It's a 17,000 square foot store. We've got a tailor shop there. And that's all about giving the consumer a great experience. Personalization and customization is a really important thing and we're driving that in our retail business. In the expand for more area, I talked about how important that is to drive outsized growth. Our tops business is feeling strong momentum. When I joined the company 8 years ago, our total tops business was about $250,000,000 in sales. We just crossed $1,000,000,000 this last fiscal year. Traditional apparel industry norms are 4 tops for every bottom. Today, we sell 4 bottoms for every top. We have a huge opportunity to continue to grow this business. We started driving the growth with the logo tee. If you haven't noticed it in New York City, you've had your eyes closed as you've been walking up and down the streets. You see it everywhere. That batwing logo tee and graphic tees is about a third of our total tops business. The next third is sweatshirts including graphic sweatshirts now and trucker jackets like the ones we're all wearing up here. And then the final third is wovens and knit product. International is also an important focal area for us. We're really doubling down in China. Right now, China is probably the biggest white space opportunity market that we have. It's only about 3% of our total business. Many of our peers are doing high teens or 2020s kind of numbers as a percentage of their total business. It represents a big opportunity for us and we've got a strategy in place to get that business growing double digit. Our business in Europe is defying gravity. We grew the last two fiscal years. We were growing we grew 20% in each of the last two fiscal years. We're in the teens this year in 0 or negative growth markets and we're really winning in Europe. I talked a little bit about the importance of women's, but we relaunched our women's business. If you remember the headlines from 2013, 2014, you sit on an airplane and watch people boarding as they pass you, saw a lot of athleisure tights, yoga tights, the headlines in the press was the death of denim. Our women's business was in decline. We used it as a moment to kind of define what do we want our women's business to be and once we got under the covers to understand what the consumer need was, what was driving women to wear yoga tights to a fancy restaurant for dinner, it was they like that soft, stretchy, comfortable material that made them look great and we were able to replicate that with denim. We worked with our mills, We came up with super soft, super stretchy, super comfortable denim and then relaunched our business behind that in the middle of 2016. The business has grown 16 quarters in a row as I said. We're also now leading the trend in women's. So one of the things that we've led is rises have been going higher on women's jeans. We've been leading that. So our latest hit item is what we call the ribcage gene. It is the highest rise we've ever had. It's a 12.5 inches rise, but that is really hot right now with women. The other thing that we're doing is we're really focused on innovation. We're the category leader and I believe it's the responsibility of category leader to drive category growth and we've been doing it through product innovation and through marketing. We announced this project FLX where we're using lasers to finish our jeans. Jeans finishing has historically been done way upstream. It's done by hand. It's manual labor. It's a long intensive process, particularly for highly finished jeans. We can now finish a jean in 90 seconds on a laser. Laser has been used for a long time in this industry, but we've developed proprietary technology to allow us to turn what was a blunt instrument into a surgical scalpel. What this does or what it allows us to do is flip the business model. It basically turns the denim business into a T shirt model where we can bring in blanks, postpone the finishing till the very last stage until last minute and then finish closer to market. It allows us to be closer to the trends, so we can be on trend. We're not producing products 6 months before it has to hit the floor. And it allows us to chase into things that are working very, very quickly. So we have lasers, for example, in the U. S, we have lasers sitting in our distribution center outside of Las Vegas and that has allowed us to chase into special collaborations and special projects that have worked with some of our bigger customers. It also delivers a COGS savings and it delivers great sustainability results. The project actually started as a sustainability project. I think we did 8 or 9 one on one meetings today. Every single meeting started with a question around U. S. Wholesale. So I will address it here. U. S. Wholesale, as I said, it was almost half of the company's business when I joined the company 8 years ago. Today, it's 30% of the company's business. Over the last 3 years, despite all the headwinds in U. S. Wholesale, our U. S. Wholesale business has been flat. It's a big profitable part of our business. We've managed through bankruptcies, door closures by leveraging segmentation, by working with our key customers, given the strength of the brand to get more floor space. We've sold incremental distribution, especially incremental premium distribution to customers like Bloomingdale's and Nordstrom, which