Levi Strauss & Co (LEVI) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Company's first-quarter 2004 conference call. 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. I would now like to turn the call over to Linda Butler with Levi Strauss & Company's worldwide communications department.

Welcome to our conference call. I am pleased to introduce the Levi Strauss & Co. management team. With us here today are Phil Marineau, our President and CEO; Jim Fogarty, our Chief Financial Officer; Robert Hanson, President of the U.S. Levi's brand, Bobbi Silten, President of the U.S. Dockers Brand; Scott LaPorta, President of the U.S. Levi Strauss Signature Brand; Paul Mason, President of our European business and John Anderson, President of our Asia-Pacific business.

This call is being recorded and a replay will be available through May 12th by calling 800-642-1687 in the United States or Canada. From outside those countries, please call 706-645-9291. For either number input the ID code of 6459727. This conference call also is being broadcast over the Internet and a replay of the webcast will be accessible on our website at www.LeviStrauss.com. Before we begin, let me remind you that our discussion today may include forward-looking statements, including in particular statements about our plans, prospects targets and expectations. These statements are based on management's current data, assumptions, expectations and projections about future events. These forward-looking statements are subject to risks and uncertainties.

Those risks and uncertainties and other factors that could cause our actual results to differ materially from management expectations are described in our annual report on form 10-K, our registration statements and are other filings with the Securities and Exchange Commission. Our actual results might differ materially from historical performance, current expectation or these forward-looking statements because of the factors described in those filings or otherwise. In view of SEC regulation FD, we request and strongly encourage you to ask all of your questions during the Q&A portion of this call. Now I would like to turn the call over to Phil Marineau.

Thank you, Linda. Good morning, everyone. We are off to a good start. I am encouraged by the results of this quarter. On the last call that we had a month ago, I set our goal in 2004 was to improve our sales trends and generate higher profits. I think our first-quarter results reflect the progress we're making towards these goals. Our revenues increased nearly 10 percent in the quarter and were up 3.5 percent on a constant currency basis.

This top line improvement was driven by continued strong growth in our Asia-Pacific region and the Levi Strauss Signature business in North America. A profit improvement reflects the actions we took last year to reduce SG&A and the cost of goods, as well as to reduce sales allowances for returns and markdowns. We restructured our U.S. and European businesses and worldwide supply chain, and eliminated several hundred salaried positions. We've also designed a new go-to-market process to reduce complexity and increase our speed to market, as well as our responsiveness to our customers. And we've made changes to incentive compensation programs and post-retirement health plans, which also reduced our SG&A. Jim Fogarty will walk through the specifics of our financial results in a minute.

Now I remain cautiously optimistic for the year. As I said in the news release this morning, we still are concerned about the Levi and Dockers brands and the U.S. and Europe. However, on a positive note we are seeing in February and March improving sell through trends on both Levis and Dockers in the U.S. Especially strong is our Levi's women's business, which Robert will reference later in the call. And importantly, this women's business began to strengthen in the fourth quarter of last year, so this is more than just a two-month phenomenon.

Also important is that our inventories at retail on Dockers and Levis in the U.S., as well as our European businesses are equal to or less than they were a year ago. We have very strong product lines, both for the Spring, but most importantly for the critical back-to-school second half year, third and fourth quarter programs backed by very good marketing. Our new advertising campaign on Levis and Dockers are beginning to air on a worldwide basis. Importantly, if you remember in the fourth quarter of a year ago in the U.S. and in Europe we had no advertising on the year, which we believe contributed to some of the problems we experienced in the fourth quarter.

This year in addition to having a very strong line we will have advertising we are quite confident in to support the businesses and drive demand. We continue to have very positive trends in our Asia-Pacific business, with growth throughout the region. And a continued rollout of worldwide rollout of Levi Strauss Signature is going smoothly, and the Brand is performing well at retail.

Costs are also trending in the right direction, downward, and reducing costs is one of our key goals and our number one priority as we move into the back half of the year in '05. Each of our regional and U.S. brand presidents will collaborate more on their specific businesses during this call. On the other hand, my optimism for the year is tempered by a number of factors. The operating environment at retail is still very difficult, both in the U.S. and Europe. In the U.S. the men's apparel market including the men's jeans and casual pants categories continues to decline. And the women's market has softened.

There is also continued pressure in out-the-door pricing. The ongoing price deflation that exists at retail in our categories could impact our positive trends. In addition to that consumer confidence as reported recently is very low, and I worry that the situation will be exacerbated by high gas prices affecting people's discretionary income, particularly men and how they either buy jeans or casual pants.

A similar situation exists in Europe. Weakened economies, relatively strong price deflation and a stagnant retail environment. Our key operating assumption is that that retail environment that we are experiencing in the U.S. and in Europe is not going to get better. This is the environment that we're going to have to do business in. It is going to stay difficult, and we are building our plans accordingly.

Another factor we have to contend with is the retail buying experience for our brands, which from our point of view still needs to improve. We need to make it easier for consumers to find and buy our products. So we are working with our retailers to make that happen, and Robert will particularly reference that on the Levis Brand in the U.S.

On the last call I talked about four priorities for Levi Strauss & Co. in 2004. First, we are focused on achieving a realistic business plan that is built within the contextual operating environment that I talked about. It is aimed at generating higher profits and improving our sales trends. Our first-quarter results, I think reflect the plan that we are trying to accomplish, and that certainly are in line with those planned goals. Secondly, we are continuing to implement our new go-to-market processes and our new business models, organizational models in the U.S. and Europe, as well as across the worldwide supply chain organization.

It is absolutely imperative that we ensure that these processes and organizations are fully operational and effective. We are presently working through some operational and fulfillment issues related to the transition to these new go-to-market processes and organizations. So we are in the process of clarifying roles and responsibilities among our operating groups, and that should help our performance relative to these fulfillment issues. But I consider these to be the typical problems associated with a shakedown of a new business process and a new organization. We are operationalizing these organizations and these new business processes and we are steadily moving towards a faster go-to-market cycle of about 7.5 months, which will make us much more competitive in the marketplace.

In Europe we took a significant step also late last year to establish a country by country affiliate structure that will be more responsive to and better able to meet local market needs. And will take time to seek the full benefits of this approach. It is very complex, and we need to build some capabilities but we think this model will help us resolve some of the issues we've had with our European business over the course of the last twelve months. And while I'm on that subject of Europe, Paul Mason, our new President of European businesses is off to a strong start. As I mentioned on the last call Paul has an extensive retail industry experience and an exceptional track record of operational excellence. He has led the development of strategies that fuel profitable growth for companies such as the Wal-Mart in the UK and (inaudible) Kingfisher, a UK home improvement products company. We are very happy to have Paul on the team and he will tell you more about our European business later in this call.

Our third priority is to find additional cost savings and cash flow. We just completed an in-depth business and functional review analysis worldwide with Alvarez & Marsal. We've had a very strong collaborative relationship with A&M, and I believe we have identified numerous opportunities to improve our financial performance. I am optimistic about what we will be able to achieve as we put actions in place throughout the balance of this year and in 2005 that are the result of this work with A&M. Again, Jim Fogarty will get into more details in his remarks.

Finally, our fourth priority is to find additional profitable growth opportunities and sell more than we planned. As I said, we have very relevant products in the market and good advertising campaigns underway and particularly in that fourth quarter when we didn't have those advertising campaigns, I think it will be a noted difference for us this year. So I am optimistic that the performance of our brands in the U.S. will improve throughout the year. As I said before, we still have a lot of hard work to do. We are taking it one month at a time, and we are making progress. Now I would like to turn it over to Jim who will walk you through our financial results for the first three months.

Thanks, Phil, and good morning everyone. As Phil indicated, we are off to an encouraging start in 2004. I will first take you through our operating results, and we will talk to you later about the completion of the joint LS&CO. A&M work plan. But first the Q1 2004 operating results. At a consolidated level Q1 2004 net revenues were 962 million compared to 877 million in the prior year. Our revenue increased 85 million, 10 percent on a reported basis and 4 percent on a constant currency basis. The launch of our Signature Brand with 105 million of business in the quarter and continuing strength in our Asia-Pacific business more than offset the decreases in our Levis and Dockers brands in the U.S. and our Levi's Brand in Europe. And Phil indicated we continue to have our eye on our Levi's and Dockers brands.

Our U.S. Levi's and Dockers sell throughs have been improving into February and March, and you will hear more about our refocusing efforts later. Our consolidated gross profit for the quarter was 408 million or 42.4 percent of net revenue compared to 360 million or 41.1 percent of net revenue for the same period in 2003. Gross profit dollars thus increased 48 million, and the gross margin rate increased 1.3 points. The year-over-year increase in gross profit dollars reflected our increased sales, stronger foreign currencies, improved dilution management in the U.S., lower sourcing costs somewhat offset by the wholesale price reductions taken by the business in mid 2003.

As we indicated in our last call, we expect that our 2004 gross margin rate to benefit from lower product costs associated with our exit from manufacturing plants, somewhat offset by those wholesale price reductions. We also noted that performance of our product at retail and management of our dilution will be key elements of gross margin rate success in 2004. And we are thus far encouraged by our progress in these areas. With regard to our favorable dilution experience in Q1 '04, this reflects strategic actions taken to reduce wholesale prices in mid 2003, as well as improve product performance at retail.

Our consolidated operating income for the quarter was 61 million or 6.3 percent of revenue compared to 66 million or 7.5 percent of revenue for the same period of 2003. Our operating income thus decreased 5 million and operating margin decreased 1.2 points. When considering our ongoing earning margin, it is important to note the following. First, our operating income reflected restructuring charges net of reversals of 54 million in Q1 2004 and net restructuring reversals of 3 million in Q1 2003.

