Presents at JP Morgan 7th Annual Retail Round-Up Virtual Conference 2021

Apr 14, 2021

Thanks. It's Matt Boss, retailing department stores and specialties softlines here at JP Morgan. I'm happy to host today Levi's President and CEO, Chip Berg and Chief Financial Officer, Harmit Singh, at our 7th Annual Retail Roundup. Format for this event is a fireside chat. I've compiled questions and topics from investors on the line in advance that I'll run through with the team. Please feel free in addition to email me at matthew. Bossjpmorgan.com with any additional questions during the moderated portion and we'll try our best to incorporate. With that, Chip, Harmit, thanks so much for joining us today. Thanks for your time ahead of time. With that, I think we can get started. Great. Thanks for having us, Matt. Glad to be here. Absolutely. So, Chip, maybe to piggyback off of I think it was my question on the call last week, and I think you kind of hit it out of the park with your answer. And there's been a lot of different laterals even from companies here at the conference so far. But you spoke to a denim resurgence and the potential start of a new cycle in the denim category. Could you maybe just elaborate on what you're seeing near term in terms of category resurgence and just how you see the opportunity for the total denim market to expand sustainably beyond whether it's near term stimulus or pent up demand? Sure. Well, I do as we said on the earnings call last week and in response to your question last week, I think we are seeing an industry wide denim resatience right now. The apparel industry, broadly speaking, was impacted pretty hard by the pandemic in the early stages. And I think we're seeing a pretty big bounce as we begin to hopefully emerge from this pandemic. But I think it's driven by probably 3 big things. One is this trend towards capitalization, which the pandemic clearly accelerated. And now that consumers are getting vaccinated, people are starting to the restrictions are easing up around the United States and in many parts of the world. To be clear, there are parts of the world that still are not out of the woods. But as people begin to have opportunities to go outside to go out for dinner, go to a sporting event, travel again, it creates a wardrobe opportunity. And so as they come out of the pandemic, this trend towards capitalization, we're seeing it continue. The second big driver are these new fits in silhouettes, which we've talked about. Early in the pandemic, we launched some looser fits just about exactly a year ago this time, especially on the women's side of the business. We had a balloon fit and a high rise loose fit, which we launched. That sold through very, very quickly. We were really excited about it. We doubled down on it in the second half of last year. Many of our competitors followed. And we are seeing this looser fit really taking hold. And that gives consumers another reason to kind of update their wardrobe as they're coming out of the pandemic with the fact that these new fits are really taking off. And I do think it's premature to say we are in a new denim cycle because we're coming out of a trough and the category is returning. But I do think it is possible we may see a new denim cycle as a result of these looser baggier fits that really seem to be resonating with the consumer. The last real denim cycle occurred over 10 years ago before I even joined this company with the skinny jean. And I think we're seeing women really gravitate and men gravitate to the wider fit. In fact, the wider fit on both our men's and women's business by far was our fastest growing silhouette. And I think I mentioned on the earnings call, our 2 fastest growing silhouettes last quarter on the men's side of the business were the 550 and the 559. Those are legacy fits that we've had around for a long, long time. We almost discontinued them a couple of years ago. And so but they're back. And it does clear evidence that fashion is a cycle. So it's still a little early, I think, premature to say that it's a new cycle, but we're very, very encouraged by it. In terms of the signals, I'll point to just 2 specific things. In the U. S. And you probably heard this even this week at the conference, our wholesale sell through has been really, really strong here recently with some of our top wholesale customers. The demand trends seem to be signaling continued strength. One of the biggest challenges we have is how do we plan for the second half of the year. Is this a short term pot because of stimulus checks or is this something really, really sustainable? And I think we collectively believe that this is sustainable. And then in Europe, our order book is very, very strong. We talked about this on the earnings call through the second half of 2020 and orders actually tracking above 2019 levels. Maybe to even drill down a little bit deeper, and that was really great color, Chip. Are you seeing the resurgence across price points? And maybe secondarily, if we're thinking about this potential new denim cycle and we think back to past cycles, how could this potentially also maybe impact tops as we think about potential for the full head to toe outfitting? Yes. And I'm glad you asked that because we are very, very