is helping to premiumize this marketplace and diversifying the categories where we exist. This we used to be more or less a classification business. You'd walk into Macy's and you would just see BlueJean bottoms. Now more and more of the pads that you'll see at our top customers were showing up much more as a lifestyle brand with tops and trucker jackets on the pad as well. So we've managed to offset a lot of these headwinds. U. S. Wholesale, having said that, it's going to be bumpy or lumpy over the next several quarters. But our strategies are working. And built into our growth algorithm, we assume that U. S. Wholesale is going to be flattish, but that the U. S. As a marketplace will grow kind of in the 2% range, driven by the strength of our direct to consumer business here in the U. S. That's all baked into our growth algorithm. So the Americas, which includes the U. S, grows 2% to 4% and our international business grows in the high single digits or low double digits. And that's how you get to that mid single digit growth algorithm. I'll wrap up here just by saying that we are very confident that we're well positioned for continued sustainable profitable growth. We've now grown the business on a constant currency basis. We've grown top and bottom line. This year will be our 7th year in a row of top and bottom line growth. We've created substantial shareholder value in doing that and we're confident given where we are on the growth curves on women's and tops and some of the other categories where we're still scratching the surface, we're confident that we have a number of organic opportunities to continue to sustain this mid single digit top line growth with profitable bottom line growth to go with it. With that, I will turn it over to Harmit. Thank you, Chip. I'm Harmit Singh. I'm the CFO. I've been around with the company for a little over 6 years. Our track record of delivering superior financial performance on the back of the strategies Chip talked about has been consistent for the last couple of years. Our financial strategies complement our business strategies. We have significantly diversified across geographies, across channels, across product categories to drive growth while remaining focused on productivity to ensure we grow profitably and drive EBIT leverage. We have methodically reduced costs and increased efficiencies and margins while strengthening the balance sheet. We have a prudent approach to capital allocation and we're focused on reinvesting the cash the business generates to drive long term growth and returning capital as you'll see to our shareholders beside investing on some M and A. This is one of my favorite charts. It just talks about how the business has evolved. When Chip and I got here, the business was skewed towards the U. S, skewed towards U. S. Wholesale and men's bottoms. So if you summed it up, it led to one conclusion, which is low growth. The business today is very, very different. International now represents close to 55% of our business. It's been growing double digit for the last couple of years. Our direct to consumer business is a little over a third of our business, growing double digit as Chip talked about. Our tops business is now a 5th of our business. It used to be a 10th of our business and it's been growing double digit. And in terms of global market share on tops, we have just less than 1%. So huge runway for growth. Our women's business, which used to be a 5th of our business, is now close to a 3rd and our global market leadership is only 9%. We lead globally, but the market leadership position is only 9%. So again, continued opportunity to grow. And as Chip talked about, our presence in U. S. Wholesale as a percent of total company revenues has come down over the years. It used to be close to 50%, 7, 8 years ago is now down to a little over 30%. And the areas that we are growing or focused on are all growing double digit. In terms of capital allocation, this business when it does well generates a lot of cash. So our first port of call is reinvesting that cash to grow the business. We invest approximately between 3% to 4% of our revenues in capital to grow the business. When we got here 6, 7 years ago, we were investing about 2% of revenue and it was largely a reactive investment. It was to fix things that were broken. It's about investing in technology, ACI, It's about investing in technology, it's e commerce, it's about remodeling our stores, etcetera. So a lot of growth capital. We are a dividend paying company. We return capital to our shareholders. Our payout ratio is a little under 30%, so still room to grow if you look at the median in the apparel industry and we generate a lot of cash. The dividends that we have paid has more than doubled over the last couple of years. And at some stage, our thinking is that we will do share buybacks to offset the dilution for employees. Again, we have limited float, so it's a program we'll think through on a thoughtful basis. M and A, again, we look at M and A in 2 buckets. There's organic M and A, an example of that was the acquisition of a distributor we announced yesterday. So as you think about organic acquisitions, there are some markets that are in the hands of distributors. We'll take that back selectively. Some franchisee buybacks, we've done franchisee buybacks in Shanghai and Beijing in the UK and