The Q1 '04 restructuring charges were primarily associated with the suspension of the installation of our enterprise resource planning system. Second, our operating income in Q1 2004 reflected the benefit of a retiree medical curtailment gain of 16 million, while no such benefit existed in Q1 2003. Third, our operating income included advertising expense of 54 million, 5.6 percent of net sales compared to 69 million, 7.8 percent of net sales in the prior year. Our first-quarter advertising spend as a percentage of sales is not necessarily indicative of our likely full year advertising spending given our recent launch of a new campaign for Levi's in the U.S., resumption of Dockers advertising and our European 501 jeans campaign.

Finally, our operating income included depreciation and amortization of 16 million in Q1 '04 and 15 million in Q1 2003. Our net loss for the quarter improved to a net loss of $2 million compared to a net loss of $58 million for the same period in 2003. The $56 million improvement reflected our increased gross profit of 48 million, lower nonoperating expenses of 36 million, lower tax expense of 33 million, somewhat offset by increased restructuring charges of 57 million and higher interest expense of 9 million.

The nonoperating expenses declined 36 million reflecting reduced losses on foreign exchange contracts and favorable remeasurement of our foreign exchange denominated balance sheets. Our tax expense reflects our projected FY 04 effective rate of 60 percent compared to prior year of negative -103 percent. Our higher interest expense reflected our higher average debt balances and increases in our weighted average interest rates.

Going into further detail on revenues and operating margins, first on the Americas segment, our Americas Q1 2004 revenues increased 9 percent to 561 million compared to 513 million for the same period in 2003. This increase is primarily due to sales of our Levi Strauss Signature brand in Wal-Mart and Target stores in the U.S. reflecting $86 million of revenue in the quarter, and strength in our Canadian and Mexican businesses which offset decreases in sales of our U.S. Levi's Brand which was down 5 percent and our U.S. Dockers brand which was down 17 percent. Sell throughs have improved in U.S. Levi's and Dockers in February and March, and we are striving to see those pistons firing in our financial results in the future.

Our Americas operating income increased to 103 million or 18 percent of net sales from 93 million or 18 percent of net revenue in the prior year, reflecting improved dilution management and lower SG&A. Now on to Europe. Our Europe Q1 2004 revenues increased 2 percent to 270 million compared to 264 million for the same period in 2003, which was a 13 percent decline on a constant currency basis. Our European business was negatively impacted by a weak economic environment somewhat offset by the introduction of the Brand. As Paul will discuss later, we are focused on both improving our Europe profitability and on stabilizing our Europe Levi's revenue base.

Our operating income in Europe increased to 52 million or 19 percent of sales from 40 million or 15 percent of sales. The 12 million improvement in operating income is attributable to higher gross profit, lower SG&A primarily reflecting the operating disciplines which are being implemented in the business. And ending with our Asia segment, our Asia-Pacific Q1 2004 revenues increased an astounding 31 percent to 132 million compared to 100 million for the same period in 2003, which was a 20 percent increase on a constant currency basis. Our strength in Asia reflects the impact of new products, the opening of additional franchise retail locations and improved retail presentations, as well as improving retail conditions.

Our operating income in Asia increased to 28 million or 21 percent of sales from 20 million or 20 percent of sales with improvements in our earning margin reflecting increased revenue and margin and leveraging of our fixed cost base. Thus consolidated operating income before corporate expense totaled 183 million or 19 percent of sales compared to 153 million or 17 percent of sales in the prior year. Q1 2004 total corporate operating expense was 122 million, including 54 million in restructuring charges, a $16 million retiree medical curtailment gain and 84 million in other corporate expenses.

Comparatively, Q1 2003 total corporate expense was 87 million, including 3 million in net restructuring reversals and 90 million in other corporate expense. And now for the balance sheet. Our debt net of cash increased to 2,163,000,000, a 51 million increase from year-end 2003. Our inventory was 612 million, reflecting a $68 million reduction from year end. Our inventory turns improved from 3.3 turns at year end to 3.5 turns at the end of the quarter. And importantly in the first quarter of 2004, the company in agreement with our unions amended its retiree medical plan for field employees to include new limitations on the amount the company will contribute for medical coverage and prescription drug coverage, and new age in length of service restrictions. As previously discussed, this resulted in a 16 million curtailment gain.

These amendments also resulted in a reduction in our benefit obligation from 744 million at year end to 384 million at quarter end. Our balance sheet does not reflect the magnitude of this 360 million obligation reduction as accounting rules require that such reduction and benefit obligations be amortized over the remaining service lives of our employee base, which is approximately 10 years in our case. Please refer to our 10-Q for further details on our retiree medical plan.

And now for liquidity. Sources of cash for us in 2004 include our earnings improvement in our inventory turns and our liquidity resources. Our principle uses of cash include payments for restructuring actions which we have taken and payments of interest on our debt. Estimates for all of these amounts are included in the 10-Q, so I won't go through them here. As of April 11, 2004 we had available liquidity resources of approximately 423 million, consisting of approximately 161 million in highly liquid investments, and 262 million in net available borrowing capacity under our revolving credit facility.

We continue to believe we will have sufficient liquidity in 2004 to operate our business and to meet our cash requirements and we also believe we will maintain compliance with all of our covenants throughout 2004. Now I would like to turn it over to Robert Hanson, President of the U.S. Levi's Brand.

Good morning, everyone. The Levi's Brand had a solid start to 2004 even though our sales were down 5 percent against prior year, we met our performance expectations, and this was driven by sell through, product mix and operational improvements. And as Phil mentioned this is in spite of a negative category trends of all segments except for Mrs. and Plus jeans. In fact, for the first six months ending in January, the Levi's share was flat after several years of decline.

We are encouraged that our core strategies, those that I mentioned to you in the last call are helping to drive this competitive performance. The first of these strategies is to focus sharply on increasing sales and profits of our jeans businesses. In men's despite year-over-year sales declines of 6 percent, we continue to experience improving sales trends in our original 501 jeans product as well as other classic jeans fits. We find this encouraging given that our sell in to customers as we discussed during the last call still lags our sell through. We found that our customers remain conservative in managing inventory based on their own cash flow goals as well as caution about the Signature brand despite any evidence of cannibalization.

As we work with our customers to optimize their inventory investment, sales should continue to improve. We feel this is the most critical segment for us to focus on. It represents 70 percent of our business, and as Bill mentioned competes in a declining category and is also faced with customer conservatism as I just mentioned. On the other hand in young men's we continue to post double-digit sell through increases in products such as our 569 loose straight fit as well as other loose, boot cut and workwear jeans. Similar to the 501 we anticipate a stronger performance with the 569 loose straight, and other young men's products we work with our customers to secure the right inventory levels for the balance of the year. Also two of these high-volume products will be featured in the marketing program I will discuss in a moment.

In our women's business we are pleased to report that we are driving double-digit sell through increases for our low-rise, stretch, boot cut and flare program and as Bill mentioned this has been true since the fourth quarter of last year. As a result, Levi's has been outpacing the category in our core channels, particularly in the junior segment. In that segment we have actually grown our share by two points. We anticipate consumer demand to grow as we increase awareness of our range of juniors and Mrs. jeans featured in our marketing campaign.

Boy's 8 to 20 sell through is also up versus prior year with growth in the loose and workwear jeans categories. Moving forward we will continue to focus on leadership and fit and place an even greater emphasis on finish innovation, color and technical (ph) innovations in (inaudible) jeans.

Our second priority is to implement a strategic customer promotional plan to ensure the Levi's brand is more effectively and profitably promoted during peak selling periods. This program as we discussed last time has been well-received by our customers, and it should drive improving results when matched with healthier mix and with inventory. Our third focus is on building equity and driving demand for Levi's jeans. Our marketing campaign entitled A Style for Every Story, breaks this month with triple the delivery versus the period of April through December 2003. In broadcast it features our original 501 as well as the 569 loose street jean, and in print will feature our range of market leading jeans fits for both men and women.

Our fourth priority is make it easier to find and buy Levi's jeans at retail. As Phil mentioned, we are disappointed with the presentation of the brand at retail. The exception being our own stores where we have delivered comp store sales increases for 15 consecutive months with a strong presentation of Levi's market leading range of fit to finishes. We have been working with our customers to leverage the success of these stores by implementing a similar display system along with improving packaging for back-to-school.

Finally as Phil mentioned we have implemented our 7.5 months go-to-market; we expect this to address past delivery issues, as well as improve our planning and supply response time, important as we meet the growing demand for our best-selling products. We are already beginning to realize this benefit of the go-to-market cycle with our customers. This go-to-market as well as our integrated business unit structure has helped us to deliver a solid operational performance in Q1.

So to wrap up, although we did experience a 5 percent decline in first-quarter revenue, we are as Phil mentioned cautiously optimistic about the results. We did see improving sell through trends, we have more commercial assortments, and with improving sales solution we have been able to offset the impact of a 7 percent reduction in wholesale prices, which we are focused on improving our customers profitability. With that let me turn it over to Bobbi Silten, President of the Dockers brand in the U.S.

Thanks, Robert. Dockers Brand Q1 revenue fell below prior year. It's driven by core over-the-counter sales in December and January. Annualizing price reductions taken in the second half of 2003 and the comparison versus events that occurred in Q1 2003 that were not repeated in 2004. These would include our boy's business which was licensed in Fall '03, reduction of outlet sales and also the reduction of both discontinued and discounted product.

