Good day, ladies and gentlemen, welcome to the Levi Strauss & Co. fourth quarter and fiscal year earnings conference call for the period ending November 29th, 2015. All parties will be in a listen-only mode until the question and answer session, at which time instructions will follow. This conference is being recorded and may not be reproduced in whole or in part without written permission from the company. A telephone replay will be available two hours after the completion of this call through February 18th, 2016, by calling 855-859-2056 in the U.S. and Canada and 404-537-3406 for all other locations. Please use conference ID 31527451. This conference call also is being broadcast over the internet, and a replay of the webcast will be accessible for one month on the company's website, levistrauss.com.
I would now like to turn the call over to Chris Ogle, Vice President, Investor Relations and Assistant Treasurer at Levi Strauss & Co.
Thank you. Good afternoon, everyone, welcome to our quarterly conference call. I'm pleased to introduce members of the Levi Strauss & Co. management team. With us here today again are Chip Bergh, our President and CEO, and Harmit Singh, our Executive Vice President and Chief Financial Officer. Before we begin, I'll briefly remind you of a few items. Our discussion today may include forward-looking statements, including statements regarding our strategies and expected financial and operating performance. Although these statements reflect the best judgments of our senior management, they involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the statements as more fully described in our annual report on Form 10-K, our registration statements, today's earnings press release, and our other filings with the Securities and Exchange Commission, all of which are available on our website at levistrauss.com.
We expressly disclaim any responsibility to update our forward-looking statements. Other unknown or unpredictable factors also could have a material adverse effect on our future results, performance, or achievements. We provide information on our website about how we compile various measures used to describe our business performance. Participants on today's call may discuss non-GAAP financial measures. You'll find the appropriate reconciliations and descriptions of our non-GAAP financial measures at the earnings webcast page in the investors section of our website, as well as in today's earnings press release. Finally, today we filed our annual financial report on Form 10-K with the SEC, which is available on our website. I'd like to turn the call over to Chip Bergh.
Thank you, Chris. Good afternoon, everyone. Thanks for joining us today. In fiscal 2015, we made progress as we continue to execute our long-term strategies. I'm pleased to report that we delivered a third consecutive year of currency neutral revenue and profit growth, with constant currency net revenue growth of 1% adjusted EBIT growth of 6%. We continue to make progress on our structural economics by significantly improving gross margin expanding adjusted EBIT margin despite strong currency headwinds. The apparel industry continued to face soft traffic at retail in 2015, coupled with heightened promotional activity and other macroeconomic challenges, our fiscal calendar having one fewer week. Despite these challenges, we focused on what we could control and continued to invest behind our strategies in order to build a solid foundation for the future.
Four years ago, we set our long-term strategies, grow our profitable core, expand for more, become a leading omni-channel retailer, improve our cost structure. These have continued to be the backbone of our overall objective to drive profitable growth. This year, we were pleased to see the mix of our business to continue to shift in that direction through the reset of our Levi's women's denim collection, expansion in tops, faster growth internationally and in our direct-to-consumer channel. I'll turn it over to Harmit now to review our fourth quarter and full year financial results, then I'll share more detail on our progress in 2015 our priorities for 2016. Harmit?
Thanks Chip. Welcome to everyone joining our call. My comments today will reference comparisons on a year-over-year basis in US dollars, unless I indicate otherwise. I will first discuss the fourth quarter then follow with comments on the full year. Fourth quarter net revenues of $1.3 billion declined 7% on a reported basis and 1% excluding $85 million in unfavorable currency translation effects. Recall that our fourth quarter last year contained an extra week due to our fiscal calendar. Having one fewer week this year adversely impacted our fourth quarter revenues by roughly four points. Despite this impact, global revenues from our direct-to-consumer channel grew 5% on a constant currency basis, primarily driven by ongoing expansion of the network in Europe and Asia.
