Okay, great. Thanks. It's Matt Boss, Retailing, Department Stores and Specialty Softlines here at J.P. Morgan. Really happy to host today the team from Levi's, CEO Michelle Gass, and CFO and Growth Officer Harmit Singh. The format for today is fireside chat, and we'll open it up at the end for questions in the audience. With that, Michelle, Harmit, thank you for joining us, and thanks for joining again at the Retail Round Up, and congrats coming off of-
Thanks
another very strong quarter.
Thanks for having us, Matt.
Absolutely.
Great to be here.
Yeah. Maybe to kick off, and exactly on that point, coming off of the strength in the last quarter, the organic growth rate, another quarter of high single digits%. Maybe if we think about growth building on growth.
Yeah
The strength in 2025, the strength now to kick off 2026. How best to think about your results relative to the denim market, what you think is company specific, what maybe is industry?
Yeah. Well, first I'd say we are really pleased to deliver a 9% organic, 14% reported, and to your point, coming off of a 7% growth last year. I'd first say that this is a direct result of our strategies. Our strategies are gaining traction. The strategies are working. First I would say this move to become a best-in-class DTC first retailer. DTC is now half our business. It'll be half our business for the year, and that's working, up 10% in the quarter as you saw, 7% comp growth, 16 consecutive quarters. This isn't like a flash in the pan, right? Not even a last year thing. I mean, this momentum has been building and the DTC results, and it has not been at the expense of wholesale.
Wholesale also had a great quarter, up 8%, and we can dive into that. As we look at it's really strength across the board, which goes back to the strategies that are working. We have strength across every geography. We have strength across men's and women's, tops and bottoms. The list goes on. The category is growing, right? In fact, in the U.S., it's even accelerating a bit. We're the leader in the category, so I like to believe that we're helping fuel that growth, and we're doing it through innovation. Our core in the business is really healthy, but our fashion and our newness is really resonating, and then marketing. That is helping. We'll probably talk about that as well in terms of we've been a brand-led company for a long time.
Last year's campaign about Beyoncé was a huge success, put us on the global stage, and then this year we kicked off literally on the global stage with the Super Bowl, with our new brand campaign, which is off to a great start, delivered in the quarter, but has a long runway ahead. The last thing I would say is it's around execution. The good news as we sit here today, and as we go into, I call it this next phase, next chapter of our transformation, it is all about execution. We spent the last couple of years sharpening our strategies, making some big decisions like selling Dockers so that the entire organization could be focused on unleashing the potential of the Levi's brand, still nurturing Beyond Yoga, and then as we grow, driving that more profitably. It's working.
Harmit, maybe if we could talk about the composition of that underlying organic as we think about units relative to AUR and just pricing power that you see for the brand globally.
Sure. Just building on Michelle, it's not one element of the business that's driving outsized growth. It is every facet of the business. What I like to call the power of the and. You think about that. That will answer your question, which is, the U.S. was up, international was up, wholesale was up, direct-to-consumer was up, women's was up, men's was up. AURs were up, and we were selling more units. There's a good balance between AURs and units. I do believe as we expanded our addressable market 15 times from $100 billion denim segment, we were not even playing in the premium denim segment. With the launch of Blue Tab, now we've entered it. As you think about the expanded TAM, 15 times larger, $1.5 trillion. Think about non-denim bottoms for men, which we have launched. We're just scratching the surface.
Think of denim skirts and dresses, just launched. Just scratching the surface. Waist up, which is the other part of the and. Tops were up and bottoms were up. We've started tracking what we call the new TAM. The new TAM this quarter delivered 25% of the growth. Last year, it delivered a third of the growth, and it's all built around the denim aesthetic. It's not that we're just launching a top for the sake of a top. We're making sure the top or the bottom has some element of denim. A linen has an element of denim. Our outerwear has an element of denim. That's the way, I think, to think about the growth and why we feel really good about the growth. That's your AUR and your unit question. You had a second part to that question. Was that-
Just the balance and the opportunity that you see across regions.
Okay. Across regions. If you think of our guidance was, I think 4%-5%, we kind of delivered 9%. What drove the outside growth? It was wholesale. Two-thirds of the growth was wholesale, primarily Europe and the U.S., and I'll talk about that in a second. It was Asia. China, after a long time, grew 8%. Right? It's a small piece of the business. We think there's an opportunity. India grew, Japan grew, and the other countries, and I think that was a big piece. Asia continues to be under-penetrated for us only because you can argue half the world's population is in Asia, and it's about 20% of our business. Right? The brand's really strong with the consumer, and we're leveraging that. As a CFO, putting on my CFO hat, not the growth hat, it's important to look at Asia's operating margins.