As both Phil and Jim had mentioned, although the year started out slowly we have witnessed significant improvement in retailer sell through in February versus last year, a trend that has continued into the second quarter. Q1 retail sell through was down 10 percent while Q2 quarter to date sell through is up 8 percent. The initial poor retail sell through in Q1 was driven by a number of factors. First, the men's category continues to decline delivering a 7 percent decline in the last 12 months; additionally private-label is performing strongly and taking share through low pricing. At the same time, there were significant reduction as Phil had mentioned in our advertising spend during the holiday '03 time period. We responded quickly to this by running some additional media weight in February when we typically don't run media, and we saw retail sell through pick up.

In addition, a couple of new products did not drive the kind of growth that we anticipated, but again we responded quickly by moving them off the retail floor, freeing up real estate for more profitable core product. And finally we experienced some delivery challenges in Q1 on both core and seasonal product. The key drivers were poor product forecasting as well as some operational issues that were created as a result of our organizational transition in October.

On the positive side, proStyle and original khaki with individual fit waistband are key men's product initiatives that are performing well at retail. ProStyle, which delivers multiple performance benefits to the consumer along with style, has sold particularly well in department stores. Overall season to date sell through at retail of men's is up 4 percent versus last year. Both proStyle and individual fit are being supported a new advertising campaign called innovations which was launched on March 22, and this campaign focuses on performance benefits of the products. In addition to this our shirts and licensing products are performing well at retail moving Dockers towards its goal of being a wardrobe solutions brand.

In women's our key product initiative for Spring '04 is GoKhaki with Stain Defender which is offered in both pants and shorts. We are also offering Stain Defender woven shirts that are performing well at retail. Overall season to date sell through of women's up 5 percent versus last year. In conclusion, despite a tough holiday selling season of our retail performance continues to improve month-to-month, particularly in our key core pant initiative. However, we expect that the balance of the year will be challenging due to soft marketplace conditions. Nonetheless, we will continue to drive consumer relevant innovations in the marketplace and drive category interest through strong marketing programs.

Now I would like to turn the call over to Scott LaPorta, President of the Levi Strauss Signature Brand.

Good morning. I'm pleased to report that Signature had a successful first quarter delivering incremental profits for the company. In addition to operating at 3000 Wal-Mart stores, we successfully launched into 1,235 Target stores in December of 2003, and that was in all consumer segments as Signature is designed for the entire family, and our sell throughs at retail at both accounts remain relatively balanced across men's, women's and kids.

Throughout the first quarter of 2004 our average weekly rates of sale improved steadily, reaching double-digits in certain instances as five pocket jeans wear sold well through the entire quarter. Awareness increased significantly during the holiday period with the consumer and is now in the 20 percent range for our brand. With regards to our marketing efforts we focused primarily on our gift to give campaign during the holiday season. We had in-store greeters highlighting our product at retail and supported that with an Internet based gift to give advertising campaign anchored on Levi Strauss Signature.com. And then we use presence and publicity efforts to also drive awareness and purchase.

We were featured on the Today Show and in multiple local newspaper and broadcast outlets. And then in February, we launched our NASCAR and Jimmy Johnson sponsorship at the Las Vegas 400, unveiling the Levi Strauss Signature Fit Pit, at track experience.

Now moving to product; our core and fashion basics programs performed well across the board in women's, juniors and girls. The Missy boot cut, the junior's low rise boot cut and girls flare all showed sell throughs indicating consumers really liked our product, liked the fit, the finish and styling.

In men's the 1995 regular fit and relaxed fit jeans continued capturing market share in the channel. And our early spring results are being led by strong sell throughs of Capri, Cargo Capri, Cargo Skirt and denim vest in women's while our cargo short and low boy T's in young men's and boys are boosting sales on that side of the business. As I mentioned on our last call we introduced a new tiered wholesale and suggested retail pricing strategy at the beginning of the quarter. This new strategy differentiates our core from our fashion basics from a pricing standpoint. We believe this strategy has appropriately set the price value equation with the consumer and effectively positions us at a top tier brand in the channel. So we are zeroing in on knowing the right value to provide to the value-conscious consumer, and when we do Levi Strauss Signature resonates strongly, leading to purchase.

From an inventory management perspective we made good progress in the first quarter as holiday through February selling allowed us to reduce our inventories by about 20 percent. Now taking a look at our launch into Target during December; our early results look promising. Our core men's fixture, which features our regular fit and relaxed fit jeans is one of the top performers on the entire men's floor at Target. While in women's and juniors, we are striving to keep up with demand for our Missy boot cut and juniors low-rise boot cut. And in kids, our boys Carpenter, our shorts and logo T's are selling well, and the girls flare is selling at double-digit rates of sale.

Now taking a look at the first month of the second quarter we have been focusing on continuing to drive awareness of Signature against the mass channel, the value conscious consumers through grass-roots vehicles like our Levi Strauss Signature Fit Pit. Secondly we are focusing on refining our operating model so that we can properly serve multiple customers. And third, we are beginning to responsibly expand our product line so we can grow profits in 2005 for our retail partners and Levi Strauss.

In summary, we believe Levi Strauss Signature is delivering great value to the consumer and the retailer. It is driving incremental volume profits for our Company, and we believe this strategy has growth potential. And now over to Paul in Europe.

Good morning, everybody. Over the next few minutes I will update you on Europe's performance for the first quarter. I've been at Levi Strauss & Co. for two months now, enjoying the challenge and convinced that the new direction in Europe start under John Anderson's leadership involves the changes that are required to move our business forward. Focusing more on profit rather than volume, focusing more on a market by market affiliate approach rather than the centralized business model of recent years.

Rightsizing the organization to reflect the smaller business size we are today and finally rebuilding the basic box of developing better products, moving faster all at lower cost. For Europe as Phil has said, is becoming more complex, both with the growth of countries into the European Union and an even more complicated retail environment, so if anything we need to accelerate our change programs.

I'm pleased to report therefore that we have launched the internal goals we set ourselves in the first quarter. However, when compared to prior year, we are still seeing volume declines, particularly in the Levi's Brand, which was down 30 percent versus quarter one, 2003. We planned for this decline in the Levi's Brand given the trends of recent quarters and in anticipation of tightening our distribution and repositioning the Brand. As we noted last time, our new brand architecture focuses on the premium and super premium segments of the market. The areas where our retail partners expect us to be and where our Brand is strongest today.

As we also mentioned in our previous call, we've gone back to our advertising roots, focusing on the 501 jeans and have launched an integrated television campaign supporting this. The campaign was launched in the latter part of February in cinemas, television and print and the initial response from consumers, particularly the younger consumer has been positive. It is too early to fully assess the impact of the advertising campaign, but our Q1 selling figures for the 501 jeans product line indicates a single digit decline versus last year. We are still not growing but the decline is substantially lower than in previous quarters.

I am also pleased to report that the launch of Levi Strauss Signature Brand is off to a good start in Europe. The Q1 results exceed our expectations, retail and consumer feedback has been positive. We are currently distributing the product in France, in Germany and in the United Kingdom. We continue to explore opportunities in other countries, but it is still early, and we want to establish a strong foothold in these three markets before we branch out into other countries.

In summary, then, we continue to pursue four clear strategies in Europe. Firstly, it's about control, making sure the basic box are in place for superior performance. Secondly, focusing on equity not just volume. Having great products, in great distribution with world-class communication. Thirdly, the go-to-market process has got to be faster, it's got to be cheaper and it must be more flexible. And finally and critically, establishing again a market by market business model which is right for Europe. These four strategies are beginning to work, and the coming weeks and month we will try to accelerate their implementation. Now I will turn things over to John Anderson in Singapore.

The positive momentum in Asia-Pacific that we experienced in 2003 continues into 2004. As you heard from Jim, first-quarter results in both revenue and operating income exceeded prior year with double-digit growth. The pleasing news is this growth is coming across all our countries, so it is a broad-based growth momentum. The growth is also driven by good performance from all three brands. Levi's Brand, Dockers Brand and the Signature Brand. Talk about the Levi's Brand performance first.

This growth is driven by product initiatives. The relaunch of the revised 501 fit supported with advertising continues to perform well. Levi's engineered jeans also continues to perform well for us in Korea and is backed by a television campaign. 501 product initiative about men and women is still strong for us in Hong Kong, China, Taiwan and Korea, supported with strong point-of-sale and strong retail prices. Both our men's and women's premium five pocket businesses continue to grow evidenced by new fits and new finishes in the marketplace.

Our ongoing strategy of investing in opening new stores and upgrading our existing stores continues to deliver growth for us. The summary for the Levi's Brand is not a one product concept driving our growth but a variety of products backed by good advertising and continued investment in retail.

Our Signature Brand continues a strong performance from the launch last year in Australia and Japan. We are now about to roll it out into New Zealand; that will take place this month, and we are doing a test launch in Taiwan later on this month also.

The Dockers Brand is also continuing to perform well, particularly pleasing is the performance in our two biggest future potential markets, India and China, where we are experiencing double-digit growth in both of those markets. In summary, promising start to the quarter; we continue the momentum we had in 2003. We experienced the growth across all three brands, across all of their countries. Cautiously optimistic start to the year, and there is every indication we can maintain this for the next quarter. Back to you, Jim.

Thanks, John. I would like to now update you on the results of the joint LS&CO. Alvarez & Marsal work plan. We are now completing a comprehensive analysis of our business strategies, plans and operations with A&M. Our work included identifying ways to simplify the business by taking complexity and cost out of the organization. This process, which was worldwide in scope, included intensive business plan, product line and rigorous cost center by cost center reviews. There was a lot of good work underway in the business, and this process has allowed us to jointly add to that good work and to successfully bring it all together.