then grown those businesses substantially. And then some product licenses that we'll take back. We took back the product license for U. S. In the U. S. For women's tops that was sold into wholesale a couple of years ago and we more than doubled that business. So today, our men's stock business in the U. S. Sold into wholesale is still licensed. We have some outerwear that's licensed. So we will look at that on a selective basis. And then long term, even though we don't have to do anything in the short term, some inorganic acquisitions around categories like footwear, outerwear, if you have to accelerate women's, can we do that? Those are the things we'll take a look at. We have a great balance sheet and we're pretty financially disciplined. So it has to pass the financial filter, plus it needs to allow us to leverage our global scale and infrastructure. And last but not the least, our financial growth model. Basically, our commitment on an ongoing basis is mid single digit growth and that's going to be driven if you triangulate that on a geography basis or on a channel basis or on a product basis, this is how I think you should look at it. On a region basis, the Americas region, which includes the U. S, grows 2% to 4% with the U. S. Being 2% with the international countries that make up Americas driving double digit growth. Europe and Asia in the high single digit or low double digit, that's one way of looking at it. If you think about it from a channel perspective, direct to consumer business grows in the high single digit, low double digit and wholesale globally growing in the low single digit with the U. S. Wholesale business largely being flattish as Chip talked about. If you think about categories, our men's bottoms business grows in the low single digit, which is keeping pace with category growth, but we get high single digit, low double digit in the categories we're expanding into, which is tops and women. Turning to profitability, we expect leverage, EBIT leverage, and that's what gets to mid to high single digit growth. And then then further leverage on the net income basis because we have some debt, not a lot. We have some debt. We leverage that and obviously constantly improve our tax rate. So with that, we'd like to conclude our presentation. We've been around for 160 years and we expect to be here for the next 165 years. Great. Thanks so much, Chet Palmit, for your opening comments. I'd like to start by going back to some of the comments you made at the beginning of the presentation about the brand. The brand is really resonating with customers across a range of age groups and in a number of different countries. What is it about the message that is really appealing to customers? So one of the reasons I joined this company, I'm a brand guy. I spent 28 years at Procter and Gamble building brands, launching brands and creating brands. And I joined this company because I saw one of the most iconic brands in the world that hadn't really been delivering results for over a decade. And I fundamentally believed if we could turn around the brand, could turn around the company and that's pretty much what we've done. What makes Levi's so special and so unique is how democratic it is. This is a brand that cuts across all demographics, not just here in the U. S, but globally, all income groups, all races, all ages. We have skewed the business younger over the last couple of years, but part of our success has been driving the inclusivity of this brand, while keeping the brand really, really special. And that is a hard balancing act to walk. We relaunched our marketing in 2014 behind a selling idea that literally came out of a consumer's mouth in a consumer in home. I was in India and the consumer said, you wear other jeans, but you live in Levi's. And I literally in my head I was like that's it. That is the selling idea for this brand. Everybody has a Levi's story. First date, 1st kiss, 1st job, whatever and we've capitalized on that. We've also put the brand back at the center of culture. This brand is at its best when we are at the center of culture. So when the Berlin Wall came down, the kids on the wall were wearing Levi's. We wore Freedom and we've put the brand back at the center of culture. You're from the U. K. You see what's happened in Europe by putting the brand back at the center of culture and that's kind of the secret sauce that we've had over the last couple of years. Let's move then to Europe. That's a region that's seen particularly strong growth across both the DTC channel and the wholesale channel. Can you talk about what's driving that? Is there any element of new distribution there? Or is it a lot of that existing partners? We've been again, the brand is resonating. It starts with the strength of the brand as well as the product that we're delivering. We've leveraged a number of collaborations which have been working for us. But our business in Europe has been so strong and so successful like I said 20% growth the last two fiscal years. We're growing the high teens right now. And that's in markets that are and some of the markets are going backwards. The team is executing really well. The brand is resonating with consumers. Our marketing is working. We're connecting with consumers on a really, really deep individual kind of way and that is what's driving a big part of our growth in