You look at the last three years, it's grown every year. Because as you drive the volume leverage, you're going to drive that throughput. That's really, Matt, to your question. On wholesale, again, the power of the N. The wholesale growth was largely driven by women and by tops, and balance between AUR and units.
Mm-hmm.
I think Michelle's point on the strategy, the lean into DTC is beginning to have an impact on wholesale. Because as the customers start seeing it working, are seeing in our own business, in our own e-commerce, they're beginning to lean in. You go to Herald Square here, you'll see the best representation in Macy's of our men's floor space, more denim lifestyle. You look at the women's, more denim lifestyle. I think you're beginning to see those elements come to life. It just takes a little longer.
I mean, double-digit direct-to-consumer growth in the latest quarter. Can you talk about new customer acquisition? I think it's perfect and great example of what's happening with the brand.
Yeah, we are seeing that. You're able to really understand that with e-commerce because you have a lot more information, but 70% of the new customers we see coming into e-commerce are in that younger consumer band. That's really exciting. We're doing that, and it's again, not at the expense of the multi-generational impact that we have. We're not getting these results just on the back of our existing customers. Surely, we're bringing in lots of new consumers, and it speaks again to the strategy. The product is relevant. Building on what Harmit was just saying, this idea of taking everything that's great about Levi's. We are known iconic for our denim bottoms, and we will always protect that.
Now to the consumer, and the consumer is voting with their wallet saying they want us to do this, to expand into a much bigger pond with really playing in the entire apparel category. What was just denim, we still track that closely, but 15x, we're talking a trillion plus in the apparel market. Now, with that comes the responsibility to be very targeted on how we play. Because you don't want to be all things to all people, right? There's many case studies of brands that get too diluted and lose their focus, and that's not us. I mean, as we have gone after the categories of tops, we want to make sure that it's complementary to our bottoms business. It always starts with denim, but it doesn't mean that everything you're going to find in our store is denim.
We'll have the DNA of Levi's, and that's what's working. We had to build a foundation. We brought in new talent, we brought in new vendors, new capability, and that's what's helping to really accelerate the growth. I think as we're sitting here a few years from now, people are going to look to us and see us not just still going to love our jeans, but they're going to see us as a place to go shopping head to toe. Back to your point around so it knits together because how are we getting these great results in DTC? I mean, denim lifestyle is driving a big piece of it. Women's is driving a big piece of it. If you look at in parts of the world in DTC, women's is half the business in certain geographies when we can create that whole experience.
Wholesale is lagging because we don't control that experience, right? As Harmit said, they're drafting off of the winds. Our key customers are going into our store saying, "I want that. I want that." That's happening in our mainline doors. It's happening in outlet. We have also those multiple tiers to appeal to different consumers. The other piece that we're doing to get after these incremental categories, so if you take women's, it's 38% of our business. That should be 50%. Like I said, we see pockets where that's already happening in parts of our DTC business, but we are creating that experience in the store. If you're in most of our mainline doors here in the U.S., we've completely remerchandised. What used to be, you'd go into the store, you'd be hit with men's first, and you'd see lots of stacks of jeans.
Still want to sell a lot of jeans. Now, if you go in, actually, we put the women's presentation in the front. Because the guys know to go in the back to get their 501s or 511s, but you're getting that shopper, that female shopper who's walking by and seeing the windows, and they're like, "Wow." It's head to toe, right? It's not just tops. Tops include, yes, the button-downs, the blouses, the T-shirts, the sweaters, but we're doing skirts, we're doing dresses, and all of those categories feed into this denim lifestyle. That is what's fueling the momentum. For women's to be up 13% in the quarter, for tops to be 13%, and by the way, on tops, I'm kind of speaking to that female strategy, but tops are working for men as well.
You're doing it in a full price selling way.
Yes.