Please note that we will be taking restructuring charges associated with these actions as they take place into the future. So today I will go over some of the outcomes of this work, including steps we have taken already and will be taking in the coming months to reduce our costs and improve our profitability and financial performance. I will take you through in order of first, product line rationalization; second, working capital review; third, a cost structure review and fourth, on to the punch line and the conclusion.

So let me start with product line rationalization and why it is such an important initiative for us. Product line rationalization can help reduce business complexity, focusing the what we do and make, and reduce our business risk by minimizing fringe product, fraught with markdown and obsolescence risk. Additionally we believe these product line rationalization actions will begin to focus our assortments by door and fixture and thereby enhance our performance at retail.

We assessed our product category segments and sub-brands with an eye toward improving profitability or exiting underperforming lines. Each of our brands in the U.S. and Europe is tightening their merchandising assortments, thereby reducing product codes and fabrics. The outcomes vary by brand and region but basically we are striving for the right number of product codes and fabric basis for each market and consumer segment.

Additionally, in product categories that are not in our core competency we are moving to licensing arrangements. Some examples of the work underway in these areas include the following. In the U.S. Levi's Brand we are striving to improve the profitability of our women's and junior's lines; while our volumes are growing we are endeavoring to improve our business model to enhance the profitability of these businesses.

The silver tab sub brand of Levi's has been refocused. Additionally Levi's will license its men's and women's tops business and its kids business, and finally the brand is tightening its core merchandising assortments. In the U.S. Dockers Brand we've exited the D Series of products that was introduced last year but which underperformed, and the brand has also reset its core offering and is licensing women's tops.

Levi Strauss Signature in the U.S. is licensing knit and woven tops, women's jackets and kid's zero to four. In Europe we will refocus and shift some products to our core red tag lines such as Levi's type one. We will also tighten our women's assortments of Levi's engineered jeans. All of our work on product rationalization, narrowing our merchandising assortment, reducing the number of product codes and fabric bases has helped to enable our cost structure review, which I will discuss in a moment.

So second, our working capital review. As a result of the working capital review we have together identified opportunities to reduce our inventory investment. First, our focus has been and continues to be on disposing of excess and obsolete inventory, and improving our forecasting so we don't create and build up as much of this inventory in the first place. Second, our product line rationalization actions will reduce our inventory investment. Third, as we referenced in our last call, we have accelerated our exit from cut make trim (ph) wherein we maintained raw material and inventory ownership and we are swiftly moving toward full package production.

We expect these actions to provide a source of cash in fiscal 2004, and we note that inventory is, has been reduced 68 million in the first quarter, and we are turning inventory 3.5 times at the end of the quarter. So third, on to the cost structure review, but before I discuss the outcome we would like to lay down our cost reduction principles. First, protect the front end of the business. We are talking here about our Levi's Dockers and Levi Strauss Signature brands and the associated customer facing functions. As we addressed our cost, we ensured that our brands and customer facing functions were adequately resourced. That we are protecting advertising and promotion spend and that we are providing for investments as appropriate.

Second, we focused our cost reduction actions on the back end of the business. I.e. the corporate support functions. We will be reducing resources across departments and streamlining and consolidating the organization. We're developing a lean and efficient cost culture, at the same time we need to ensure that we are keeping the trains, the proverbial trains running on time so we will take care to minimize any potential disruption to the business. As we consolidate and streamline the Company in 2004, we will be eliminating staff and not filling open positions.

In May for example, we expect to eliminate approximately 200 staff in the Americas region. This is in addition to approximately 75 open positions that will not be filled. So on to the punch line -- we believe that the culmination of these and other actions that LS&CO. and A&M have jointly identified will deliver SG&A as a percent of revenue and operating margins that will be more competitive in fiscal 2005. As we implement the very factions I mentioned today, we are continuing to explore additional ways to reduce our costs, increase cash flow and strengthen our capital structure. We will provide additional information on specific initiatives as they unfold throughout the balance of the year.

I also want to note that as we pursue these various actions we will do so in a way that allows us to maintain sufficient liquidity and to remain in covenant compliance. So in conclusion it has been a very productive process. Phil and the rest of the management team have been very open and introspective throughout the process, and it has contributed to a great result. We need to stay focused on our initiatives, continue to monitor and drive sell through and to make sure we improve our delivery concerns.

With the encouraging start in our reported Q1 2004 financials, improving performance at retail in February and March, and the successful completion of our joint LS&CO. A&M analysis, we are cognizant that a few months do not a trend make, but again, we remain cautiously optimistic. Thank you, and I will now turn it back to Phil.

Thank you, Jim. So we made the first quarter relative to our plans, as I said and Jim reinforced, we're taking this year one month at a time but we are on our way to accomplishing our objectives for 2004. We would be happy to answer any questions that you might have.

(OPERATOR INSTRUCTIONS) J.P. Morgan.

Carla Casella from J.P. Morgan. My first question relates to the gross margin improvement, can you give a little bit, can you quantify how much of it is driven by or actually is not the exact quantified amount relative -- how much comes from the returns of fewer returns, lower sourcing costs, improvements in -- all the different items that you reference. What are the three key, I guess you would say, or can you quantify it?

We haven't quantified each individual piece, but as we pointed out the improved dilution management has been a source of improvement in the margin as well as just becoming more nimble on the sourcing costs and those things in conjunction with stronger foreign currencies were somewhat offset by the pricing reductions we took on the gross line, if you will.

Can you just explain what -- one line you mentioned improvements and inventory allowance estimation. Can you just explain that a little bit better?

I'm sorry. Repeat the question.

The improvements in inventory allowance estimation which is one of the line items there, under gross margin improvement, can you just explain what that is?

I think you are referring to in the MD&A and discussion of our critical accounting policies. All that, what that reflects is we continue to refine how we look at our inventory reserve levels, so there was a reduction in our inventory reserve levels of about $5 million in the quarter associated with our fine-tuning the approach we take to providing for inventory reserves against as you say, excess and obsolete inventory.

Can we see that going forward or is that a onetime item?

That would be a onetime correction to the way we think about our inventory reserve levels, refinement of our inventory reserve levels.

Okay. And also related to gross margin you talked about the markdowns, fewer markdowns. Is the timing of markdowns different or are the allowances timing different with Wal-Mart and Target than it is for the department stores?

Not substantially.

Okay, but last year you had more markdowns because it came up with a weak Christmas season, you were (inaudible)in department store business and therefore you had more markdowns?

No. If you look at, when we talk about dilution, remember we took a wholesale price decrease last June on both on Levi's, and we took it a little earlier on Dockers, a substantial price decrease. This was designed to put our retail margins at more competitive levels relative to the target that the chains and the department stores are looking for. So if you look at the first quarter of this year, we are comparing to -- that price decrease is reflected where it didn't exist a year ago. What existed a year ago was a promotional program that was designed to compensate retailers for the fact it was called a VIF program, that was designed to compensate retailers for the fact that we didn't have very competitive margins. The net result of that is reflected in that dilution, and at the same time what happened last year was we had huge product transitions as we moved to the new individual fit on Dockers, as we transitioned the new product lines with the fits and styles that are now working in the marketplace on Levi's. That resulted in a lot of markdown of old product. That is reflected in these numbers, too, so the net result is that you have a positive effect on dilution as a result of that.

A similar situation existed in Europe in terms that we were because of excess inventory in Europe, we were selling product off at a marked down level. And there's much less of that as we gain control of the business in Europe this year.

Great. That is very helpful. Just one other question on the post-retirement going forward, if it was about 15 (ph) million last year, this year you had a reversal in there. Should it be closer to that 16 million level as an expense per quarter like we saw last year, or would it be closer to half of that?

What you will see in the financials go forward is you will see an income, a benefit to income over time as we as I said, as we amortized the reductions and the obligation that we have taken. If you look at the footnote in the retiree medical section, there's a nonrecognized prior service cost. That item, you will see has increased substantially. That item will amortize into income over approximately 10 years. So the $360 million reduction we took in this or that we implemented in this obligation, that $360 million reduction is added to unrecognized prior year service cost and is then amortized into income over 10 years.

Okay, thank you.

Banc of America Securities.

For the month of March, some folks at retail and apparel were -- this is Ron Phillips (ph) by the way -- have indicated that there is stronger volumes and a refreshing sort of uptick in average unit selling price. Have you guys seen any of that or expect to see any of that going forward at all? An end of year lines?

I think we said in the prepared remarks that Levi's and Dockers and Signature we had a strong March in terms of retail sell through. And we are able to -- we've been able to in general maintain the pricing strategy that we hope will reflect our brand. Again, as I say that I always caution (technical difficulty) prices but we are being able to hold the premium price points, which is our strategy within the market place. And we are seeing in Europe a better mix of our higher priced products in the month of March, as well, which is positive. So yes, we are in sync with the published retail results. And again, from our experience is that it differs by retailer. We know some retailers that had a strong full month; we know some retailers that have us tailed off at the end of March. And again most of our retailers are seeing more strength at home then I would say they are in men's apparel but we've seen an improvement in men's apparel.

Thanks a lot. I think you guys recently went into ShopKo with Meijer, and I think in the previous call you talked about going into traditional retailers. I am wondering if these are the additional retailers or if you guys have plans to go on into others in North America.

We're just now in the process of doing what I consider a soft launch into ShopKo and Meijer, into a couple of stores and then getting our systems working collaboratively with theirs. And then we will do a full launch into their stores for back-to-school, and we are still in negotiations with a few other value conscious retailers. And hope to be in them later on in the year.

Thanks a lot, Jim. Can you -- a question has come up today from a lot of folks wondering what the total impact from FX is on say your operating income. Is that something you can quantify for us?

It is approximately $10 million. The favorability in the operating income line.