focused on Levi's becoming much more of a lifestyle brand. So as much as we're focused on new silhouettes and continuing to innovate on bottoms, there is the question of what does that mean for tops. And if you look at what the Gen Z consumer is wearing today, the younger consumer, they've gone to this baggier, looser fit jean and bottom with a tighter crop top. And that seems to be the direction where it's heading, which is also almost the inverse of where things were a couple of years ago. So we are seeing perhaps a new cycle trend on the top side of the business as well. And again, I think it's still a little bit early to declare it, but we are seeing that. We are also to your question about price points, our value brands Signature and Denizen were both up in the key customers where we sell them. Signature is largely Walmart. That was up double digit. And our Denizen brand was up in Target this past quarter despite the fact that we accelerated the expansion of Levi's Red Tab in Target during this period of time. So we're winning on both the value side as well as the more premium RedTAP business in Target. So we are seeing it across price points. We are seeing it largely around the world, as I said. And it's strong for our business, but it is also it does seem to be pretty broad across the entire industry. Chip, to that point, as we think about this category backdrop, clearly very supportive. And I mean, any way to think about the overarching top down strategy as we think about growth of the Levi's brand, maybe is there a North Star for what size the Levi's brand you foresee 3, 5 years or longer term? And as the denim category is growing, it sounds like it's both the denim category and the market share opportunity. But I just wanted to clarify that I'm thinking about that right. Yes. So I do think we've got the combination of category growth and the potential tailwind of new trends, new silhouettes, denim resurgentpotentially even a new denim cycle, which is an industry wide phenomenon. And we do believe we've got share growth opportunity just within denim. And then beyond that, our strategy on Levi's is really to make this brand a bonafide lifestyle brand head to toe. And we've talked extensively about the opportunities that we have in many categories beyond denim. So tops, outerwear, footwear, men's, women's, huge opportunities for us. But what we're focused on strategically on the Levi's brand is distorting to lifestyle. You'll see that when you walk into our stores, even these smaller stores, these 2,500 Square Foot Next Gen smaller footprint stores, you'll see us distorting more of the business to women's where we're still underdeveloped. You'll see us distorting more towards tops. We've got this collection of sweats that we're selling now, which is even more casualization, which has really resonated well. You'll see us distorting those in store and online because we think that's a huge opportunity. We're going to continue to drive innovation. I'm sure we'll have a chance to talk about that today. And we're going to continue to focus on leading trends. We are the category leader. And having grown up as a marketer and working for category leaders in the past, it's the category leaders responsibility to drive category growth because it floats more boats. But we're also very focused on market share and we think we've got huge market share opportunities too. We've been gaining market share in Europe primarily on both men's and women's. There are some weak competitors over there. We're taking advantage of that, capitalizing on that. And we think we've got share growth opportunities here in the U. S. Still, which is today still our largest opportunity. And that's through a combination of distribution choices, which I'm sure we can talk about, particularly accelerating the growth of our mainline stores, continuing to drive growth in e commerce, but also the changes that we've made in our wholesale footprint all represent opportunities as well. So we've got opportunities to grow our core denim business for sure on a global basis. We have underdeveloped markets as well like China, but we also have opportunities to accelerate growth outside of our core denim business. And when you put all that together, I'm going to stay away from quoting a specific number. But the opportunities for Levi's, I think, are still really significant. And our biggest opportunity is to continue to invest in what's working and continue to build this brand. Well, you cited innovation. So I think that's a good place we can jump straight to. So as we think about innovation for the Levi's brand, Chip, is there an inning or kind of how best to think about where you think we stand from an innovation perspective? How excited are you about the product pipeline looking forward? And as we think about product launches and the pipeline, how are you aligning this into the broader reopening and recovery economically? Yes, so first of all, innovation is our lifeblood. This company was founded on an innovation, the patented Rivet, which created this amazing category in industry, but it is in our lifeblood. And I think about innovation very broadly speaking. So it goes way beyond just product. I've already covered the power that innovation