I think one of the things that we've talked about is you actually rationalize SKUs and got back to a strong foundation, and now you're growing off of that foundation. Maybe it's a question for both of you, but Harmit, on the SKU rationalization and how that is now having an impact from profitable sales, not just sales. Maybe if you could speak to how that-
Sure. Give Michelle a lot of credit for driving real focus on really making sure two things. One, we are really focused on our big bets and more commonality around the world. If you think of the Low Loose or you think of non-denim pants for him, these are globally directed assortments, right? That doesn't mean the open to buy goes up. That's where I come in in my CFO role and said, "No, you can't do that." We have to look at the assortments that are not as productive. If we have 15 colors of black, because over time, that's what's happened, let's really take a hard look and reduce that because the consumer doesn't tell the difference. We spend maybe different fabrics, different vendors, et cetera. What we've really done is we have reduced the SKUs probably 25% around the world.
That has led to better negotiation with the vendors. It has led to lower markdowns. I don't think we're done, right? Because that's really a journey. If you think of directing assortments, we have started with mainline, which is our own store. Let's think of DTC. We're probably over 50% now. We haven't yet touched wholesale. That's the next journey, is start now making sure you can rationalize some of the SKUs in wholesale, start rationalizing, directing more assortments so that when the consumer walks in, he or she sees very similar stuff around the world. That's helping margins. The other thing that is happening is we are reducing promotions. The product is working. You can drive more full price selling.
One of the ways we're able to help offset some of the tariff pressure and why we feel gross margin has an opportunity to continue to grow is we're just starting that journey. We're nowhere anyway close to even 70% of full price selling. Europe does a very good job. Followed by Asia, followed by the U.S. As we build these full price stores, as we direct more assortments, I think that's an opportunity.
Michelle, I think you've cited an additional $10 billion TAM on the premium side.
Yes.
Where are you today? Where do you see that opportunity? Is that bringing in a new customer?
We're very early in the journey, but the early indications are positive, really positive. Blue Tab, and it's part of our segmentation strategy. The core and the backbone of our business is Red Tab, how most people think about Levi's, or the vast majority. We have Signature, and we can talk about that too, especially in an environment where there is pressure on a segment of the population. That business was up 16%, and that is sold in places like Walmart, and it's on Amazon and really speaks to that consumer looking for more value. Price point, $20-$30. Blue Tab. Very excited about Blue Tab. This is sort of the pinnacle expression of the Levi's brand. Very premium, $10 billion addressable market, and we are less than 1% share.
Mm-hmm.
As the denim leader, even if we capture our fair share, that's a sizable incremental opportunity. We see parts of the world, so really inspired by places like Japan, which has a very sophisticated consumer. That actually makes up a sizable part of the business. I should back up. Blue Tab, which is what we're calling it to the consumer, was inspired by previously, we would sell things like Japanese denim selvedge.
We would do. Made & Crafted was another part of the line, and it was a bit fragmented. It was really through a consumer who said, "Well, I like the stuff with the Blue Tab because that's the good stuff." I was like, "Okay, let's just simplify and let's create this new category for us called Blue Tab." What started, again, based in denim, call it Japanese denim bottoms, we are now developing full collections. That is gonna allow us to get into bottoms, tops, jackets, blazers, other fabrications, and perhaps not everything from Japan. There's amazing fabrics out of Italy. To answer it, we see a lot of upside. It's upside to the business, and it creates a nice halo to the entire Levi's brand.
Now, to piggyback off of that as you kind of alluded to, I think one of the things that's really resonating is that there is something at Levi's for everybody. Maybe could you elaborate on the segmentation strategy, what you're seeing across maybe all of the income demographics?
Yeah. Kind of further building on what we're seeing. Let's go back to the core of our business, which is Levi's. To date, and as we all navigate another kind of time of uncertainty, to date, we have not seen an impact to demand. We're staying very close, but we're a great value. It's the quality. Consumers are responding to the innovation, to the newness. The core of our business is really healthy. Then, as I said, Signature, so to talk a little bit more about that, Signature by Levi Strauss, targeted at that consumer who wants value, but we're still gonna give them an amazing product. As the Signature team has seen what's working for Levi's, women's head-to-toe denim lifestyle tops, jackets, sweaters, layers, etc., they've built now that innovation into Signature, and it's really accelerating up double digits in the first quarter.
We do offer something for everyone, but yet in a very focused way, and I think that's been a big part of the benefits we're seeing. We're looking at this around the world and focusing our resources on, because if what's going to resonate, especially in a time where consumers are going to look to brands that they know, that they trust. When the wallets get tighter, we have to work harder, right? If there's more pressure on the choices they have, we've got to show up with excitement, and that's where, as Harmit was talking about, we've really rewired this company. We're still rewiring it to operate as a best-in-class retailer, and go-to-market has been a big part of that. How do we get more leverage and scale?