That was in the MP&A (ph). Does the guidance for the non-op (ph) liability in the 140, 141, in the 20, does that still stay the same for the year? Does that thinking on that change at all?

I'm sorry, repeat your question.

The white-collar restructuring plant closures at 140 and the closer (ph) time into 41 and the pension funding at 20 that we talked about last time.

Yes, those we actually have a table in the 10-Q which does an update on all of that information, telling you what we are planning to spend for the full year. But the answer is haven't changed dramatically from last time. But we updated what we are expecting to spend for the total year, what we've spent in the first quarter and what is left to spend in the balance of the year.

Last time you guys talked about getting in a letter of material weakness. Is there any such thing as an okay letter that you can't --.

I guess what typically happens is a company gets a relook on an annual basis, and we are working hard to address all of the concerns that have been called out in that material weakness letter over time. And our goal is to get it solved as quickly as we can.

And then finally, you talked about sort of correcting opportunistically the SG&A margins and the operating margins. Is it possible for you to give us an idea of where that could ultimately end up? Would that be say, get you back to historical margins, 3, 4 years ago?

We will continue to answer the question the same way; we'll be more competitive in 2005 on both fronts.

All right. Have a good day, guys.

Banc of America Securities.

Kathy Brady calling. I guess I just wanted to follow up on some other things that have already been touched on. Specifically last year, there was an impact to your gross profit margins from sales returns and allowances. Can you quantify what that impact was in 2003?

I am sorry, Kathy, could you ask the question again?

Last year there was an impact on the sales returns and allowances to your gross profit margin from sales returns and allowances. Can you quantify what that was?

I am not sure I follow. The dilution that we experienced in the first quarter, as we call that, was better than we experienced a year ago's first quarter and reflecting as we said the strategic action we took on wholesale price, coupled with better -- so in other words less returns and allowances now with the new strategic pricing model. And we had better product performance in the prior quarter we experienced heavier product transition costs, and those have declined. And we do not quantify the individual pieces within our dilution line.

Okay. And again on the employee retirement, the impact last year to EBITDA was approximately 50 million. Is that right? On the employee retirement benefit costs?

In the first quarter, just looking quarter-over-quarter, we had no curtailment gain in the prior year's first quarter. We did have a 16 million curtailment gain in the first quarter of this year. There would have been other curtailment gains in the latter quarters last year, and for the full year last year that's about right, $50 million was the full-year curtailment. Eileen –- (indiscernible) -- the net expense we took for retiree medical in 2003 was about $50 million, as you said.

And it sounds like this year there will actually be a gain to that line item, right?

There certainly is in the first quarter, and we will see how it plays out. The assumptions the actuaries make can change over time, so we will see how it plays out for the balance of the year.

But if it is a positive, then that delta --?

All things being equal, the curtailment gain would cause us to have some benefit this year.

Okay, that's it. Thank you.

Raymond James.

Gary Albanese (ph), Raymond James. Could you give me a better feel for the impact that the rollout of Signature into Target had in the quarter? How much of the inventory actually shipped during the quarter?

Just in total, the Signature business for the quarter was $100 million, $85 million in the Americas and about $20 million outside of the Americas.

And we don't break out Signature by customer.

But in terms of shipping to Target, did it happen more in the first quarter or more in November -- more before, say, Q4? When did the actual shipments occur?

Sure. The fixture set for the men's business, one fixture, that was shipped in the month of November. And then the other two fixtures in men's plus the three fixtures in women's and the three fixtures in kids', those fixture-filled shipments were in December.

So most of the impact was in December.

Yes.

Remember, that's in our first quarter.

Right. Secondly, just a clarification regarding the curtailment gain and the post-retirement benefit expense. You say how (ph) the net reversal of $8.9 million in the quarter. Is that included in the curtailment gain or is that separate?

That reflects the curtailment gain.

Okay, thank you.

Credit Suisse First Boston.

Christina Bony. My first question is you talked a little bit about improvement in forecasting, and I believe in the 10-Q you stated there was about an $18 million benefit to sales as a result of not being able to, in prior periods, be able to calculate that last weekend of sales. I was wondering if you can address what system changes you are making, how you feel about the systems that are in place right now, and what appropriate actions you'll have to take on the systems front and what that will cost to put your systems where you think they should be.

Not sure it is entirely always a systems issue. We just need to work on -- as Bobbi called out and we have called out generally, we are not at the level we want to be at for our deliveries or for our fulfillment rates out of our distribution centers. And so we are trying to make sure that we have -- organizationally here that we work on -- it's more process and communication amongst the various departments to make sure that we have a tight linkage between the demand planning and then the supply planning side of the organization as to how much we buy and making sure it is a well linked back to ultimately what the consumer takeaway is and what we're needing to ship into retail.

So I would not call it, per se -- it's not an IT problem; it's just we need to work on the internal departments. As Phyllis called out, there were a lot of changes made late last year and we just need to let those settle in and make sure the departments are working collaboratively to hit the right inventory buys and have the right product on the shelves for fulfillment.

So you think at this point the systems are giving you the appropriate amount of information required to be able to manage the business; it's a matter of getting that information to and from the different sources?

We were in the process of installing an SAP apparel solution, starting with Asia and then moving into the United States. We postponed that, given all the other changes that we made and the costs associated with that. We will restart it in Asia probably in '05, and then we will look forward to when we do the U.S. after that. In the meantime, we make patches to our current systems and we make sure that our current systems are effective.

And we believe that the go-to-market focus is the way to really improve our ability, and it has a couple of elements to it. One is a tighter assortment of product makes it easier to forecast, and forecast to fixture, to door, either by country or by customer. And then, as Jim said, making sure that the roles and responsibilities and the linkages that exist in this go-to-market process are absolutely clear. And in the U.S. we have installed a system that will supplement and help us make sure that we forecast correctly by fixture, by door, called Marketmax, that we are in the presence of implementing right now, which does not require an SAP solution. So as time goes on, we will improve our systems, starting with Asia and then moving to the United States. In the meantime, we can use what we have, and the addition of Marketmax in the U.S. will facilitate that.

Great. And I just had one follow-up to the pension issue on the 8.9 million. The 8.9 million, is that not just your amortizing, as you said, the 360 million? I am a little confused if the 8.9 is separate from the 16.4. I think you just alluded in the last question that it's included.

The way to think about it is but for the curtailment, our expense would have been $25 million. We had a curtailment of $16 million, and thus a net 9.

Okay, so a net 9 that's within there.

Sorry. Let me correct that. Our gross expense would have been 8; our curtailment was 16, for a net (multiple speakers) 8 or 9 income. With the net income -- I went the other way.

So between the curtailment gain and the 8.9, is it right to say that there was $25 million within the quarter?

No. We had a net income of $8 million with respect to retiree medical expense. That related, if you will, our normal expense would have been 8 and we had a curtailment gain of (multiple speakers) netting us for an 8 of income. Forget the 25. That was incorrect.

I think I'm following you now. But the cash outlay associated with that accrual is going to be the estimated $40 million that you have (multiple speakers).

Let me just make sure everybody understands that. So the drop in the obligation of 360 million is associated with caps and the like that have been put on the prescription drug coverage, the medical coverage, and also the age and length of service restrictions. Those items reduce the total obligations in the long run -- obligations are, if you will, a present value of the future stream of payments that we would make. And near-term, though, cash expenditure will still be in the neighborhood of $40 million, as we have called out, and it is in the out years where we would ultimately see some reduction in the actual cash funding requirements for retiree medical, as those caps would start to -- as medical inflation would start to approach those caps over time.

Okay. So if all things were equal, the net income, the 8.9, would continue itself as you said in another question through the next three quarters, if all things and estimates remained equal, correct? Is that the way to think about it?

That's correct. (multiple speakers) Why don't we move off this? There is more disclosure in the 10-Q regarding retiree medical.

I appreciate the follow-up. Thank you very much.

Could I make just one comment too, please? Everybody keeps talking about this as pension. This is retiree medical, and it is very important to distinguish. We haven't changed our pension programs at all. What we did to remind people last year -- and it says it in the 10-Q and we made it in the remarks -- is we finalized it with the union in our distribution centers in the first quarter, is that we capped how much we would pay on retiree medical in the future and we discontinued that benefit for current employees. But it is not a curtailment or a change in our pension plan. And it is really key to make that distinction, that this is a retiree medical issue. I keep hearing on the call pension, and I don't want people to get confused here.

Imperial Capital.

Mary Gilbert. Could you talk about your advertising expense ratio? What rule of thumb should we use this year, because as you noted in the first quarter, advertising expenditure as a percent of sales declined from 7.8 to 5.6.

I guess what we would say there, we don't call out particular percentages, but we did want to point out that we do have initiatives that are in front of us, and you will see in the prior year's first quarter we spent at a 7.8 percent of revenue base, and this first quarter we spent at 5.6. We just want to make sure that you understand that it is likely not to be at the 5.6 level for the year. We are not calling a specific number, but it is likely not to be as low as 5.6 throughout the year because of the programs that are coming online in the second quarter, as we called out in Levi's and Dockers.

Is it expected to be closer to the 8 percent level for the year?

We are not going to call a specific number on that.

Okay. And then also, I wondered if you -- is there any opportunity in the core business, the core Levi's and Dockers, to be in some channels that are not necessarily in the malls, but it is still the core brand? Do you see what I am saying? For Levi's and Dockers, are there other retailers that you could enter? Because some consumers -- there's been some trend away from malls, so I wondered if you're able to address that or you feel like you have already adequately addressed that.