In our wholesale channel, global revenues declined 3% on a constant currency basis, would have been up modestly without the consequence of the one fewer week. Gross profit for the quarter declined 3% on a reported basis to $658 million as compared to $680 million last year due to unfavorable currency translation effects of approximately $43 million. Gross margin grew more than 200 basis points to 51.2%. The improvement primarily reflected lower negotiated sourcing costs the savings from streamlining our supply chain. We also benefited from growth in our higher margin international and retail businesses, from price increases we took in key markets to help offset the currency effects. Fourth quarter SG&A expense of $494 million, declined $87 million on a reported basis.
The decline was attributable to $32 million in favorable currency effects, lower advertising expenses compared to the prior year, and a $31 million pension settlement charge in the fourth quarter of 2014. These declines more than offset a $16 million increase in expenses related to our ongoing direct-to-consumer investments, including the addition of 91 brick-and-mortar stores on a net basis since a year ago. Adjusted EBIT of $168 million in the fourth quarter grew 25% from the prior year on a reported basis and grew 36% without $11 million in unfavorable currency effects. As a percentage of net revenues, Adjusted EBIT improved to 13% as compared to 10% last year, as an improved gross margin more than offset our higher direct-to-consumer channel investments. Fourth quarter net income was $102 million, a significant improvement over last year's $6 million net loss.
The net income growth reflected our higher Adjusted EBIT of $47 million decline in restructuring and related charges, and without last year's one-time pension settlement charge of $31 million. I'll share more detail on the fourth quarter results of our three regions. Net revenues in the Americas declined 9% on a reported basis and 6% without $24 million in unfavorable currency effects, primarily due to the one fewer week. Beyond these considerations, Levi's and Dockers men's wholesale revenues declined on soft retail conditions at major customers, and direct-to-consumer in the region was roughly flat to last year. Traffic remained challenging, but we were able to offset it with strong conversion and modest growth in e-commerce. Adjusted EBIT for the Americas declined 8%, inclusive of $6 million in negative currency effects, mainly reflecting the lower revenues.
Europe, net revenues grew 3% without $44 million in unfavorable currency effects, but fell 13% on a reported basis. The constant currency revenue growth comparison was muted due to the additional week in the fourth quarter of last year, which represented about five points of the region's fourth quarter revenues. Growth was driven by ongoing robust retail performance, again, mostly in the U.K. and Russia. Adjusted EBIT in Europe grew 93%, inclusive of $5 million in negative currency impacts, primarily reflecting a higher gross margin. Asia, net revenues were up 15% without $17 million in unfavorable currency effects and were up 6% on a reported basis. The environment remains promotional with revenue growth coming from our direct-to-consumer and franchise network, with China comprising nearly half the region's growth in the quarter.
Adjusted EBIT in Asia grew 68%, inclusive of $2 million in negative currency impacts, reflecting the higher net revenues and an improved gross margin. For the full year, we are pleased to have achieved the total company financial objectives we shared with you at the start of 2015. Excluding $312 million in unfavorable currency translation effects, net revenues grew 1% in fiscal 2015. This was in spite of the adverse effects of the fiscal calendar shift, which in combination with the launch revenues from exiting the Dockers women's line in 2014, represented roughly two points of full-year revenues. Beyond these factors, direct-to-consumer revenues grew high single digits, and global wholesale revenues grew slightly, aided by our product introductions such as the new Levi's women's denim collection. Full-year gross margin at 50.5% was more than 100 basis points ahead of last year, despite currency pressures of nearly 200 basis points.
Advertising spend was 6% of revenues. Our SG&A rate of 40.6% was nearly flat to last year on a constant currency basis, despite 120 basis points impact from higher selling expenses, primarily related to our investments in e-commerce and the 91 store increase in our company-operated retail network. Finally, adjusted EBIT grew 6% on a constant currency basis, excluding $54 million in unfavorable currency translation effects, primarily reflecting our improved structural economics. Adjusted EBIT margin remained strong at 11%. Turning to the balance sheet and cash flows. Inventory dollars and units increased modestly, reflecting the new product initiatives we introduced last fall. Free cash flow for 2015 was $81 million, a $42 million decline compared to last year. Capital expenditures increased $29 million to $102 million. The 2015 dividend payment of $50 million was $20 million higher than last year.