Europe. Very clear. You mentioned in your prepared comments the growth you've seen in the women's business and how that started in 2015 with reconfiguring some of the product to really go after what the consumer was lacking. What's next for the women's product? How can you continue to drive strong growth in that segment? So we have been leading trends. I talked about leading trends on RISE. We have a product called the Wedgie, which is some people's favorite jean of all time. But we have enormous opportunity. We still haven't tapped into denim dresses and denim skirts. We have lots of opportunity there. We've also we've been testing women's stores, women's standalone stores in a couple of markets and that holds potential for us. So just creating a shopping environment that's just special and unique for her kind of forces us to make sure we've got the right assortment for women and that is something that we're optimistic about. It's been in Europe predominantly where we've been testing that. So that also is an opportunity for us longer term. The other growth driver that you called out was ops and the opportunity to increase the mix in the business to get closer to where certain other brands operate. Can you help us to understand how you think about the fashion cycles in that business? Because bottoms, I think, overall is a slightly more stable growth category. Tops has more opportunity, but perhaps a little more fashion risk. Is that the right way to think about it? Yes. A lot of our tops are just like our bottoms. They're pretty core items. I mean T shirts, the fashion risk opportunity is pretty limited because we inventory blanks and then we're finishing the T shirts real close to market. Our wovens are pretty much basic wovens. So there's not a huge fashion risk component to our tops business. Having said that, tops still represents an enormous opportunity for us. So I go back to the metric of 4 tops for every bottom, which is the industry average and we are the complete ops of that. We sell 4 bottoms for every top. Our very best market, we have one market in the world where we sell one top to every bottom. And so we're still a long way from full potential on tops. The graphic tea business has been a big driver of our growth and we're committed to keeping that going. When we launched the big batwing tea, we thought that that could be a 6 or a 12 month item. Here we are 3 years later and we're still talking about it and still resonating in the marketplace. I want to make sure that we get to some questions from the audience where there are questions. So if you have one, please make yourself known and we can get a mic to you and I'll keep an eye out as those formulate. One thing that's driving growth across categories, across regions is the focus on omni channel and building that out. Can you talk us in a little more detail about the key initiatives for stores for online for omni channel growth? Yes. So I think to start, we back up to when I joined about 8 years ago, e commerce was a tiny part of our business. We had 3 people dedicated to e commerce globally. We had outsourced all of e commerce, the front end, the back end. And clearly the puck was heading towards a digital experience for the consumer. So we cut costs in a lot of other areas. We've now built a digital team of about 100 people globally. We've invested in the front end. So we own the front end in every market where we're doing business. We use hybrids in our big markets like here in the U. S, demand wear in smaller markets. So we've really created that first port of call for the consumer. We know when a consumer comes to our website, they may not buy, but 50% of the consumers that come to our website wind up buying Levi's somewhere. And so we know that it's important. But beyond that, we're really focused on building out the omni channel capability. So we've rolled out RFID now across the U. S. And the U. K. We're expanding that globally. What that gives us is real time inventory information, which is now enabling us to we've now launched order online, ship from store. So we're starting to ship from store. Pretty soon, we will be launching order online, pick up in store, which you guys know is a big trend and it drives traffic into the store. You can usually upsell. So we're very excited about that. We will launch an app later this year and we're also launching a loyalty program later this year, which will be focused not on points to get a discount, but focused on things that only Levi's could do. Like if you're a real heavy Levi's consumer, maybe you go to a concert at Levi's Stadium. Very clear. I think all of those initiatives entail incremental cost. I think you've talked about the improving profitability in the e commerce business and indeed part of it is driving sales into stores. Can you help us out with the path there? So our e commerce business has been in investment mode for the last 5 or 6 years. We're still investing in the business. The plan is to get to breakeven next year and then it begins to scale and lever from that point forward. Our DTC, our brick and mortar business delivers a very strong return on a global basis. As I said, it's kind of in line with the company's overall ROIC. And we continue to work on productivity and driving productivity in our stores leveraging technology. Recently. Can you talk through, what that