Well, we believe that multibrand specialty retailers would be an opportunity for us for people who want to shop in specialty retailers as opposed to chains or department stores. We are certainly a factor already in Urban Outfitters. We have sold ad times in Pac Sun. And we have looked at other multibrand specialty retailers. We would not describe this from a volume standpoint, though, as a huge opportunity relative to the size of the business that we have today. We know that our own Levi's stores, which we would describe as a single brand specialty retailer, have done very well in this environment with our new product lines, with double-digit sell-through increases and really comp store sales increases for 15 months in a row. But we don't have any plans at this time to significantly expand our own stores.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS) CIBC World Markets.

Alexis Gold, CIBC. Just a couple questions. First, the way (indiscernible) I calculate it, it looks like Americas including Signature are down about 7 percent. I'm just trying to get a sense -- are you seeing any reordering of core customers, at least going forward, as wholesale price reductions start to roll off? And I guess I have a follow-up as well.

What we have tried to indicate to you is that we have seen our sell-through, which we would view as a precursor of demand, really begin to increase on the Levi's and Dockers brands in the United States. So we are comparing on a sell-in basis to a period of time where wholesale prices were higher last year, so the first quarter results to some degree are muddy. But we are encouraged, particularly over the last two months, of the sell-through increases on Levi's and Dockers.

And given the historic operating environment, the economic uncertainty, consumer confidence, everything that we said in the call, we are not going to bank that going forward. We're going to assume that it is a very volatile environment and that you can't predict off of those two months. But we are encouraged by it in terms of what the consumer demand has been, and we believe it is in response to the innovations and the product assortment that we have out there right now.

To reinforce the math you were doing, i.e. X Signature, is really just then reflecting that we were down, as we said, 5 percent on our U.S. Levi's brand and 17 percent on our U.S. Dockers brand. And as Phil and I both said and the brand presidents have said, we are very focused on those core brands and making sure that we try to drive sell-throughs in the long run. And again, it is a couple of months, but good to see sell-through improvement in seven (ph) margins we've called out.

Additionally, you talked a bit about women's improving. Is that primarily on premium? I think that the vintage used to be at about $189. I've seen them around $150. And has this helped? Related to that, any sense if Macy's would be picking up women's again?

The women's performance has actually been driven across all segments and at all price points. Most critically for us, the highest growth rate is actually coming at our volume price points, which are anywhere between around $26.99 to $29.99 in the United States. We have been driving, as I mentioned, double-digit sell-through increases across those businesses. We have been experiencing growth in the premium segments, as Phil mentioned. We're distributed through customers such as Urban Outfitters, where we have just recently expanded to all of their doors, and continue to be a really strong seller in premium distributors such as Bloomingdales and Barney's. But importantly for us on our women's business, to gain the share that I mentioned -- the Juniors have two points, as well as to experience the success we're having now in Misses Plus, those results would have to be driven at those volume price points that I just mentioned.

Okay, great. I guess on a related note, I have heard several industry sources talk about a return to more -- at least on the women's side -- boyish cut jeans this fall, sort of a turn away from the low-rider jeans; and my sense is that would bode well for the 501 and some of the Red Tab. Can you give us a sense as to whether or not that is what you're seeing on your side?

Sure. It's critical that you take a balanced approach to your assortments. It's true that there is a trend toward more square top blocks (ph), guys'-cut jeans, slouch-fitting jeans in the women's segment. The volume is still currently done in medium to low-rise stretch, boot cut, and flare products, so we will continue to have those products in the range. But we have introduced square top block, slouch-cut jeans in both our Juniors and our Misses Nouveau segments on the Levi's brand. Those are selling extremely well from a sell-through standpoint in the high single digit sell-through to low double-digit sell-through levels.

So we feel confident that by adding those products into a very commercial assortment, medium and low-rise stretch, boot cut and flare products, that we will have a really balanced assortment. But we are running about two to three core fits in each one of our women's segments. Two of those to three of those would be focused on the low-rise medium stretch boot cut products. By adding a third or fourth fit in, we are adding that square, guys'-fitting slouch top block that you mentioned. And another trend which we are seeing significant growth in is (indiscernible) straight cuffed jeans, which we have also added into our assortments across all price points.

So if you saw Saturday Night Live this last Saturday, Janet Jackson was on, and if you looked at her -- she was pretty good, I might add -- if you saw her, she was wearing basically a guy's-fit, top block jeans. So that is an indication that that is coming. I wouldn't predict, as Robert said, that you're going to see it as the primary fit in chains and department stores in this back-to-school season, but you can see it is coming when you see that -- she wearing that on Saturday Night Live.

Great. And just finally, to talk a little bit about Europe. You may have said this, and maybe I missed it; I am still going through the Q. But what was the category decline in Europe and was the category down overall? And if so, how does that project out going forward? And if not, who is gaining share there? Is it mostly designer?

(multiple speakers) In Europe, you still have, as Phil said earlier, very difficult market conditions. So in overall terms, although the ladies' market has shown positive trends in recent years in certain countries, in overall terms, you've got very difficult conditions in all (indiscernible) markets. And as I outlined in some of my statements earlier, our key focus is stabilizing our Levi's sales pattern. And we are encouraged by the performance of 501 plus the launch of the advertising campaign, but as I said, quarter-on-quarter we are still showing a single digit volume decline.

The category overall, just denim in Europe, is there some sort of measure there where we can say the category as a whole has grown or declined and get a sense for how your share has changed within that?

In overall terms, the denim market is declining. But obviously, you talk about 24 different markets, so it is very difficult, without going into the complexity of country-by-country, outlining the exact Levi's position.

Oak, great. Thank you very much.

Goldman Sachs.

(inaudible)

Fieldstone Capital.

Kelly Garrity (ph). Most of my questions have been answered. I was just wondering if you could just quickly give a little more color to the $54 million restructuring charge that was due to the enterprise resource planning system. Can you explain that a little bit?

It is basically -- in large part, it would be a non-cash charge in the sense that the prior spend to commence the implementation of SAP is effectively being written off because we have suspended it indefinitely. So it is -- in large part, of the $54 million, approximately $43 million of that is related to the discontinuation of the implementation of SAP, and within that $43 million, I would say approximately $35 million is non-cash associated therewith.

So when was the spending done then? If I were to reverse that spending out in prior quarters, where would I do that?

Over the course of -- with the end of fiscal '03, go back about 18 months -- over that period of time.

Okay.

(multiple speakers) that would have been a lot of capital spend as well, so it wouldn't per se be in the operating expenses. It would be in capital spend.

Oh, I see. Okay. So of the $54 million, $43 million was related to that?

$Forty three million was related to that, and of the $43 million, effectively approximately $35 million is just a reduction in the balance sheet -- PP&E balance that we have, because we have determined that those items need to be written down to 0 due to our indefinite suspension of the rollout of the enterprise system.

I'm sorry. So what is the remaining $11 million there?

The other pieces are related to the actions -- the initiatives commenced last year related to the downsizing of the U.S. plant base, the manufacturing plants, i.e. San Antonio, and Canada as well. Those are now the cash spendings occurring with respect to the U.S. reorganization.

Okay, great. Thanks.

Elliott Associates.

John Pike calling from Elliott. My question concerned the cash outflows associated with the post-retirement benefit plans of $40 million this year and $200 million for the next five years. We were wondering why the Company has not, to the extent possible, eliminated these expenditures and if there was any plan to do so?

The Company has not got any plans to do so, and in fact had made pretty substantial changes, amendments to the plan, to reduce the total obligation that the Company has for those items, so there is no current plan with respect to any changes to the retiree medical program. So as I said earlier, those reductions and obligations that we are seeing will reduce the cash burned over the long run for the Company, based on the medical inflation assumptions that we are making today. And the near-term though, the $40 million that you called out, will not change appreciably over the near-term, and we would only see the cash burn reduced in the out years.

But the Company does have the ability, if it chose to use it, to curtail or impact that 40 or that 200 over the next five years?

That is basically correct, and you have seen other companies that have done that kind of a thing. But the Company has not today decided to do that.

Thank you.

Concordia Advisors.

Lance Seconda. My question is just that now that you are outsourcing more and more of your manufacturing, to what extent are you able to take advantage of lower cotton prices and textile trends more generally, I guess? Or are those savings being retained by your vendors?

Well, that's a complex answer. If you looked at us now, with the exception of a few plants in Europe and a couple of small plants in Asia, virtually all our product is made on an outsourced basis. And our strategy is to balance fulfillment and cost. So in some cases, if you're in the Americas, we still source substantially out of Mexico and the Caribbean, South America, so that we have short lines of supply. But we've moved more and more of our production also to Asia for lower cost of goods, and we're trying to find that right balance between being able to meet immediate demand and at the same time have lower overall costs.

Within the context of that, we try to go to countries where we source where not only do we have sewing factories, but there are fabric suppliers as well, so that we source the fabric and really the goods on a full package basis. We have, as you see in our results in terms of cost of goods, as we've moved over time, over the course of the last four years away from owned and operated manufacturing to this, you see it in our cost of goods. And one of the reasons why we returned to the 40-plus margin level at the gross margin level that we had this year is that the benefits of that cost of goods initiative from outsourcing reflects itself in the income statement. And then generally, we are taking advantage of fabric purchasing outside the United States, and in general, we're buying fabric at lower than the spot market price for the cost of cotton fabric out there -- in any country you are talking about.

Are you then I guess -- I understand the benefits of the outsourcing the manufacturing. I'm a big believer in that. I guess more specifically, though, are you able to participate in some of the recent term trends that have been happening, or perhaps those trends are just limited to domestic cotton and you're saying that you're really sourcing most of your materials abroad?

I guess what we're saying is if the trend is occurring, we're not going to overpay with our vendors. We are out there competitively working the vendor base at all times, so we're going to get as much as the next guy in terms of accessing those favorable trends.