Over the last few years, we made good progress against our objective to strengthen the health of our balance sheet. In 2015, we refinanced $500 million of our bonds, further improving our borrowing rate and maturity profile. As compared to the prior year, net debt declined to $834 million from $911 million, and we held our leverage flat at 2.0. Total available liquidity at the end of 2015 was $977 million, comprised of cash of $319 million and $615 million available under our credit facility. Having further strengthened the balance sheet, we are turning the focus of our capital deployment towards investing behind growth initiatives. With that, I'll turn it back over to Chip to discuss progress against our strategies in 2015 and our priorities for 2016.
Thanks, Harmit. Let me take a moment to walk you through several key initiatives we delivered on in 2015 in support of our long-term strategic priorities. 2015 was a good year for the Levi's brand, which grew all major categories, men's, women's, and kids', tops, bottoms, and accessories, strengthening our core and helping evolve the portfolio into more of a lifestyle brand. We introduced fresh, innovative, trend-leading products to expand the consumer appeal of the Levi's brand. The successful global launch of the Levi's women's denim collection in the third quarter of 2015 improved the gender balance of our portfolio. Going into the year, we said this was going to be a top priority. Now with half a year of performance under our belt, we're very pleased with the strong consumer response, particularly in respect to the 700 Series.
Women's grew in all geographies again in the fourth quarter, driving high single-digit growth in our women's business for the full year. The Levi's brand also introduced the Commuter for women and rekindled the 501 family with the 501 CT for men and women. Levi's 511 Slim Fit continues to gain share, as does the Levi's 541 Athletic Fit, which has become one of our fastest-growing products. The T-shirt bars in our retail locations continue to perform well, supporting high single-digit growth in tops. In 2015, we also made progress on our key strategic choice to become a leading world-class omni-channel retailer, expanding our direct-to-consumer footprint by 91 stores and growing our e-commerce business, while also upgrading our in-store and online consumer experience. Direct-to-consumer was the primary driver of our international growth, which continues to improve the structural economics of our business.
The Levi's brand success across segments, channels, and geographies reflects the investments we've made to enhance consumer awareness via our global Live in Levi's campaign in 2015. We made a concerted effort to enhance the effectiveness of our marketing last year, from resetting our advertising campaign to reallocating our spending toward more working media as well as broadening our reach in new channels. In the year to come, we will continue to drive effective marketing in support of the positive momentum we have with consumer response to our products, including new advertising around product launches and with an objective to help combat ongoing consumer traffic softness. As we turn the page to 2016, we expect many of the same headwinds we saw last year. We anticipate another year of strong U.S. dollar and that the consumer and retail environment will remain challenging for the apparel sector.
Nonetheless, we are focused on accelerating our growth this year. We see significant growth potential and plan to prioritize three key areas of the business, growing our U.S. business, growing the Dockers brand, and sustaining growth in our direct-to-consumer and international businesses. I'll touch on each one briefly. First, the U.S. business. With more than half of the company's revenue coming from the U.S., winning here is central to driving our profitable core. We're set up for growth in the Levi's women's denim collection, given the strong consumer response to the products and the opportunity to have them on floor for the full year in 2016. Expect us to continue to innovate with more washes and finishes available in upcoming seasons. In Levi's men's, we believe the trend-right products we have planned for the year will continue to demonstrate the strength of our brand in the category.