What Harmit was referring to, the directed assortment or having a more aligned assortment globally, that is great from a focus standpoint, so the entire company can get behind what the big bets are. In the first quarter, it was all about the '90s look, grunge prep, as we called it. Grunge prep is happening all around the world, and that newness was a big contributor to our growth. That commonality is now 50%. That will probably approach the 75% mark. You just think about the efficiencies and the scale you can get, helps the top line, and it will help the bottom line, help margins. Yet there's still room in that 25%-30% for the markets to get what they need to be locally relevant. We are staying super close.
Just the last thing I would say on pricing, because it's a hot topic in this environment. We put a lot of work into how to price, where to price, to mitigate some of the tariff headwind, and then to also say, "We have pricing power, so let's price for the innovation. Let's price for the newness." Like I said, that demand is continuing. It's continued right into the second quarter. Also probably worth mentioning, and Harmit can speak to this, but back to tariffs, as we increased our guidance just a couple of days ago when we shared on the call, we also have not yet baked in what could be some favorability from a tariff standpoint, and that's worth about $0.07 on EPS.
Yeah. I was going to ask you, Harmit. You historically take a prudent approach. There's prudence on the tariffs. If you could maybe touch on that, it seems like you also have taken a prudent outlook as it relates to the consumer. Maybe beyond the fact that, as Michelle, you just said, not seeing any impact today, what have you embedded as it relates to the second quarter and maybe for the back half? Is there a what we potentially could see embedded in your guidance?
Yeah. We beat Q1 by a mile, top line, bottom line. We probably flowed a third of that beat into full-year. There were a couple of reasons for that. One was it's early in the year. What we've demonstrated is we can lap strong growth with strong growth, right, because of the different things that Michelle and I talked about. We were prudent only for a couple of reasons. One was early in the year. The second was, given the macro uncertainty, it was important to ensure that the guidance is one that you could beat over time and respond with agility, especially when your product is hitting home to the consumer, depending on how the consumer is at any point of time. That's really what drove it. What are the upsides, if at all?
One is, we assumed tariffs at the old rate of 19%-20%, not at the 10%. Today, that upside is about $35 million balance of the year and $0.07, as Michelle said. Obviously, there's an upside in 2027. There is $80 million of tax refunds based on what tariffs were paid. That's not incorporated. We were asked the question earlier by a large institutional investor whether that means we'll have more cash to return back to the shareholder, and our view is our investment needs for the year are already factored in, right? So if there is more cash, it's something we'll work with the board and think hard about because we've done that with Dockers, the sale of Dockers. We return all that cash back. As we think to your question about the balance of the year, Q2, I think, is appropriately reflected.
There is that change because of the distribution ramp-up in Europe last year. The second half is prudent. Second half, you do the math. You say, "Oh my God, you guys are slowing your trends." We're not slowing the trends. There's nothing that we're looking at and say, "Oh my God, trends will slow." It is just being cautious about the outlook. That's the way we're thinking about it. Yes, we have locked in with oil rising. We have locked in the base contracts for ocean and for air freight through early next year. There are some surcharges, depending on where oil is. We are working through managing that as a question. The other thing that we're really focused on, because we heard it from all investors here and from the sell side, is drive higher flow-through on incremental revenue.
You were with a bunch of leaders a couple of years ago. We bring 250 leaders together, and we just finished that a month ago. Flow-through and SG&A management was a prime topic. People understand the playbook and the things we are doing, because it's not just going to happen by chiseling away at cost. We've got a couple of things. One, we're leveraging AI big time. We've got about 700-800 agents right now, really focused on two things. How do you improve the consumer experience? More importantly, how do you drive more operational efficiency? Headcount is flat despite a growing business. Right?
We've got these global talent hubs around the world where we're saying, "Let's take processes in different parts of the world and really drive efficiency." We've got a few things on the cards, and that's what really drives the second half of the year or the next three quarters.
Michelle, if we think about the mid-single digit organic top-line outlook for the year, maybe if we could just break it down by what you're seeing across the regions. Where are you excited? Where do you see the most opportunity?
Well, we see opportunity across. We have the roadmap that takes us from in the sixes to $10 billion, hopefully beyond at some point. You can map that growth by gender. We expect to continue to see growth in men's, but we will expect to see outsized growth in women's.
Mm-hmm.
