Levi Strauss & Co (LEVI) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co first-quarter 2010 earnings results 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. A telephone replay will be available through April 18, 2011, by calling 800-642-1687 in the United States or Canada. From outside these countries, call 706-645-9291. For either number, please input the ID code of 55616794, followed by the pound key. This conference call also is being broadcast over the Internet, and a replay of the webcast will be accessible for one month on the Company's website, LeviStrauss.com. I would now like to turn the call over to Kris Marubio, Director of Corporate Affairs at Levi Strauss & Co.

Good afternoon, and welcome to our conference call. I'm pleased to introduce members of the Levi Strauss & Co. management team. With us here today are John Anderson, our President and CEO, Robert Hanson, President Levi's Global Brand, Blake Jorgensen, our Chief Financial Officer.

Before we begin, let me briefly remind you of a few items. Our discussion today may include forward-looking statements that are based on our current assumptions, expectations, and projections about future events. Although these statements reflect the best judgment of our senior management, they involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the statements, as more fully described in our annual report on Form 10-K, our registration statement, and other filings with the Securities and Exchange Commission. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We provide information on our website about how we compile various measures used to describe our business performance.

Finally, today we failed our quarterly report on Form 10-Q with the SEC. You can link to our SEC filings from our website. Now I would like to turn the call over to John Anderson.

Good afternoon, everyone, and thanks for joining us today. We're off to a solid start to 2011, delivering on our commitment to increase the top line, while investing in our business for long-term sustainable growth. First-quarter revenues were up 8% on both reported and constant currency basis. We're pleased to report that revenues improved in each of our three regions, and we continue to make progress on our strategic initiatives. For example, we built upon our brand's leadership in denim and khaki.

This is most apparent in our Levi's brand. We continue to engage female consumers with our innovative fit system, based on shape, not size. We launched a new fit, Supreme Curve, in our Levi's Curve ID collection, and we began rolling out the offering to our wholesale channel in North America. We also launched the new Levi's Water<Less jeans in our stores. We continue to diversify and transform our wholesale business. We're working closely with our wholesale customers to attract consumers into their stores and to our brands. Dockers is now reaching consumers through wholesale partners ranging from Kohl's, Nordstrom's, to Dr. J's and Urban Outfitters.

We also continued to capitalize on our global presence. One of the most exciting developments is the rollout of Denizen. We're thrilled to be expanding it to new markets this year. We began with a strong vision, and we're finding that the modern, stylish products resonate well with consumers. Starting this summer, Denizen jeanswear will be sold in the United States and Mexico. We're partnering with several retailers in Mexico, and Target in the United States, to make the brand accessible to men and women who are looking for affordable quality and style for themselves and their families. We'll continue selling Signature in the United States in Walmart.

We're adding strong talent to the Levi's brand organization. We recently announced a new Global Chief Marketing Officer and a new Global Senior Vice President of Women's Merchandising and Design. We're pleased with the progress we have made against our strategies during the first quarter. That said, we have more work ahead, especially given the tough operating environment. We face an unpredictable cotton market, and unpredictable consumer response to rising prices. As we told you last quarter, we took selective price increases on Levi's spring 2011 men's product. Those price increases are still working their way into the market, and the long-term impact to consumers' shopping habits has not yet been determined.

We're committed to maintaining the quality and value that consumers expect from us. Like the rest of the world, we are concerned about Japan. After confirming the well-being of all Levi's staff and Company employees in Japan, we turned our focus to the impact on our business. We have more than 30 stores in the country, and the physical damage to us looks insignificant at the moment, but we have wholesale customers who have been significantly impacted by the disaster.

As the entire Japanese economy slows down and the country rebuilds, we know our business will be affected. We'll evaluate it to what extent over the next few months and we'll give you an update on our call next quarter. For now, we're just pleased that our employees are safe. Now I will turn things over to Robert, who will review the results for the Americas.

Thanks, John. I'm pleased to report our revenues were up 9% on a reported basis, and up 8% on a constant currency basis. The Levi's brand grew sales in our retail outlets, in the wholesale channel, and on-line. In addition, our Dockers brand revenues grew slightly.

I'd like to share some of our achievements from the quarter. Our innovative Levi's Curve ID collection continues to win women's approval. We expanded the collections to include a fourth fit, the Supreme Curve, and we began rolling out Levi's Curve ID to our wholesale customers in the United States. We're currently testing products in customers like Macy's and Kohl's. The full wholesale rollout will happen over the next nine months.

We introduced our new Levi's Water<Less jeans for men and women in our retail stores. Our Water<Less collection dramatically reduces the amount of water used to create the rich finishes our customers love. The initial response has been positive. We're integrating our social media, marketing and e-commerce to connect with consumers where they spend time, online, to help drive traffic and sales. Since the launch last year, the number of Levi's Facebook fans has grown to nearly 4 million, and we're engaging women through our Shape What's To Come women's community site.

For Dockers, we're reaching more consumers through a wider network of wholesale customers, offering on-trend styles, skinnier fits and new washes, and showing the modern face of khaki through the next phase of our Wear The Pants marketing campaign. We started 2011 with good momentum, and are executing on our strategic initiatives. We'll continue to put consumers at the center of our attention, and focus on creating an innovative global experience for them, through our marketing, in our stores, and on-line. We also look forward to welcoming Denizen into the Americas brand portfolio this year. Now back to John to review the results for Europe and Asia.