Our Signature and Denizen products continue to perform exceptionally well with the value-seeking consumer. We are increasing our advertising investment in the U.S. in 2016. Part of the incremental investment went into the Super Bowl, held last weekend at Levi's Stadium, and the entire Super Bowl run-up the full week prior in San Francisco. It was incredible to see the Levi's brand exposure during the game, which one media analyst valued at $65 million based on television viewership of more than 110 million people in the U.S. As well as hundreds of millions who watched the game or commented via social media in more than 170 countries around the world. We also launched a full line of Levi's NFL collection products across all 32 NFL teams during the Super Bowl week, including collector's edition Super Bowl 50 items.
Overall, we've been very pleased with the marketing ROI of Levi's Stadium, which has generated over 300 billion impressions through December at a media value of over $400 million. I must say, the Super Bowl was a proud moment for LS&Co. Another key factor in growing the U.S. in 2016 will be our ability to grow the Dockers business. This year marks the 30th anniversary of the Dockers brand, and we're taking the opportunity to bring new consumers into and back to the casual pant category that we created. This year, we will significantly expand Dockers' use of stretch fabrics across the line, putting additional emphasis behind our most successful items, and generate consumer awareness and demand through additional advertising spend and marketing campaigns. We anticipate an adverse impact to revenue in the first half of the year as the Dockers product transition takes place.
This will set us up for growth in the second half of the year. Over time, we're migrating our product assortment towards more casual styles and slimmer fits, and we'll simplify the shopping experience by mapping product to key wearing occasions. Executing our strategies in the direct-to-consumer channel, both at retail and online, will continue to be a key component of what will drive our growth in 2016. At retail, we will continue to strategically add to our retail store footprint while also building our e-commerce capabilities and investing in retail-enabling technologies like RFID and mobile, all in order to enable seamless, simpler, real-time shopping while delivering an excellent, personalized, and consistent in-store consumer experience across all channels and touchpoints. While traffic at retail may remain challenging, we will continue to focus on the elements within our control. We recently hired Carrie Ask to lead retail globally.
She brings with her extensive retail experience and comes on board next week. Direct-to-consumer growth has been one of the keys to our growth in international markets this year. Our international businesses offer a high potential for growth and have attractive structural economics, and continuing to drive profitable growth in these markets is key to our long-term strategy. Overall, we're excited about the direction in which we're headed and the opportunities to continue our growth in 2016. Harmit will now outline the financial outlook for 2016. Harmit?
Thanks, Chip. In 2016, we expect to again profitably grow full-year revenue on a constant currency basis on the back of the investments we have made and will continue to make in our products and the direct-to-consumer channel. Given ongoing U.S. dollar strength, we are bracing for unfavorable currency translation effects again in 2016. While we will continue to do what we can to mitigate these effects, our current translation estimates are in the range of 300 basis points for revenues and 500 basis points for adjusted EBIT. Excluding currency effects, our expectations for margin and expenses are as follows. We expect gross margin expansion of more than 50 basis points to approximately 51%, driven by the structural cost improvements we made in 2015, as well as growth in our international markets and direct-to-consumer channels.
We expect SG&A as a percentage of revenues will rise, driven by higher advertising and additional direct-to-consumer investments, but that our base SG&A will decline as a percentage of revenues, reflecting our productivity initiatives. We expect to hold adjusted EBIT margin flat or better with adjusted EBIT growth in dollars on the back of revenue growth and higher gross margins. Adjusted EBIT comparisons will be weaker in the first half and stronger in the second half due to the timing of the advertising increase and as we reset Dockers. We anticipate another year of strong free cash flow in 2016, despite higher CapEx. CapEx spending is expected to fall within a range of $120 million-$130 million, reflecting investments in e-commerce, retail technology, and other IT systems to drive productivity, as well as more than 70 planned company-operated store openings concentrated in Europe and Asia.