Think about women's 11% growth last year. Q1, we just reported 13%. It's at a new level, right? That is a big chunk of the growth. Second, the other way we look at it is category. Continue to have nice steady growth with denim bottoms, but then also layer in non-denim bottoms, and then layer in all these categories in tops and denim lifestyle. You can ladder, get to your $10 billion that way. Then to your question, we also have the build by geography. As we guided this year, we haven't guided further out, so I'll stick to the narrative, but for this year, we expect Europe to be in the mid-single digits%. The Americas being in that probably low single digits%. Hopefully, we outperform there. Then Asia, high single digits%.
You think about, especially Asia, we are really under-penetrated there, and we both go back and forth there a lot to see the opportunity. Every time we go, especially markets like India, we're just scratching the surface. Japan has been on fire. China. It's been a long time since we've seen China grow.
Mm-hmm.
China was up 8% this quarter. We feel like we're going to take a victory lap. We are seeing the green shoots with a new management team, with a tighter assortment, frankly, taking the playbook that's working for us around the world. The last one I would say, back to the Americas, Latin America. Tons of opportunity there. Mexico is our second-biggest country as it relates to Levi's, and there's still upside. That. U.S., our most mature market. You're seeing the U.S. grow. We're up 4% in the quarter. You can go on, and then lastly, just end on Europe. I just got back from a trip there. Even in established markets, like I shared on the call, Italy, which is sort of that barometer of fashion and a bit of a Mecca, we're growing really strongly there. That business has doubled since 2021.
We just look across, and we literally have it mapped out in terms of where we can find the growth. A lot of that's going to be fueled by DTC continuing this comp growth that we're now sharing comps officially.
Mm-hmm.
You can expect to continue to hear that from us. It was 7%. We see a lot of productivity gains that can happen still. We're pleased with as much comp growth that we've generated the last couple of years, but we benchmark ourselves to others, and we say there's still a lot of upside there. Of course, we're going to build new stores. We've guided 50-ish net new this year. That continues to be upside. E-commerce across all these geographies, and then I'll end it with what is supporting all this growth, of course, is the product, how we show up in all these places, both in wholesale and in our DTC channels, and being a brand-led company and making sure that we're staying connected to our consumers around the world.
Harmit, gross margin. I think we've talked in the past about the algorithm. Is 30-40 basis points a year the right algorithm?
Yeah.
What are the puts and takes on gross margin?
Yeah. Let's say Q1. Let's start with Q1, right? Q1 was where we saw the full impact of tariffs relative to a year ago because I think it was around this time last year when we had 2nd April and Liberation Day. The way our strategy to offset the tariff impact is working. We took some pricing, we leaned into lower product costs with our vendors, SKU rationalization, more vendors, et cetera, and driving higher full price sales. If you break up Q1, and we had a little bit of an FX headwind that largely offset tariffs. Q2 tariffs will be offset by the actions we're taking. There's a bit of FX headwind in Q2 that's really driving the decline, but tariffs should be offset with the actions. Acceleration of gross margins end of the year.
We did raise our gross margin guidance for the year from flat to slightly up. To your question about what's the regular cadence of gross margin accretion, 30-40 basis points is natural.
Mm-hmm.
It's just driven by the business model. What we are trying to accelerate growth to, and succeeding, is gross margin accretive. Women's is gross margin accretive. DTC is gross margin accretive. International is gross margin accretive. Now, our tops business, which is right now we sell 2 bottoms to 1 top, and our target is get to 1 to 1. Like we saw in the women's business, which was diluted to gross margin. We're not selling enough. Now it's accretive. Our view is that tops right now slightly diluted to margins because we don't have the volume. When we are able to get the volume, our view is that could be at par or. I haven't built that into that equation. There is clear opportunity. Full price selling, we have a bit of option. There's some trigger points from that perspective.
Relative to the 12-ish% margin this year.
Right
target.
Yeah.
Fair to say mid-teens target on track over a multi-year period?
Yeah. The best way to break it up, simplistically, it's never this simple, but if you take the 12 to the 15, what's the roadmap? One is gross margin increase, 30-40 basis points a year. On a 5-year basis, that's 200 basis points. The second is this real focus on flow-through, and the company being a mid-single-digit company, on a sustainable basis, drives leverage and SG&A. We haven't talked distribution. Distribution costs are slightly north of 7%. We've got a whole activity on remapping that. We think we can get a point. In that SG&A, you said probably 100 basis points of leverage, 100 basis points of distribution. That is more than 16. Our view is, because we're a brand-led company, maybe we can invest a little bit more in advertising. Right? Other companies have done that.