So when I say we're buying at lower than the spot market rate, you are absolutely -- that's the whole point of that comment -- you are absolutely being competitive in terms of your fabric purchasing around the world.

Great, thank you.

Harris Nesbitt.

It's Lemul Scafino. I was wondering on the U.S. decline of the Levi's and Dockers business, where you described the percentage declines, is that pricing and unit volume both or is it predominately pricing?

I think as Robert described the U.S. Levi's brand, that does reflect -- he called that a 7 percent year-over-year change in the wholesale pricing to the market, so that does reflect that change, would reflect -- and we are talking about net revenues, so that would be reflected in the net revenue result, yes.

Was there a volume decline as well?

If we were down 7 on wholesale pricing and down 5 on net revenue, --

Okay. And Dockers?

Dockers is more complex than that. There's a price differential, but there is also -- the retail sell-throughs that we had were much less than the decline that we had in wholesale because of all of the product transitions that we were going through last year and the necessity to sell off seconds and closeouts and go through the assortments to make that transition to this new individual fit. We took the core 81 Dockers pant a year ago and transformed it into this individual fit, and so the volume comparisons are difficult to make. I don't know if Bobbi wants to add anything to that.

Just in addition to that, there were some one-time events that did not occur this year. We used to have a boys' business, which we have licensed, and that was included in the year-ago numbers. And also, we had planned to reduce our outlet sales for the first quarter as well, so that was part of the plan.

Okay. Could you discuss the advertising strategy in the first quarter? I know you are saying that going forward we should not expect the same percentage of sales. But in discussing the fourth quarter disappointment, a lot was made of the fact that there was very little advertising going on, and there was not a lot in the first quarter, and yet sales at least in some areas improved. What is the strategy just broadly speaking on advertising?

Our strategy going forward is that you'll see for the balance of this year the advertising weighted to the last -- the second, third, and the fourth quarters, with more advertising in the back half of the year than you'd see in the first half of the year. In general, reflecting the seasonality of the business, but also making sure that we have absolutely, as we go to that back-to-school season or the equivalent in Europe, the right product assortment by customer, by door, by fixture. And we believe that it is absolutely key in that fourth quarter to be on the air both in Europe and the United States on the Levi's brand and in the United States on the Dockers brand. So where we had an absence of advertising in the fourth quarter last year, we will be back to historical levels in terms of target rating points -- in some cases, higher both on Levi's and Dockers in the U.S. and Levi's in Europe.

Okay and my last question. You are reluctant to talk about SG&A as a percentage of sales as a result of the cost structuring -- cost reductions, but can you give any idea as to what you have currently done or currently identified a rough magnitude of annualized cost savings in dollar amount that one would expect to see?

No, we're not going to give a specific number, but I would say, again, what we did internal here is together we went through every single cost center of the Company and tried to rigorously assess what we truly need to spend to make this -- on the back end such that we can keep the trains running on time, as we said. And then on the front end, we were very careful to make sure we were adequately resourced on the front end of the business. So I know everybody wants "the number," but all of those things combined, we were driving, we were looking at the marketplace, we were looking at our competitors, we were looking at our business, and really trying to drive to 2005, wherein we are a lot more competitive on both those metrics -- both SG&A as a percent of revenue and our operating margin.

Okay, thank you.

Hamblin Watsa Investments.

This is Jeff Buick (ph). I'm not sure if people are quite aware of the value of your Levi Strauss Japan stake. It is a separately traded public company in Japan. It looks to me like it has a U.S. value of about $380 million, and you own 84 percent of it, and it only represents 5 percent of your business. Would you look to potentially monetize more of this asset going forward, which would do a lot to minimize any of these perceived liquidity fears the market has?

You called out percent of business, but within Asia, it is an important piece of the Asia-Pacific region and an important --frankly, an important, profitable piece of the Asia-Pacific business. And we don't have any intentions or plans at the moment that are in line with what you're suggesting. We think it is an important part of the worldwide Levi's brand.

I guess I wasn't saying -- I mean, the valuation discrepancy of the market's perception of your bonds and the value of that stake seems a little off.

Maybe we need to fix the former.

All right, thank you very much.

Bear Stearns.

Karen Miller. I'm wondering if you could give us an update on the IRS audit and if you could just go over what your tax reserve is for this liability?

The tax reserve is on the balance sheet, so the long-term tax reserve would be right on the face of the balance sheet, in the zone of -- there's no material change from year-end on that. And we continue to work with the IRS. We have open years -- as we also lay out in our 10-K disclosure, we have open years that we're working to settle open issues on, and we will let you know as we work through all of that.

Okay. So the long-term reserve that is on the balance sheet, on the face of the balance sheet, is approximately 146 million.

Thanks. And if I could switch gears a little bit to the restructuring charges that you expect you might have to take as a result of the Alvarez & Marsal review, could you just give us a sense of the magnitude? Would the bulk of the cost be related to the layoffs in the back office or would they be more weighted towards the reduction in your SKUs? And also, if you could just give us a sense of the timing of when you expect the bulk of these restructuring charges to occur.

We are not giving any of those particular numbers. As we take the actions over time, we will report that in our SEC filings as to what charges we are taking associated with those actions. And per usual, there will be some cash restructuring charges and there will be some non-cash restructuring charges associated with the actions we will take. And I think as we have said, we would be taking those actions and letting the external world know about them over the balance of the year.

Okay, thanks.

KDP Investments.

It's Clark Orsky. I just wanted to circle back to the decline in the Levi's and the Dockers brand. I guess just wondering what gives you confidence that you're going to be able to get some traction on that business to turn the volume around? I realize there were some price reductions you took, but ultimately you have to stabilize that brand. I'm just wondering I you would put some more meat on that.

Just in general, we agree, and in looking at both Levi's and Dockers again, it is a couple of months, but the February and March sell-throughs are improving from the trends we were seeing in November/December/January, and so they're heading the right direction. But we again need to continue to be really focused. Robert, anything you would --?

I would reflect on the comments that I started with, which is that the area that we need to focus the most on is in the core men's business, where we did face about a 6 percent decline in the first quarter. On young men's and women's, both of those businesses are growing in the double-digit sell-through range, and our customers are actually investing in the (technical difficulty) businesses required to support that growth. The fact of the matter is if you combine it all together, take a whole price reduction of around 7 percent, that impacted our performance in the first quarter on the men's business.

Like Bobbi mentioned on Dockers, we had taken a strategic decision to reduce the amount of sales quite dramatically that were going through the outlet business and the club channel business and the off-price businesses. That also had an impact on the performance. Let's be clear that our focus is to get the four Ps -- product, price, promotion, and placement -- right on all of the Levi's businesses. We seem to have demonstrated the ability to grow the young men's and women's businesses, as well as boys' businesses, and we believe that, as we continue to focus on the core strategies I mentioned, that we can continue to see a positive trend in the men's business.

As Jim mentioned, we did see a turnaround in sell-through performance in February and March. And I would also just continue to reinforce that our customer sales, or selling to the customer, continued to lag; the sell-through results were generating quite dramatically. So as I mentioned in the last conference call, we're working customer by customer to improve their inventory investment in those core men's replenishment products so that we can gain the benefit of the sales that we deserve based on the current performance.

I remember that in the last call. Can you talk about how those discussions are going, about getting them to adjust the inventories that they are carrying?

They have done quite well. We had a discussion with our largest customer last week, which was the final discussion we needed to have to ensure that we were in the right inventory position on the Levi's brand going into the back half of the year, given the importance of it to our total business. And those discussions have been quite complex, because we have had to look at the business not only regionally, but frankly, we have had to go down and look at it door-by-door. And we are in the process of culminating those discussions right now, and where we have made the incremental inventory investment in two product codes specifically, we've been able to turn them from slight declines to mid single digit sell-through increases. So we hope to gain some of the benefit of that as we move into the back half of the year.

And then on the Dockers front, we have taken three steps really to address the poor performance that we had in the November/December time period. First, we got our retailers to set their floors so they focused on two key initiatives, which we feel will drive the business for the first half of the year, and that is the individual fit on the original khaki, as well as the pro-style pant, which is a new initiative that is selling through well at retail. The second thing we did was we added advertising. So we added radio advertising in February and then we moved up our spring advertising to start the week of March 22, so it looks like we're getting some positive early traction based on that.

The third thing is to make sure that our customers are in stock. And as I mentioned, we did have some delivery issues in Q1 and we have worked through most of those delivery issues and will clean up the balance of it during the month of April, that being in stock on those key items will help also improve sell-through. So every month, we've seen a steady increase in sell-through and we think these three actions are driving that.

I appreciate it. Thank you.

Bear Stearns.

We're not hearing anything, operator.

Salomon Brothers Asset Management.

Phil, can you comment about -- you have studied the potential cannibalization of Signature on the Levi core brand. Can you comment about how that is looking these days?

We continue to see, at this point, I wouldn't say zero cannibalization, but very minimal cannibalization associated with Levi Strauss Signature and Levi's. The brands continue to seem to complement one another in the marketplace, and we don't see consumers leaving one store to go to another to buy a product that might be priced differently. I don't know if Robert or Scott wants to add anything to that.

On the Levi's brand, the other thing I would point out again is we have, on the young men's business and the women's businesses, seen double-digit sell-through increases during a period of time when the Levi Strauss Signature brand has been launched. That's issue number one. And related to the inventory point that I made earlier in the call, where we have seen declines in our core men's business, it has been where we've seen our retailers, because of their concerns about cannibalization, divest of the inventory.