We have announced a dividend of $60 million, a $10 million increase from 2015, reflecting our confidence in the financial health of the company. From past earnings calls, we know folks are interested in our holiday results. We consider holiday to be the combination of November and December results. Broadly, the trends we saw in the fourth quarter of 2015 continued through the end of December. On a constant currency basis for a holiday period, global direct-to-consumer revenues were up high single digits, and global wholesale revenues were up low single digits. Please keep in mind that these holiday results are comprised of portions of two separate fiscal reporting periods. Are not necessarily indicative of our first quarter 2016 results. With that, we'll take your questions.
Thank you. The floor is now open for questions. If you have a question, please press star, then the number one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound sign. Because of difficulty hearing questions asked on a speakerphone or headset, we ask that you please use your handset. Your first question comes from Grant Jordan with Wells Fargo.
Thanks for taking my questions. Appreciate all the detail. I guess, one question, you talked a little bit about your expectations for SG&A this year. You guys took a lot of actions over the past couple of years to get the SG&A rate down. Is it where you'd hoped it would be at this point?
Hi, Grant. Thanks for joining the call. When we first commented about the Global Productivity Initiative, at that point, we had said that, on an annualized basis, it will result in $175 million to $200 million in savings relative to 2013. We still expect that it will take through the end of 2016 to see the full benefits as we had explained. We expect the actions that we've taken have resulted in anywhere between $125 million to $150 million. The question is, how do you see this in our results? What I would say is that despite the revenue declines on a reported basis, you have seen our gross margins expand and gross margins are influenced by our supply chain efficiencies that we did as part of this program. You've seen our organic SG&A rates decline, and our adjusted EBIT margins grew on a constant currency basis.
If you take the year, our SG&A as a percentage of revenue on a full year basis is 40.6%, which is nearly flat to a year ago. That included 120 basis points of unfavorable impact from our higher selling expenses related to e-commerce and our retail net network. As you can see, we're clearly seeing the benefits of the productivity initiative.
Okay. No, that's helpful. My only other question was, as you restage the Dockers product, do you anticipate your distribution will be similar, meaning primarily wholesale, or will you look to try to drive the e-commerce through Dockers as well?
It's not going to change fundamentally much, Grant. We have a Dockers e-commerce site and transact business on that. Fundamentally, it's about resetting the floors and the biggest wholesale customers, as well as online. I wouldn't expect a major change in terms of distribution or number of doors, at least in the near term.
Okay, great. Thank you very much.
Your next question is from William Reuter with Bank of America Merrill Lynch.
Hi, this is actually Jenna Neon for Bill today. Thanks for taking my questions. You mentioned, you were able to take pricing in key markets that would benefit gross margins. Could you just talk about your flexibility to take more pricing in fiscal year 2016?
Sure. Again, we took pricing in response to all the currency pressures we were feeling. Largely, currency impacts us in two ways. There is a translation impact, and then there is a transaction impact, which is really driven by the fact that we source our goods in US dollars but sell in local currencies in international markets. We went after mitigating these effects in two ways, in actually four ways. We took pricing in key markets like Russia, certain markets in Europe and in Mexico. We continued curtailing costs as part of a cost program. We negotiated a lot better with our vendors, and we refined our hedging program. If you took the impact of cost and pricing that we took, and we took pricing largely in the second half of last year, we probably offset about 50% of the transaction impact.
If you took the hedging gains as reflected in our results, that offset a bit. The pricing actions we have taken generally have stuck. Just again, demonstrating two things. One, the strength of our products and the price value equation relative to consumers, and also the fact that some of our competitors are taking pricing. As we think about 2016, pricing is obviously important, especially to protect the structural economics of our business. Where relevant, we continue to explore and will take pricing over time.
Great. Thanks. Lastly from me, your inventory levels look good relative to where they were last year. Could you just talk about how you feel about the currency and health of your inventory position?
Yeah. Generally, our inventory in dollar terms is up a percentage, which is consistent with our growth in revenues on a constant currency basis. Feel good about the health of the inventory. Our products generally, especially, for example, in the U.S., which has been softer, are core products. That's why we think longer term, we feel good. Now, if there is softening in consumer demand as we demonstrated in 2014, we'll aggressively market the product down and ensure that we manage inventory. We're prepared for the downside if we see one.