is? How the consumer is responding and the infrastructure that you have in place in order to facilitate that? Yes. So, I mentioned this a little bit in the prepared remarks. This is the laser technology, which enables us to postpone finishing to the last minute. It's really sustainable. We cut thousands of chemicals from our supply chain by finishing the product with lasers. But it also enables us to provide greater differentiation between customers. We have a number of stories where we've now started to leverage this for success. During Prime Day, we did a special collaboration with Amazon. So while they took 501s down with very aggressive price point for Prime Day, also had a $98 collaboration with Sterling Shepherd and his wife who is a supermodel priced at $98 on Amazon. It was a small collection, but it sold out really, really quickly and Amazon called us and they said we want more. And because this was all done using this Future Finish or FLX technology, we were able to be back in stock that week. And those items are still on their website as an ongoing basis. And we like that because it's premium priced at $98 The other thing that we launched about a month ago on our website, the consumer can go in and customize his or her own pair of jeans. So if you go to levi.com, there's on the toolbar, there's a customized option. The consumer can go in and from a menu select what kind of pattern or where finish they want and whether they want it any destruction and you can choose no destruction all the way to heavy destruction. A lot of consumers like holes in their knees and they'll pay a premium for that. And then they can choose an over dye and we're premium pricing it. We're charging $148 for the consumer to design their own gene and make it uniquely theirs. Like I said, we just launched it. It's a relatively narrow assortment and a relatively narrow menu at this point, but we're off to a good start. We're very encouraged by it and we are, as I said, premium pricing it. So I think there's a there there and I think we'll be scaling it over time. There's a question in the back. Hi. I think you kind of talked about it, but just wondering if you could talk a little bit more about the competitive environment on women's jeans and then also the trend on premiumization and then a little bit more about your strategy on that. Thanks. Okay. The only thing I heard was women's jeans about the competitive environment on women's jeans. And then the premiumization. Okay. So our women's jeans business, as I said, we've grown 16 quarters in a row. We are the number one brand in women's denim globally with a 9% market share. And we are not number 1 in many markets. So we're number 1 because the women's business is very, very fragmented on a market by market basis. So even here in the U. S, which is home turf for us, we're the number 3 brand in women's denim behind Old Navy and American Eagle. So I look at that and say there's still a lot of shared owners out there and opportunities for us to grow our women's denim business. We also have an opportunity to premiumize the women's denim business. A lot of women say this is a great value because they're used to paying $200 or $2.50 for designer jeans. They get into our product with the new stretch fabric and the soft comfortable fabric and we're in our mainline doors we're between $80 $100 and you can go to some of the wholesale customers and it's a lot less than that. So we do have an opportunity to continue to premiumize especially in a market like the U. S. Not just our women's business but our men's business as well. And that's what part of our distribution strategy has been is to get into more of these premium wholesale doors and driving more growth through our mainline doors. Did that get at your question? You were kind of cutting in and out. Did that answer most of your question? Yes. Okay, great. You mentioned China as an opportunity somewhere you're under penetrated perhaps versus some of the other brands. Can you talk a little bit about where you are with that market? Yes. So we are substantially under penetrated relative to a number of our peers. China represents about 3% of our total company's business and we've got peers that are doing high teens into the 20s as a percentage of their total global business. We've been in business in China for about 20 years or so. We've made a number of changes over the last 18 to 24 months, starting with hiring a new Managing Director who started just about a year ago. She is Chinese, which helps a lot, born and raised in Beijing. She's worked for multinationals her whole career. She actually worked for me back at P&G. I've known her for almost 20 years. She is a marketer and a brand builder and a great leader. Great leaders attract great talent. And one of the things that she has done is she's basically changed out almost her entire team. We had about 6 50 doors in China over the last 18 months. We've closed about 150 of those doors. They're mostly franchise doors, bad locations, unprofitable doors. We've bitten the bullet and closed those, took back a lot of inventory in the process of doing that. I did say on our Q2 call, we still have a little bit of heavy lifting ahead of us. There are a couple of cities where we will need to change out franchise partners. We've taken back the business in Shanghai and Beijing as Harmit mentioned. So those are owned and operated markets. Those are markets that we want to control because they are kind of beacon markets for China. We've de escalated promotions in Tmall. We were training the consumer to buy on deals. That was a bad thing. So we've completely de escalated there. So we've kind of set the table now to propel our way forward. 