can have if when we're leading trends, when we're really in the driver's seat, I've talked about that. But we're innovating broadly across our business. The speed and the agility with which the team responded to the pandemic and putting in place new omnichannel capabilities and really meeting the consumer where the consumer was during the pandemic has been really, really important. We accelerated the launch of buy online pickup curbside, buy online pickup in store. Those weren't even in place when the pandemic happened. We had it in place by early in the summer last year here in the U. S. And building out other key omni channel capabilities like ship from store on our e commerce business. We've tested it one day delivery. So really just continuing to innovate that consumer experience to meet them where they are, that's been super important for us. We're continuing to innovate with fabrics. We talked about this new EcoEase fabric on the earnings call. We've got cottonized hemp, which is a more sustainable fabric. It also reduces our dependence on cotton, which given where cotton is going right now is also a good thing. I think of it as almost formula flexibility. And we're trying to keep a balance of newness and freshness in our product assortment along with the fact that we do have this benefit versus a lot of the industry where so much of our product is poor and it carries over from season to season. So that helps us manage inventory really well. And I will say that one of the things I think we've done really well during the pandemic is we have managed inventory pretty preciously, I guess. And that's why we saw the gross margins at record levels this last quarter. We've not had to aggressively mark down product because our inventory position has been so clean. And at the end of the day, that's good for brand strength. If we're reducing promotion and selling more product at full price, that's really, really good for the strength of the brand. So all of these things kind of come together to create a stronger brand. Harmit, on the digital side, so digital is has become a significant part of Levi's strategy. Could you outline what differentiates your digital strategy and maybe what inning you see the shift to digital in today? Yes, I mean, I start by saying, one big differentiator for us is, it's a huge opportunity. And we have taken advantage of that and accelerated investments as well as the interaction with the consumer as he and she or she becomes more digital in the shopping experience. Digital, we look at digital mail as an ecosystem. So think about our own e commerce, think about pure players as well as wholesale.com. So the ecosystem in quarter 1 was close to 26% of our business, up from the 16% a year ago and growing big time. And that was one piece of it. If you think about our own e commerce business, which used to be 2% of our total revenues 7, 8 years ago is now 10%. And I think the things that are making a difference are the omni channel initiatives that Chip talked about. I think the fact that we have a loyalty program today with 5,000,000 consumers, we didn't have 5,000,000 consumers. In fact, we launched the loyalty program during the pandemic. We have an app in the U. S. And we're just getting started because both the omni channel and some of the programs like the loyalty program and the app are taking shape overseas as we speak. So I think the opportunity is clearly immense. And one of the things we did during the pandemic is we doubled down on investments in driving more of a digital experience to our consumer. So I think those are the things that made a huge difference. In terms of profitability, e commerce today, our own e commerce business, which was a drag till just before the pandemic actually makes money. Our own e commerce business is about $400,000,000 Our EBIT is in the low low single digit. And our view is when this business doubles, which we think could double in the next 5 years, EBIT margins on a fully allocated basis, this is all advertising, all technology gets close to 12%. And getting to 12% as a company, which we have talked about, I'm sure is a question that you will ask, is not dependent on e commerce margins improving. So that's just icing on the cake. I'd say the focus of the company till about the pandemic on e commerce was growing revenue. I think during the pandemic, we're really focused on making this not only a growth engine for the company, but also a profitable growth engine. And I think accelerating that I think is going to be important going forward. That was great, Harmit. You actually answered 2 in one there. Chip, maybe to switch gears over to brick and mortar. So on your owned store fleet, you've cited material white space for smaller format full price stores in key U. S. Cities. What's the opportunity here versus where do we stand today and how does this fit incrementally into that broader distribution ecosystem that Harmit mentioned? Yes. So first of all, we're firm believers that there is a place for brick and mortar retail for our business and we're continuing to invest in it. I think we said that we're going to open 80 new doors this year. And we do have major opportunities here in the United States. We have about 2 20 or so doors in the U. S, but