Great. Thanks so much.
Your next question comes from Hale Holden with Barclays.
Hi. Thanks for taking the question. I had two quick ones. I was wondering if you could give us sort of an update on how you felt about inventory through the U.S. wholesale channel sort of currently, given some of the sales trends that some of the department stores have come down with.
Hale, thanks for joining. I think generally, we feel good about it. We're working with each customer differently, depending on the inventory that's on the floor and what's in the pipeline to try and work that down. Generally, as you can see from our wholesale results, wholesale results for the quarter globally were up modestly, largely driven by the fact that we had one fewer week, and that's why the wholesale was down. If you adjust for that, wholesale was up.
Got it. The second question is, in relation to the direct-to-consumer push on the e-com investments, I was wondering how Amazon as a sales channel kind of fits in with that. You guys have a fairly built-out direct offering on Amazon currently, it was sort of confusing how that competes with your own direct-to-consumer and own e-commerce offerings.
Amazon is a customer of ours. They're really valued. They obviously reach a lot of consumers. We partner with all of our big wholesale customers who have an e-commerce presence. We're on macys.com and jcpenney.com as well. I like to say I'm kind of agnostic where people buy their Levi's. I want more people with more Levi's in their closet. A lot of people, including myself, shop on Amazon. It makes total sense for us to be there with the right kind of assortment. They are an important and very fast-growing customer for us right now.
I don't know if you'll give me this. Last week, Hanesbrands sort of gave Amazon as a 7%-8% kind of level customer for them. Is that something similar we should think of for you guys, or is it smaller?
We don't, Hale, comment on the specific mix of our customers. The only thing I would say is just building on what Chip mentioned, that Amazon is growing and growing at a great pace for us.
Sounds good. Thank you for the time.
Your next question comes from Karru Martinson with Deutsche Bank.
Good afternoon. Just quick housekeeping on the 120, 130. I didn't catch. Did you mention how many stores you were planning to open? Sorry if I missed that.
Yeah. Karru, in response to your specific question, we're planning to open 70 in 2016. In 2015, on a net basis, we opened 91. If you gross it up, we opened about 120 and closed about 30.
Okay.
The only thing I would say is the 120 or the 90 number included about, I would say, 30-odd stores that we acquired from franchisees.
Okay. Does the 70 stores that you're looking at, does that include franchisee acquisitions as well, or are these gonna be your own kind of greenfield sites?
The franchisee acquisitions are small. Largely our own. Just additional color, I would say in 2015, about 60% of the net new stores were outlets, about 40% mainline. Mainline's largely outside the U.S. As we think about 2016, it's more of a balance between mainline and outlets.
Okay. Just on the advertising spend, given that you did have the Super Bowl in the first quarter, just from a modeling perspective, should we be expecting sort of a significant increase in that in the first quarter, then we kind of even out? Just trying to put the Super Bowl in context of what you needed to spend for that.
Again, the specific question is about the modeling. I'd say advertising as a percentage of revenue probably increases by about 50 basis points on a full-year basis and is largely in the first half. The first half, advertising expense increases about a point, then it obviously is a little lower in the second half, resulting in 50 basis points on a full-year basis.
Okay. It was very nice to see women's finally kind of growing. When you look at that sell-in and the sell-through, what are your plans here to kind of leverage and keep that momentum going for 2016? Are they new introduction, new doors?
Well, we think we continue to have significant upside here. As we've said in the prepared remarks, our women's business was up high single digits through the full year, and that was largely driven by double-digit growth in the second half of the year post the launch of the new women's collection. I think, as I walk the floors of some of our biggest wholesale customers, particularly here in the U.S., I think we have still pretty significant opportunities at wholesale. We're going to continue to innovate on the women's business. We're going to continue to innovate with more washes, more styles, more finishes, to try to build on the early success that we have here. We're far from declaring victory. We think we're off to a good start, and now the question is: Can we grow from strength to strength?
