Levi Strauss CFO on the 'looser, baggier' jean trend amid COVID-19

Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland speak with Levi Strauss CEO Hermit Singh about the company’s latest quarter, the ever-changing jeans trend, and outlook.

Video transcript


MYLES UDLAND: All right, let's take a look at shares of Levi. We see the company up about 4% following earnings out last night, coming in better than expected. Joining us now to talk about the latest quarter is Levi Strauss CFO, Hermit Singh.

Hermit, great to have you back on the program. Thanks for jumping on this morning. Let's just start with-- with kind of how the business looks to you guys now, beating on the top line last night, and offering some quality guidance, at least as far as the street sees it, for the first half of this year.

HERMIT SINGH: Good morning all of you. Great to be back. We are clearly emerging from the pandemic a stronger company. We had a strong quarter, as you reflected. We beat our internal and external expectations, despite of all of our stores in Europe being closed. We also raised our H1 guidance for top line on the back of a faster recovery.

We're getting more optimistic with every passing day as the consumer sentiment, especially in the US and Asia, continues to improve. And our structural economics are better. So we also raised our guidance on the bottom line.

So overall, you know, we feel good about how consumers are emerging from home and turning to denim, you know, as they dress up, especially as the world has become a lot more casual in the dress code. So overall, feeling fairly good as we step into quarter 2 in the second half of the year.

BRIAN SOZZI: Hermit, one thing that stood out to me in this release, and I don't hear it often, the men's business was your top-performing category. So what are men buying right now, and-- and why are they buying it?

HERMIT SINGH: Yeah, it's across both men and women, Brian. You know, I think what we are seeing is, as people turn back to denim, we're seeing people buying looser, baggier fits. If you're-- you know, if you recollect, sometime in 2020 we came up with balloon jeans.

And, you know, we've seen people turn and become a lot more casual. Um, you know, I-- when I joined the company seven, eight years ago, I bought a-- you know, a 550, which is a looser fit. It was parked in my closet. Well, it's back on.

And our women's business, the looser fits are really doing well. 40% of our women business in quarter 1 was looser fit. That was up 14%. And the same thing we're seeing with the 550s and the 559s for men. You know, that is up dramatically.

So I think, you know, as the world casualizes and becomes a lot more casual in the dress code, it really plays to our strength. You know, we have a great brand. Our styles and silhouettes really fit the consumer, both, you know, across all demographics, especially the younger consumer.

And, as we get into quarter 2, you know, we are launching a sustainability campaign. It's all about buying better, wear longer. And I think it really, you know, it goes well with the consumer needs of today.

JULIE HYMAN: Hermit, it's Julie here. I remember the last time we talked with you, we talked about how all of us are having trouble wrapping our heads around having to put something on our bodies that requires a zip and a button, for example, when it comes to pants. So I'm curious. When you're seeing your trends-- not just male and female, but geographically-- are you seeing higher sales in places that are more reopened, around the globe or around the country?

HERMIT SINGH: Well, Julie, I've never had that problem. So, you know, I'm-- I'm Levi's head-to-toe. But, to your question, I think, yeah, you know, we are seeing that as the economies open, as the lockdowns lift, people are turning to denim. They're you know-- we believe the denim cycle is resurging.

You know, the denim cycle was last set about a decade ago when we launched the skinny jeans. And now with the advent of looser, baggier fit, we're leading those trends. And we see that, you know, continuing for a long, long time.

We've seen it with our customers, that are, you know, retailers around the world who are, um, you know, buying product from us. We're seeing it as consumers buy, across our direct-to-consumer business.

We're seeing our digital channels really surge. In the last quarter, our digital ecosystem was up 41%. And it's about a fourth of our company volume. It used to be about 16%, a year ago. So I think the investments we are making and the fact that the consumer is digitizing their experience, we're digitizing their experiences-- it's all making a big difference.

JULIE HYMAN: I want to ask about another topic that you spoke about on the call, and that's been top of mind for a lot of manufacturers and retailers lately. And that's Xinjiang, um, the area in China where a lot of cotton is sourced. Now you made clear in the call, you guys do not source from that area.

But there have been other companies-- Nike, most notably-- that have sort of spoken out against what is seen as forced labor in that region, even though they don't source from there. So as a company executive, how do you think about-- how do you decide when to-- when it's appropriate to speak up on issues like that?

HERMIT SINGH: Yeah, it's a-- Julie, thank you for asking that. It's a complicated situation. We are watching it closely. We do not source products from Xinjiang, or source or have relationship with fabric mills in Xinjiang, as a company, because, um, you know, the focus on human rights and labor has been something that we have been advocating for a long, long time.

And when we rolled out the terms of engagement over 30 years ago, we made it very clear, and we prohibited the use of forced labor anywhere in the supply chain system. And, um, as you've seen, we have not had any material impact by the boycotts. In fact, our business in China is a small-- is a small piece of our business.

We think, commercially, it's clearly an opportunity for us, longer term. So, you know, as you've heard, we do take stands on issues, you know. And these issues are issues that are important to us. They resonate with our values. When we do businesses in countries-- and these are all countries around the world-- it has to marry in with the values of the company that we advocate.

BRIAN SOZZI: Hermit, but do you-- do you think just the concern around this issue, does this-- does this ultimately hurt American brands trying to do business in China right now?

HERMIT SINGH: You know, it's-- I think, you know, from our perspective, we source across, you know, 23, 24 countries around the world. So we're not sourcing a lot of product, you know, from China into the US. We were sourcing a lot more. It dramatically reduced.

And I think companies should take stands that are important to them, that resonate with their values. And we, as a company, have done that. Not only across supply chains, but across other initiatives that, you know, have come to light over the last couple of years. We took, you know, a large stand on the diversity, inclusion, and equity standings, as you know. It's an important piece of, you know, of how we run the company.

And we're now compensating, um, you know, senior leaders in the company, um, you know, to drive both improvement in our diversity stats as well as improve the culture in the company. And so we're very transparent about issues. And things that are important and resonate with the consumers are things we will speak against.

MYLES UDLAND: All right. Hermit Singh, CFO, Levi Strauss. Hermit, always great to get your thoughts. Thanks so much for-- for jumping on. I know we'll talk next quarter.