they skew heavily to outlet. Those doors are very, very profitable. But part of our strategy is to elevate the brand in this marketplace. And we have about 40 Mainline doors. That's it. And I can start rattling off city after city where there are no Mainline doors. And that's because historically Mainline was tough for us to make money. And now we've got the smaller store format that is that delivers a really solid return on invested capital. And these stores are working for us. The combination of NextGen, which is kind of digitally empowered, digitally enabled, brighter stores, smaller store footprint, 2,500 square feet or so. Where we assort the door, I said earlier, we distort it towards women, we distort it towards tops and we're able to assort the stores smartly leveraging data science based on who shops in that particular area. And that has helped us generate very, very profitable mainline doors. And some of the newer ones that we've opened are already some of our top performing stores from a productivity standpoint. So we're very bullish about this. And we've got a good number of doors lined up for the balance of this fiscal year here in the U. S. Where we will begin entering markets that are total white space for us. We've approved stores in Boston. I've always used Boston as the example. We had no mainline doors. If you were one of the quarter 1000000 college age kids going to school in Boston and you wanted to go to a Levi's store, you had to go north to Kittery, Maine, an outlet store or south to rent them another outlet store and no mainline stores within the Greater Boston area. And clearly with a 2,500 Square Foot store, we could have 4 or 5 doors in the Greater Boston area. So and I could go, as I said, city by city where there's just lots of white space opportunity for us. Hamid, to switch over to wholesale. So you're in the process of continuing to expand your relationship with Target. Could you speak larger picture to the overarching U. S. Wholesale strategy, your ability and success to date in remapping demand across accounts? Sure. Again, the before and after picture is important. I think the before picture in U. S. Wholesale, as some of you would table was that it was unpredictable. And those were closing, it was difficult to predict the performance. And if you think about our history pre pandemic, U. S. Wholesale was largely flat even despite the closures, but it was not necessarily helping to grow the business. As we got into the pandemic and thought of different options, I think we basically aligned on the principle that we have to emerge over this crisis with a healthier U. S. Wholesale business. And that is all about growing the digital presence, the wholesale.com, which contributed to the digital ecosystem. It is feminizing the brand and the product in the U. S. Is largely a good product. So as we think about our assortment with Target is behind of the good product at a price point which is higher than the average. It's about growing relationships with folks like Nordstrom. And it is about reducing our exposure given the cleaner inventory we had that Chip talked about with off price. And I think that's all beginning to work. So it's more distributed. And then with the traditional retailers, the big three, who we have a great relationship with, we focused on the top doors as well as driving more of a lifestyle orientation, more tops, more accessories. And I think building that presence as well as growing with our women's business. Our women's business across the top 10 global wholesale comp, most of them in the U. S. Has actually now grown for the last three quarters and actually grew in 2020 over 2019 because we think we are under penetrated. So what this is all leading to, Matt, is presence and the right mix of retailers, growing with the retailers that are financially well capitalized. But at the same time, higher gross margins, we have reduced our dilution. Chip talked about ensuring that we're not promoting as heavily. Obviously, final pricing is in the hands of the retailer. But with clean inventory, we can actually lead that charge. And I think that's what we are feeling good about is U. S. Wholesale in quarter 1 actually grew relative to 2019 slightly, but it grew relative to 2019. Our wholesale business in the rest of the world is pretty it's fairly healthy. And during the pandemic, our wholesale business globally was growing. The U. S. Business was a drag. And I think coming out of the pandemic, getting a healthier wholesale business, I think, will be something that we're looking to deliver longer term. Harmit, on gross margin, so you significantly beat gross margin expectations again in the Q1. Could you just speak to expectations for gross profit margin expansion as we move through the remainder of this year? And then as we think multi year, help us to think about that algorithm. I think it was 40 to 50 basis points annual expansion. Is that still the right way to think about it? And what would be the key drivers? Yes, sure. So we're very pleased in the progress on gross margin. Gross margin on an adjusted basis, even last year during the pandemic, grew relative to 2019. And the way we are focused on growing gross margin, really 2 key drivers. 