If you're reaching out to more consumers, that's up to 15%. Our EBIT margins were 9% in 2023. We'll close this year closer to 12%.
Mm
We're on track.
We talked about cash, just how you're thinking about capital allocation priorities.
Sure. I think the best way to think of capital allocation is 3.5%-4%, spending that on CapEx. Two-thirds of that to grow the company, open new doors, e-commerce, some AI investments, and about a third in what I call infrastructure maintenance. That's your piece. Dividend-paying company, we increase dividends probably 8%-10% in line with net income. That continues for a while, and then buy back stock to offset dilution, and if there's more cash, like it happened in the last couple of years, return that back to the shareholders.
Maybe before I open it up to some questions in the audience, Harmit, with all of the momentum and everything that you guys are building, why leave us now? If it's for golf, you better be recording your scores. We need to see that handicap.
Matt, you're still better than me in golf, but we'll figure that out. There's never a good time, especially when the business is having the sustained momentum. I've been with the company 13 years. I'll probably leave when I'm closer to 14. We're finding my successor and making sure he or she lands well, et cetera. I think the company's in a real good spot. Michelle's been on board for a couple of years. We've got a great executive team. The business has momentum. I have a fantastic team, some of who you've talked to over the years because I said, "Let's get public ready." I think those are the factors. People have asked me, "Harmit, what are you going to do?" I don't think I'm going to be on the golf course every day.
The way I think about it is, I want to do what I love to do, which is build and transform businesses, now with a bit of an AI experience. The second is, I love to work with people, so I want to unleash talent of the folks that I work with and spend some time with the family. They were like, "Okay, Harmit, it's time to spend a little bit more time." That's the way one is thinking. I'm here for a while. I've got a couple of quarters, definitely a quarter to deliver, and then Michelle and the team can. We'll high five and pass on the baton to whoever takes this to the next level.
Great. Maybe we'll open it up to the room. There's microphones on each of the tables.
Harmit, just congrats on a great run. I had a question around GLP-1s, actually. I remember during COVID, you guys were very vocal about something like 35%-40% of waist sizes have changed. There's this balloon pants trend.
Yeah.
This time around, it seems like the societal impact, the weight loss impact, is bigger than that time, and it could be more sustainable, but I haven't heard you guys talk about it as much. I'm curious if there's anything you could share, if you see it as an opportunity. Obviously, the category lends itself t o weight loss or weight changes. Skinny jeans, baggy jeans, that kind of nomenclature. Just curious what the opportunity is there.
You take it? Yeah. We've asked the question a lot. We have not gotten a definitive or conclusive answer that that is fueling our growth. We will happily take the demand as consumers shift sizes. We might be seeing a little bit of it in our Beyond Yoga business because we have seen a shift to some smaller sizes. Obviously, that's a much smaller business for us, but kind of broadly speaking, hard to pin that down that that's been a major factor. We're looking, we're studying it, and like I said, we're more than happy to fulfill that demand.
We haven't seen an overall loss in our waist sizes in Levi's. We have not seen a shift down to make that more conclusive. I could say, are people entering the category and are people shifting sizes, and then it averages out? There could be that dynamic, but just from a data standpoint, our average waist sizes have not shifted. We are seeing a little shift in Beyond Yoga.
The only thing I'd say is accessibility to the drugs globally. It's happened recently at lower price points. That's upside. If it happens, it's upside. It's difficult to build it into models, but it's a great question.
Yeah.
How about on the AI front? Maybe Michelle, how are you implementing it into the company on a day-to-day basis? What are you thinking about longer term, how it could impact the business? Maybe Harmit, from a cost perspective what you think it might mean, and I'm guessing it was not in the 15% target as you initially constructed it.
Yeah. I can start off. I will say it's, for me personally, a huge priority. Going back even a couple of years and seeing AI's been happening for a long time, but sort of as it hit this next curve of opportunity and capability, myself, Harmit, the team, we have been all over it. Making sure that we are working with all the right partners, and we are working with the big and the small to help us in our journey. The two priorities that we have with AI is how can AI enhance the consumer experience? How can AI help us drive more efficiency in the business? On the consumer side, we've got a lot of experiments happening. I've been really excited to lean in and be piloting ways to help the shopping journey.