2 years ago, our business was declining in China. Last year, we were flat. This year, we will grow kind of mid singles. And next year, we should hit a point where we get into double digit growth. But Amy's vision for the country is 10x. And the way we're going to get to 10x is we're going to take the business today, we're going to double it in the next couple of years and we're going to double it again and then we're going to double it again and we will be 10 times the size we are today. It's a huge opportunity. I guess the last thing I would say is the brand is very strong there. The brand resonates with the Chinese consumer and our owned and operated business traffic is up. Our owned and operated stores are growing And that gives me confidence that as we get this model really clicking, we're going to be able to see that double digit growth and sustain it. One of the key talking points at this conference and indeed in recent weeks has been the impact of tariff announcements on apparel companies. You guys have been quite forthright about how much exposure you had. Can you run us through that and the key offsets? Yes. So the one of our competitive advantages, I think, is that we have global supply chain. We source from across 25 countries around the world. We've been importing product from China into the U. S. We were importing probably 12 to 18 months ago, we were importing 16% of what we sold at the beginning of the year because we've been cross sourcing from other countries and a couple of our Chinese suppliers have factories in other parts of the world. That dropped to 8 percent. And by the time the tariffs went in effect last weekend, that's down to less than 2%. So in our view, we mitigated the impact of tariffs that have been imposed recently. We believe we're in a competitive advantage relative to our peers in the U. S. Market. And financially, it's not a burden. The impact on the end consumer because we believe that with the impact of tariffs hurting some of our peers and others in the industry, there could be some pricing. We'll follow and take advantage of that. I mean, the consumer could be impacted. We haven't taken pricing in the U. S. For a long, long time as an industry. We're watching those trends from that perspective. Now, there has been some talk about imposing tariffs even in Mexico. We import about 8% from Mexico into the U. S. But given our global supply chain, if tariffs go into effect or naphtha, for example, is thrown and thrown away, we believe we can mitigate it very similarly. So it's not a drag for us. And according to the way we handle it, I think it's a competitive advantage. Wonderful. Now the clock is flashing at me. So maybe I'll just sneak in one more here. You recently hired a new SVB of strategy and AI. What are the initiatives there that you're most excited about? And anything that we'll see reflected in the business in the near term? Yes. I see this as a huge opportunity for us. I mean, I really do believe in digital disruption. That's where FLX and the laser technology come into play. We have tons of data that we have not really fully capitalized on. And I think this industry is way behind a lot of other industries and really using machine learning to move the ball ahead. I jokingly say that the San Francisco Giants use do more with advanced analytics and machine learning than we do and that the apparel industry does and we're going to change that very quickly. The biggest opportunities that they're looking at right now are pricing and all aspects of pricing. So initial pricing, managing markdowns, managing promotions, promotion cadence, anything that will drive net revenue growth is a big opportunity for us. The next big opportunity is assortment planning, both at a macro basis, on a global basis, how do we assort our line the smartest way possible, but also down to the store basis. So Harmit talked about mainline doors and how we've kind of unlocked this mainline model of 2,500 to 4,000 square foot stores. We've not done that historically in big markets like the U. S. Because our assortment is so big, we felt we had to put everything into a store. So our average store is over 5,000 square feet. Using machine learning, we can get down we can get very, very granular down to the location based on who's shopping in that particular store or that based on who's shopping in that particular store or that particular neighborhood and assort a door appropriately, so we can make a 2,500 to 4,000 square foot store work with the right assortment that will be very, very profitable. So I'm very, very bullish and optimistic about this. We're kind of leaning into it in a big way. She's a PhD data scientist and she's done this at a couple of other companies where she's built a data science capability from scratch And that's what she's setting off to do now at Levi Strauss. Fantastic. Well, that's all we have time for today, I'm afraid. But thank you so much for your video, for the prepared comments and for taking our questions here today.