1 is channel mix and geographic mix. So e commerce is a higher gross margin. International is a higher gross margin. I've talked about growing with a healthier wholesale customer. So that's one piece that I think will continue. The second piece is largely driven by pricing. We think we are in the early innings on pricing with the brand being on a tear and with casualization trends emerging that play to our strengths and with inflation potentially around the corner, I think we will lead the pricing charge in the industry. With the reduction in discounting with cleaner inventory levels, which we hope to maintain longer term. I think that also helps. And we continue to negotiate really well with our vendors and leverage our volumes. So I think those things make a difference. As we premiumize, obviously, AURs also increase. So I think those will be the 2 broad drivers. I think the tailwind in Q1, which we don't think will repeat or sustain over time was FX. We had 70 basis points of FX benefit and that probably reduces over time. Our view for quarter for the year, we haven't given a full year guidance, but what we have said is think of gross margins with a 56 handle, which is 150, 200 basis points better than a year ago. To your question about what's the growth algorithm on gross margins longer term, we haven't talked about a growth algorithm and we are waiting to tell a little bit more visibility, the pandemic is behind us. But gross margin accretion will always be a part of how we continue to leverage our fixed costs and drive EBIT margin expansion. And it's a big piece of it. And I think having a brand like Levi's with so much strength behind it will allow us to continue to grow gross margin. So maybe to stick with pricing and Harmit, I think you just cited it as maybe only in the 3rd inning. Chip, as we think about the U. S. In particular, could you just walk through some of the initiatives underway on the pricing front and maybe just how you view the overall backdrop right now from a promotional or full price selling dynamic? Yes. So I mean, I've already touched on the reduction in promotion broadly over the last 6 months or so that we've seen, which has certainly contributed to our gross margin improvement. But I think specific to the U. S, our opportunities are a couple of fold. 1, the brand is really, really strong and we think there are pockets of opportunity, particularly around innovation where we can price and get a higher AUR. So that is one big opportunity. The second, as Harmit talked about, the mix of our wholesale business is shifting to healthier financially healthier retailers, more premium retail as well, which gets us into Tier 2 product and higher AURs. And then 3rd is this mix of mainline doors over time where we're that's Tier 2, Tier 1 play for us from a product standpoint, again, higher AURs. But we have built this AI capability. And one of the big areas that we've got the data scientists focused on is to look surgically at where do we have the biggest pricing opportunities from a just raising AUR standpoint. And we've done this a number of times over the last 18 months or so where we have taken pricing in different parts of the world, sometimes to offset currency. And I think in every instance to my knowledge, it has stuck. And again, it's because of the overall strength of the brand. But the path that we're on here in the U. S. Is largely around premiumizing the brand, elevating the brand and where we've got opportunities to take pricing, we will capitalize on those. Harmit, on the expense front, so SG and A in the Q1 more or less in line with 2019, guidance for the Q2 more or less the same. Can you comment on drivers of SG and A investments versus the $200,000,000 in gross savings that you've announced? And just help us to think about Levi's Natural SG and A growth rate or what you see as a sustainable SG and A rate as a percent of sales from here? Yes, sure. So again, during the pandemic, we really sharpened our focus on both cost and cash. And I just talk about what we did. No cost for us was fixed. Everything was variable. And we took a hard look. We went to town with every vendor there is, every landlord, because structurally we think we can improve the P and L both in the store as well as the company by chiseling away at the cost structure. That led to probably an annualized saving of about $200,000,000 a combination of the bunch of things. Given that we're not out of the Woodgate, we continue to chisel away at rents. We continue to negotiate with the vendors, so that structurally we land at the right spot. It's clearly a muscle that has been built and along with the muscle on cash, because we think we can generate more cash as a company and flow that in terms of investments is important. To your question about where are we investing, we are definitely investing in technology on the omni channel initiatives I talked about. We are upgrading our ERP to an on the cloud, more digitized ERP solution. We are investing in AI and data analytics. We're building a global capability center offshore at the same time, so we're leveraging talent around the world. And we're taking up advertising slightly in 2021 relative to 2020. And those are the areas. And if you add the areas we're investing, you'll