As I mentioned last time, we have seen door-by-door divestments in the considerable double-digit range on inventory. Where those inventory investments have been corrected, we have actually started to see pretty significant improvements in sell-through trends. So we have not seen any evidence of cannibalization to date, issues related to the balance between inventory investment and sell-through. So if we were to really operationalize the right inventory investment levels on the Levi's brand, we feel confident we can start to drive ever-increasing improvements in sell-through trends.

So Robert, as retailers have carried less Levi products in some doors, have they taken away the shelf space from the Levi or have they just left it as a lower number of SKUs in the space there?

The real issue that we are facing, and I'm sure you have seen it if you've been out to retail, is not that we have lost the shelf space. It's that we are in stock-out situations on our core product codes. As I was mentioning earlier, we have gone through all of our customers a product code review to make sure that our inventory matches the consumer demand. We are working very aggressively to ensure that as we go into the balance of the year, particularly in the third and fourth quarter, that we are in the position to not walk (ph) any consumer demand because of stock-outs. So we feel some of the empty shelves that we've seen in the first quarter and should probably see some of in the second quarter, we're working hard with our customers to correct that.

I would only add that by taking these price decreases which we did at wholesale, we have much more competitive margins now, and that is not getting in the way of our retailers investing in our brands, which had been an impediment in the past.

Along those lines your gross margin in the first quarter, 42.4 percent, given that you are still getting to lower-cost sourcing, is it reasonable then that your gross margin will be at this level or higher going forward?

We're not going to give any specifics on that, but we continue to obviously want to deliver a good balance between the margin we make and the margin retailers make, and deliver our own operating margin at the end of the day.

And a question for Scott. Can you comment about the total number of doors you have agreed to be in Signature in both the U.S. and Europe?

I'll take U.S. I think Paul is probably better to do the European piece. In the U.S. we work with our customers and it varies by consumer segment, so in some consumer segments we are in all doors and in some consumer segments where the consumer base is not there to support the product, we will be in fewer doors, so for instance at Wal-Mart our men's regular fit, relaxed fit is in all 3000-some doors, but our kids business may be in less doors than that. Target the same way.

We look at on a consumer-segment-by-consumer-segment basis, so in some of our core programs we are in all doors and in some of our trend core fashion basics programs, we will be in a subset of the doors where the population is there to support it. And we will do that with all of our retailers.

In terms of Europe -- and it is still early days really -- we are in the largest distribution, Carrefour in France, so we are in most of their stores. In the UK, where we've launched in the last few months, and we are in 60 Asda/Wal-Mart stores, and we will be moving from 60 to 120 in the next month. And we have just launched in Tesco in 10 trial stores. So it is still very early days in Europe.

Okay. And then also, Jim, about your plan to reduce SKUs and to go through this cost structure review, can you say when it is fully implemented, what the ballpark is for savings?

No, we are not going to -- It is our plan (indiscernible) the table, so people in their current season and the prior season and the next season will continue to zero in and try to make sure we are as lean as we can be in the product assortment going out to retail. And as everybody has mentioned, particular pieces of business that we have licensed, so you'll need to watch us on the revenue line. As Bobbi said, we'll have licensed piece, so that piece will no longer show up in the revenue line, but it will have been the right trade relative to the profitability of the overall answer.

Last question about Marketmax. Can you comment about how long this will take to implement, and when it has been implemented in certain doors, what the improvement is in sell-through or margin -- gross margin for yourself and for the retailer at that door?

I'll talk first about the implementation. We are just getting this rolled out, so we are doing the in-season planning portion of it with our top customers -- we're adding assortment planning. And then we'll add the financial annual planning piece toward the end of the year. In terms of the overall return, it is really too early to tell, but we do think that the key thing that this will drive is greater collaboration between our customers and our supply chain needs, so that we are planning both looking inward and outward in terms of rolling up our numbers, which should drive towards better match of use (ph) to demand. That's really all I can tell you at this point in terms of what's happening with Marketmax.

All right, thank you.

J.P. Morgan.

Carla Casella with a couple follow-ups. You talked about in the 10-Q cash outlays of the 221 for key cash items. I wonder if you can translate that into when you expect your liquidity to be the tightest through this year -- so I guess an idea of the timing.

I would not even call -- again, we think we will have sufficient liquidity throughout the year relative to the flows of the -- and again, if you look the table of that 200 some odd million -- and I don't have it in front of me here -- but a large part of that frankly was dispersed already in the first quarter. We will get you the exact number. So we are calling approximately $420 million of liquidity -- basically, I think we called as of this past Sunday, we had 420 million of liquidity. And we think that flowing those items, flowing the earnings we will have, flowing the working capital inventory opportunities we will have in front of us, we will have sufficient liquidity throughout the year.

I guess I am trying to get an idea of --.

Just to answer the question -- you'll see we call out select items of about $285 million for '04, of which $64 million was dispersed in the first quarter and 220 for the balance of the year. And again, that 220, we have 420 of liquidity resources. We are going to have earnings. We are going to have inventory opportunities in front of us. And so we will have sufficient liquidity as those monies flow through the balance of the year.

Okay. And then, how is the reordering going at Target, or has that begun yet?

Sure. Yes, the reordering has begun. We have set the fixtures in December and our sell-throughs in general are at or exceeding plan, and so we have been replenishing as fast as we can, and in some instances, we are aggressively chasing demand.

And when you are shipping into a new -- like a Target account or ShopKo or any of the others, does that disrupt any of the -- in terms of forecasting our balance sheet, does that disrupt your days receivable, days inventory, or typically do you ship in at the same terms that you supply them longer-term?

There was a lot in that question. Let me try. It is not disruptive. What we do whenever we are shipping in a new account, the store sets are shipped directly from our pool points and our prepacks. So we basically get the store sets put in, packaged at the source base; it comes into the United States and hits one of our two pool points, either in Long Beach or in Dallas, and then goes straight to the stores. And then we replenish out of our distribution centers, our three distribution centers, the same ones that Levi's and Dockers do. So from an operational standpoint, it does not become disruptive.

And then we have planned it in advance by four to five months in getting the orders, so we are pretty tightly managing the working capital investment, and that first set typically goes -- the sell-through goes pretty quickly, and so we have to replenish pretty quickly, so you really don't see a big bulge in the working capital investment.

And their payment terms are the same day one as they are one year into it? (multiple speakers) any special payment terms?

No.

On the timing of your benefits outlays, I know that last year you had paid some of your benefits in Q1 and some in Q2. Can you give us an idea of how much were paid in Q1 and how much will be paid in Q2?

Again, there is a table in the Q that will tell you precisely how much was expended in the first quarter, and we don't break down by quarter. We just broke down for you what we spent in the first quarter and our expectation of spending through the balance of the three quarters for the year.

Okay. And then on the new long-term plan that you discussed in the Q, with payouts in July, February, and the coming July next year, if you hit your plan, what is the magnitude of the payout that we would see against that plan?

We haven't called that out in specific, but we have worked through a sensible plan with the Board here, and it is to try to again drive earnings and cash flow performance. We are providing in the first quarter numbers against -- and those details are in the Q, so you can get a sense of the total plan from the 10-Q expenses that we have taken for both AIP, our annual incentive plan, and the long-term incentive plans.

Okay, great. That answered my next question. And lastly, gross margin, you mentioned last year was impacted by the product transition and markdowns. Were there any other quarters last year where you had similar product transition or markdown impacts?

The impact continued into the second quarter as well, and then we took the price decrease in the third quarter, so it was a great year.

Thank you, that's all.

Credit Suisse Asset Management.

Darren Richmond (ph). I appreciate you answering all these questions. Just very quickly, can you talk a little about the status of the Alvarez & Marsal review, to what extent it has been communicated to the Board? And the three bullet points that you outlined, if that was the result of their review or is that just sort of a coming attraction?

Well, first of all, as Jim said, we had a lot of initiatives underway when we hired Alvarez & Marcel, and they have come in and worked with us and we've had a very close collaborative relationship. We have a Board meeting this week where we will present to the Board the results of that work, along the lines that Jim spoke about, in terms of product rationalization, cost reduction, inventory management, cash management, etc., and the benefits that we see and the actions that we recommend in the future that come out of that that we believe will continue to enhance the financial performance of the Company. So that presentation occurs over the course of the next two days, Wednesday and Thursday of this week, to our Board.

But again, we have given you in this presentation really a full reflection of the approach that we have taken with them. In reviewing the business line-by-line with Alvarez & Marcel, we have reached the conclusion that our core strategies that we have been following are the appropriate ones relative to the marketplace conditions that we face and the relative strengths of our brands. So we will move on from there. We do believe it will enhance the financial performance of the Company, as Jim says, put us within a really strong competitive context in terms of our SG&A as a percentage of our sales and our operating profits. And as we implement these initiatives, we will certainly disclose them in future 10-Qs and 10-Ks that we file.

Will you be holding any other communications describing what recommendations, what roadmap or what path you plan to take to get to the higher gross margin or the more competitive gross margin?

Effectively, that is this communication. We're having a presentation to the Board this week, as Phil said, but we have also had conversations with our Board members along the way. So we wanted to give you in this session a perspective on what that comprehensive plan looks like. And so this is the culmination of the plan, and as those actions occur over time, we will put more detail behind it in terms of the specific actions that are being -- we will put additional detail behind it relative to specific actions that will be taken over time.

We did call out to you reductions in staff of 200 in the Americas region and the elimination of 75 open positions. As we take those actions over time, we will continue to call them out to you, and of course, as we have our quarterly conference calls, we will continue to provide updates for all of these activities.

Okay, so it just comes down to you executing on this plan?

Yes.

(multiple speakers) I appreciate it. Thank you.

Operator, was that it on questions?

Yes, sir.

All right. Thank you very much for your attention and we look forward to talking to you at the end of quarter two. Goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.