We have opportunities, I think, both at wholesale and in retail.
Thank you very much, guys. Appreciate it.
Bet. Thanks, Karru.
Your next question comes from Carla Casella with JP Morgan.
Hi. Thank you for the color on holiday. I'd love it if you could give us any more color one month beyond that. I know January is a big clearance month, and I'm just curious if you have any comments on what you saw in retail in January.
Carla, patience is a good virtue. No, we're not going to comment on January, Carla. We just wanted to address the question around December and November. That's why we talked about it.
That is great, we really appreciate that, too. Can you just remind us, when you look at your cost of goods sold, what % of that is being made in U.S. dollars versus other currencies, and if you have any flexibility in moving that?
What's made in the U.S. is really a small component. It's largely made overseas.
She's asking about how much are we billed in U.S. dollars, which is most-
Yeah. It's mostly billed in U.S. dollars, Carla. We've done a good job, as you can see from the gross margin, in addressing that.
Okay, great. Then just on the retail environment, we've heard Macy's, JCPenney, Sears all closing some stores. Any thoughts there? You seem to be continuing to grow even though retailers are shutting doors. Are you taking more share where you are, or is your space being more productive? How are you continuing to outpace?
Yeah. Door closures, store closures by some of our retailers, we don't think will have a significant impact. Largely, because some of these doors are low-performing, low-volume stores, and we've done a decent job in the past of remapping sales from some of the retailers through some of the other retailers who still have stores. Again, we're watching this closely, but long term, we don't think it's significant.
Okay, great. Thank you.
Again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question is from Kevin Coyne with Goldman Sachs.
Hi. Good afternoon. Thank you for taking my questions. Most have been asked and answered, I just had a question on the margin guidance. I know that you've said in the past that the international retail stores come at a higher margin. I was just wondering with the 70 new stores, how much of the margin, let's say, overall growth is coming from them versus perhaps you can give us color on what the women's line margins are.
Let me talk about margins on a broader basis. Our margins for the year are up 250-300 basis points if you adjust for currency. Reported margins are up 100 basis points. Currency impact is 300 basis points. The way I'd break up the drivers of margin, I'd say about 60%, about three-fifths of that is driven by supply chain efficiencies, which include vendor negotiation and strategies, fabric rationalization, et cetera, et cetera. About a fifth is driven by the structural shift in our business, which is more retail, more international. About a fifth is made up of price increases, which largely happened in the second half of last year. Kevin, it's difficult to be completely precise to your question about the impact of the 70 stores.
I would say that a large majority of the 70 stores are international, and our gross margin on our international business is higher than the U.S. business. As you can see, from an EBIT perspective, because it takes a while for some of the new stores to ramp up, it's a little difficult to model. I'd say structurally, you should see, as I said in my prepared remarks, a little bit of annualization of the impact on the supply chain efficiencies and continued growth because of the shift in our business.
That's helpful. Thank you very much.
Thank you.
Just one question on the 70 stores. I think last time you gave us a little more granular color regarding which countries last year's were in. Can you give us an expectation of where these stores will be?
Yeah. They're largely overseas, internationally, and a combination between Asia and Europe. In Europe, for example, we're opening stores in Russia and Germany. In Asia, we're opening stores in China, as an example. I think the mainline, in the past, has largely been skewed to our outlets. Now we have a better balance. We're also looking at opening a few mainline stores in the U.S.
Great. Thank you.
Welcome.
At this time, I'd like to turn the floor back over to the company for any closing remarks.
I just want to thank everyone for joining us on this call today. We will be back almost before you know it to talk about our first quarter, where, Carla, we will be able to answer your questions about January and February. Thank you all for dialing in, and we'll talk to you again soon.
Thank you.