If you think about the online experience, we have AI embedded in the core of even if you go on levi.com today, enhanced outfitting, enhanced personalization, the overall experience is better. The challenge I've had for the team is how do you take that to the next level? We all know when you're personally playing with ChatGPT or Claude or whatever, all kinds of recommendations it can come up with. Think about a day where you do have the shopping agent, we call it Indigo, where it knows you so well it can proactively ping you on new drops. You don't know what to wear to a concert this weekend. It knows what's in your closet, so it's going to tell you, well, so if you say, "I'm Matt, I'm going to this concert, I'm going to go see Ed Sheeran.
What should I wear?" It'll say, "Okay, well, you already have those 501s, and here's a great top, here's a great T-shirt, here's a great trucker." Not only saying maybe a complete outfit, but it's also going to know what's in your closet. You just think about that proactive and reactive engagement. We're actually in pilot stages right now. We're testing it on our employees first, because as we all know, you got to figure out, okay, how is this thing really going to operate, get the bugs out. I see that in the nearer-term horizon. I can hit the efficiency. I'll hand it over Harmit too. We have so many case studies across the company on how we are looking to have AI drive efficiency.
It's in everybody, all of our leaders' goals, and I could take any department, and they probably have 10-15 different ways they're using AI, from marketing to legal, to merchandising, design. We're working with a couple of really interesting platforms on how it doesn't take the creativity out of the designers, but how can you drive, okay, if it used to take me a whole day to sketch this, I can do this in 10 mins., it's going to give me 100 different options, as well as process automation. We see a big opportunity.
Yeah. Putting on my CFO hat, the best way to handle this is to constrain dollars. Right? We've said no incremental dollars for new headcount. With a business that's growing and half the growth is coming from volume, we're opening new doors, et cetera, that means, okay, you've got to reallocate your dollars differently. What we said to the leaders when we brought them together a month ago is we're keeping headcount flat. If you have X priorities and now you have new priorities, find a way to trade that off. As people leave, we've got this global talent hub, think of taking processes there, et cetera. I'll give you a use case that's part of my team. Wholesale is a big piece of our business. We get orders in from customers. 20% of the orders are manual, the rest is electronic.
I have folks in my team who actually input those orders. It takes them 2-5 days. There is a 10% accuracy factor. That's now happening in 15-20 minutes. Right? So it's happening really fast. We've tested it out. We're rolling it out in the U.S. Now the folks, so as our orders grow, we don't need to add people.
Mm-hmm.
The same folks, we're helping them to skill up so they can call our customers and get the checks back. It will just lead to a different way of doing things.
Yeah.
We're taking these use cases, and a lot of these use cases, the billion part of it is they're being created by folks within the company. The HR team is working on how do we lean into upskilling? We are working on how do we take these agents and change the way we work and get a lot more efficient. We're building through that. I think it's a journey. It doesn't happen overnight, but we're long on this.
Yeah. I got a couple questions for-
First of all, you didn't talk about licensing at all.
Mm-hmm.
A tremendous amount of manufacturers that really want to license you and that you already have. That's one question. Another one on marketing. We've seen in denim some real celebrities market. Is that in the future potential also? I'm not saying Sydney Sweeney, but some people like that. Another question, as far as on the premium denim, as you go into higher price points, give me an idea of the differential between that Levi's, where it's going, versus where the designer guys are. There still is a major gap. The other question, number four, is when it comes to selling denim, the most important thing is that the customer finds the size, which means not only the waist size, but the length in stock.
There seems to be tremendous innovation taking place there, where some retailers are getting weekly deliveries of the fill-ins as they sell them out because they're using these wands to wand the entire inventory and transmitting it to you. That's helping a lot, I think. Maybe talk about those four things. I don't know.
Four questions.
Whatever you want.
Let's see which ones I can remember. I can start with the marketing one.
I'll do the Blue Tab piece because I
Okay
I'm wearing an example, so I.
Yeah. We're doing that, Danny. I think we actually set the trend, if you will, that others have followed. We've done that for a long time, and if you think about last year with our Beyoncé campaign, which was phenomenal, that came out of Beyoncé naming a song after us, Levi's Jeans. Definitely in the category of you sort of can't make it up, and we leaned into that. She does the song. Our Chief Marketing Officer and myself, we reach out to her team. Let's see if we can make something work, and then we had this amazing campaign. Beyoncé is one of the most celebrated artists of our times, right? We hit the jackpot with that one, and she's been a great partner. In fact, Levi's and Beyoncé have been friends back through the '90s.