notice that it's all about driving or accelerating growth. So we're not starting the business. That's one of the questions people ask. You are going back to 'nineteen levels. Are you not investing? And our point is no, we are investing where it matters, but we're taking out costs in areas where we think we can be more productive. So that's the first piece. The second piece of it is, as you think about our SG and A levels, we have said in Q1, we were back in 'nineteen levels. In Q2, we have guided going staying at the 'nineteen level. Year end, we say we'll be at 'nineteen levels. And this is after we have 250 more doors relative to 'nineteen. So it's not that we're not growing direct to consumer. We are putting our money where our mouth is. I think to your longer term question, what's the growth algorithm for SG and A? I would say SG and A probably grows and we invest in the areas that we talk about, but there will be leverage. So EBIT margin will gross margin will grow, SG will probably go a little less and EBIT margin growth is something that we will drive. We haven't given clarity on the growth algorithm largely because we want to, as I said earlier, want to wait till the pandemic is behind us. And Chip, maybe one of the areas to that point that it seems like you are moving incrementally to offense would be on marketing. So how are you adjusting Levi's marketing as a result of the pandemic to take advantage of the category resurgence that you just spoke to? Sure. Well, first of all, we announced on the earnings call that we're launching a new campaign later this month globally that is called buy better, wear longer, which really taps into the consumer insight around conscious consumption and sustainability. And we think we've got a really strong story to tell there. This is right up. We can own this spot of buying better wear longer and it really does tap into a real theme of youth as a result of the pandemic. From an investment standpoint, we've guided that our advertising investment will be around 7% of revenue, which is kind of where it's been over the last couple of years. We know we're very disciplined. I spent 28 years at Procter and Gamble. I'm a brand guy at heart. We're extremely disciplined about our marketing investment. We think there's opportunity to go higher. We're going to be disciplined about doing it because it needs to pay out and we need to deliver accelerated growth on top of it. But as we run market mix modeling on our business at 7%, we're still almost 300 basis points below where Nike is, 400 basis points behind where Adidas is. And one of our greatest assets is the Levi's brand. And so we think there's upside opportunity here. We're not going to just run to it because there's upside opportunity here. We're going to prove to ourselves that it makes good financial sense to do that in a really disciplined way. And we do believe that this marketing is going to drive share growth for us. So that's kind of how we're thinking about it, both short term and longer term. And then Harmit, as maybe to put together some of the you spoke about gross margin, you cited SG and A. So at the EBIT margin level, you've announced 12% plus EBIT margins achievable on pre pandemic revenues. So I think you've cited to be ahead of pre pandemic revenues in the Q4 and beyond. So is it fair then that beyond this year, you expect to be in that 12% plus EBIT margin zone? Yes. I'd say the short answer is yes. We are confident. The 3 drivers, revenue levels back to 2019 as driver 1, driver 2 is gross margin acceleration of 200 basis points. We are seeing that and SG and A back to 2019 levels. So we feel we can control 2 out of the 3. The third is revenue. We can do our piece, but our view of the world is Q4 is the first time holistically as a company we'll get back to those levels. And we want to maintain those levels going into 2022 because of the tailwind that's on the category. So I think the short answer to that is yes, and we're very disciplined about getting to that. I think pre pandemic, the company embraced profit and growth. I think post pandemic, we continue to embrace growth and profit, but we've added cash as a third factor. And we're amazing people, we're bonusing people on these three factors and I think that makes a big difference. And then Harmit on capital allocation. So you've now reinstated and most recently actually raised your quarterly dividend. How should we think about priorities from here as we think about dividends tying in shareholder returns? And I believe M and A has always been a potential focus as well. Yes. It's great to have options because we're generating a decent amount of cash. And so I'll start with that. And I must compliment everybody in the organization for getting on the bandwagon for it. I think our first priority will always be high ROI growth investments. And that's going to be our first priority. We have enough cash and we don't have a dividend policy. But every quarter, we review the dividend with the Board. And as you've seen, we have a good history of raising dividends pre pandemic. So the first point of call will be to get to the pre pandemic level of $0.08 a share and then grow from there as the business accelerates. On M and A, being a disciplined team, we