Our campaign that's running right now, which I mentioned we launched on the Super Bowl, does tap into global and local influencers. Right in that core consumer target of that 20- to 30-year-old. Doechii, the basketball player, SGA, Rosé, 90 million Instagram followers, becoming a global icon in her own right, part of Blackpink. Now she's gone off on her own, and we're now doing a collaboration with her that's starting off in Asia. Multi-year collaboration may go forward. Our team does a fantastic job, and you can see it if you follow our handle on Instagram of both at the local and kind of macro culture as well as the micro cultures of driving relevance.
We say we like to operate in the center of culture, but we really shape culture, and I think what's really exciting for this year, Matt, some of your earlier questions on how do you support that tailwind? Coming off 7%, now we deliver 9%. We just raised our top-line guidance, held some back, just in case things get even more uncertain, what have you. We've got a whole lineup of marketing activity this year. We just did Super Bowl. We're hosting multiple World Cup games. We just yesterday announced a partnership with a company that really brings out emerging artists. We're hitting it across fashion, culture, sports, and music across the board. More goodness to come on that front.
Yeah.
Go ahead.
A couple of things. You asked licensing. Our kids business is all licensed. We've got a great partner globally. It's a business that when we look at it, we say it's important to get the kids into Levi's, but it is best handled by a partner who does it as an example. Your question three was on Blue Tab. Last year, we tested it in a few markets because we still want to be comfortable, or we want to make sure the consumer is comfortable paying 2.5x what a Red Tab is, right? You go to our stores, it's between $80-$120. Blue Tab is about $250-$300. I'm wearing the Made & Crafted. I bought it in China. It was made and crafted 2 years ago for $250.
Now you walk into a store, the same Made & Crafted is now rebranded as Levi's because it was really Made & Crafted as a sub-brand, and we are selling that across the world. This blazer is in and around that price range. The consumer is giving us the permission based on our testing to expand it because the product is really differentiated. We have to do a better job storytelling it. That's why we're testing it before we scale it. This year is an expanded test, and next year is about rolling it out. That's your third question. Your fourth question was, yeah, sizing, huge opportunity. Continues to be. We're using RFID so people can understand it. I'll give you an example. I think last year we were all in Dallas. We were not playing in Texas. Now we've got our full price stores in Dallas.
A wonderful 3,500-4,000 sq ft store, hitting the ball out of the park, but no 30. I'm a 34 inseam. No, we don't sell 34s because they can't stock it. As we are reducing our SKUs and rationalizing it, we are saying, "Let's get the right sizes in." You can still buy it, you'll just have to do it on an iPad because it's available in some distribution center. It's clearly an opportunity. It's something we're working on. Now we have the technology, and we are rationalizing SKUs to make sure we are able to make way for Brian.
On the licensing, I meant like Apple. Where there's a lot.
Yeah. Correct. Footwear, we've dabbled with what should we do with footwear. The way we've landed on footwear, I'm wearing the Air Jordan collaboration, $800. But in this case, are we on footwear? Michelle, feel free to jump in. When we thought about denim lifestyle, we did look at categories that we want to lean in and categories that we've got other experts doing a better job. Footwear is a category we said we will collaborate with experts, New Balance, Nike, versus drive more footwear, versus having a partner out there licensing under our brand. We have tried licensing footwear. Quality, not great.
Yeah.
We leaned in and said we had a small footwear business in Europe, $100-$150 million business. We exited that and said we're going to grow footwear but do it thoughtfully and high quality. Outerwear, as we start growing our outerwear categories, we'll take a look at that. In the U.S., wholesale is largely licensed.
Yeah.
Our own stores, that's outerwear we kind of manufacture ourselves. Rest of the world, we do it ourselves. Those are the things we look at. We've got some great partners. They do a phenomenal job. Why distract ourselves? We've got enough to do, and those things are working.
I'll amplify that.
Yeah.
Strategy is about focus. We've made tough decisions, including selling Dockers, which had been a part of the company, created by the company in the '80s. There will be surgical opportunities, but we see so much opportunity with the categories we've talked about, premium denim, Red Tab denim, Signature, and then head-to-toe denim lifestyle in these tops categories that today we're just scratching the surface. That $10 billion is real, my friend Matt.
Michelle, Harmit, thank you for your time and congrats on the success.
Thanks, Matt. Thank you.