are thoughtful. I mean, our view of the world is we want to be the best apparel company. We want to own your closet. And so as we think about categories that we're really focused on in stocks that Chip talked about, growing our women's category, growing footwear, outerwear and then we've added athleisure because that's a trend that's here to stay. We launched the loungewear, everybody did well, etcetera. The way we think about M and A match is we look at these categories and say, do we have the capabilities or can we organically build the capability? If we can, that's what we'll do. If we can't, we go out and look at something that will accelerate that. And it has to pass through 3 filters. It has to be financially accretive. It has to be the right strategic growth area and something we can leverage around the world. And then more importantly, the culture has to match the same sustainability DNA, the same value orientation as we bring people on board. And Chip and I have looked at a lot of stuff. We've built a small M and A team. We've turned on everything because it doesn't either pass one of these categories. And I think that's the way to look at it. What we have done is do organic acquisitions. So it's buying back distributors, taking back franchisees, taking back some product licenses. And we have 1 or 2 markets that are still in discussion. It's near term, it's the right thing to do, it's accretive and helps us accelerate the market share. So that's how we think about it. Chip, last question to close. So you've been highly focused on sustainability for as long as I've known the company. How do you see the consumers increased interest and focus on sustainability changing? And how does ESG fit into your overarching Levi's strategy? Well, first of all, I mean, ESG has been a priority for us going all the way back to even before I joined this company. We've always been a leader from a sustainability standpoint in the apparel space and I can talk a little bit about that. The pandemic has changed things for the consumer as I alluded to earlier. Consumers are much more aware of what they're buying and how they're buying it. I think they now are looking not just for value, but values. They're looking at the companies and the brands that they're buying. They want to go to the brands that they know and that they trust. And they are digging deeper. They're going to buy fewer things, more versatile things, which is why this buy better, wear longer campaign idea has really resonated. From a sustainability standpoint, we're focused in a couple of areas. First is water. It's been a big focus of ours. Cotton growing in itself consumes a lot of water. Our product consumes a lot of water. We have a proprietary technique, which we've actually open sourced to the entire industry called waterless, which is a finishing technique. It's used now on more than 3 quarters of all of our product. It's saved over 4,200,000,000 liters of water, I think, over the last 10 years or so. We also are implementing recycled water in many of the factories that produce our product. We've recycled more than 10,000,000,000 liters of water. On climate, we've reduced our emissions in our owned and operated facilities by more than 55% over the last couple of years. Renewable energy represents more than 70% of the energy purchases in our owned and operated facilities as well. We're very advanced from a chemical standpoint. Chemicals are the bad guys in this industry. We've got a screen chemistry program, which is now being implemented by more than 80% of our suppliers. It covers over 1200 chemicals. On the people front, we've been very focused on DEI since last summer and the George Floyd murder. I declared it's an issue for us as a company and we're not where we need to be internally. So the external words and everything that we do externally around equity and inclusion is not really matching up internally. We've hired a Chief Diversity Officer several months ago. We're off to a great start there. We're already making progress. We released our diversity results publicly again back in February, you can find them online. We're committed to doing that very transparently every single year by level how we stack up from a diversity standpoint. We've also improved the diversity on our Board of Directors with the most recent director who joined Elliott Rogers, who's the Chief Information Officer at Ulta Beauty. He's a terrific addition to our Board. So we're making really good progress there, but there's a lot of work to go. And we continue to innovate. We're testing this Levi's secondhand. Levi's is arguably the leader in thrift shops. And we know what's happening with the thrifting world online. And we're testing our own secondhand upcycling program. Still early days, it's relatively small, but we think there's a big idea there. It does tap into the consumer gestalt right now. So we're optimistic about that. But this is an area, I think, of strength for us relative to our peer group and we're very committed to it. I'd agree. I think that's a great place to close. Chip, Harmit, thanks for your time today and for all the great color. Best of luck in the recovery and the potential for the next cycle. Thanks, Matt. Thanks for having us. You got it.