Thanks, Robert. Turning to Europe, our first quarter net revenues grew 2% on a reported basis. Excluding currency impact, net revenues grew 6%. The increase was driven by the expansion and improved performance of our Company-Operated retail network, as well as higher sales to our franchise stores. In addition, the Levi's Curve ID collection for women continued to generate positive response from consumers.

In our Asia Pacific region, net revenues were up 18% on a reported basis, and up 12% on a constant currency basis, primarily reflecting the strong performance of our Levi's brand in India and China, driven by the expansion of our retail network. The early consumer response to our new Denizen brand has been positive. We now have more than 100 Denizen stores in Asia. Remember that many of the stores in India have been converted from our Signature brand, but we're also opening new stores in China, India, and South Korea.

It is an exciting time for Denizen brand. We're rolling out our first global marketing campaign to establish its energy and identity, and as I mentioned earlier, we're bringing Denizen to the United States in summer -- and Mexico this summer. Now I would like to turn it over to our CFO, Blake Jorgensen, for a more detailed review of our financial performance.

Thanks, John and Robert, and good afternoon, everyone. Throughout the day's call, I will reference performance comparisons on a year-over-year basis, unless I indicate otherwise.

Total revenues for the first quarter of 2011 were up 8% to $1.1 billion, reflecting the continued growth of the Levi's brand. This included the performance and expansion of our dedicated store network worldwide, the success of our new women's products, and the higher wholesale revenues in the Americas. Dockers also grew globally in the first quarter of 2011, and while it's still early days for our new Denizen brand, we are encouraged by its initial results. In response to rising cotton costs, we took selective price increases late in the quarter, but it's too early to predict what consumer reactions will ultimately be, and we recognize that we could see a volume impact as we move through the year.

Gross profit was $558 million, up $25 million from prior-year, reflecting our higher net revenues, partially offset by a decline in gross margin. Margin remained in our expected range, but dipped slightly below 50% as compared to 51% last year, due to an increase in discounted sales to drive revenues and to manage inventory. In addition, we took actions to reduce excess inventory in certain markets. Margin continued the benefit from our growing retail network.

As expected, the increased price of cotton began to work its way into our costs, but we were able to substantially offset this through our price increases and other sourcing savings, however, we continue to anticipate that the higher cost of cotton could negatively impact our margins and working capital as we move through the remainder of 2011. First quarter SG&A expense was $459 million, up 8%, in line with our revenue growth, and primarily due to our additional Company-operated stores. We continue to invest heavily in our advertising and promotion activities, while maintaining our focus on managing our other operating expenses.

Operating income for the quarter was $99 million, down from $107 million last year. Our operating margin was 9%, a decline from last year's operating margin of 10%, due to our lower gross margin. Below operating income, interest expense on our deferred compensation plans increased, and while currency had no significant impact on our consolidated operating results, changing exchange rates did impact the derivative contracts that hedge our foreign currency cash flows, driving a charge of $6 million this year as compared to income of $12 million last year. These unfavorable currency effects together with our lower operating income drove our net income down $16 million to $41 million for the first quarter of 2011.

Now I will turn to cash flow and the balance sheet. Operating cash flow for the first quarter of 2011 was $46 million, a decline of $30 million as compared to last year, driven by our investment in inventory and an increase in pension funding. First let me update you on our pension. We told you last quarter that we would be required to make a significant contribution to our pension plans this year.

Based on the upward movement in interest rates and our pension assets since year-end, combined with the change in the method for measuring our funding obligation, we now expect our required contribution will range from $60 million to $80 million. We paid $40 million during the first quarter of 2011 towards this requirement. Further changes in the variables that drive the calculation may impact this year's funding amount. The final amount will be determined when we test our US pension plans in June.

We used more cash building inventory this year than we did in the first quarter of 2010, consistent with our expectations for business growth and the cotton cost concerns that we've discussed with you previously. Our higher inventory balances also, in part, reflect the higher cost of cotton. We continue to focus on this area of invested capital with an objective to maintain an appropriate level of core replenishment product to meet customer needs. Our first quarter capital expenditures increased slightly to $40 million, reflecting our investment in SAP, which will launch in Europe later this year.

Additionally, as announced on our last call, we paid a $20 million dividend in the first quarter of 2011, which was one quarter earlier than the 2010 dividend. Our liquidity position remains strong. We ended the quarter with total cash of $249 million, and we had $298 million available under our credit facility. Net debt was $1.6 billion.

To summarize, we are pleased with the progress we've made on our strategic initiatives to deliver long-term growth. We are comfortable that our ongoing investments can be covered by our current liquidity and cash flow. We recognize that the impact of rising costs in the supply chain, and our pricing strategies, as well as the recent tragic events in Japan, may lead to volatility in our operating results, as we move through 2011. But we remain committed to offering our consumers the highest-quality products that they expect, and we continue to be focused on profitable growth. With that, we'll now take questions from the audience.

Thank you. The floor is now open for questions. (Operator Instructions). Your first question comes from the line of Carla Casella with JPMorgan. Go ahead with your question.

Hi, this is Carla. Can you hear me?

We can, Carla. How are you, Carla?

Oh, good. Sorry about that. On the Target front, were you selling any Signature at Target, and will -- or do you have any Signature business that will be moved out of Target as you move in Denizen?

Yes, we have been selling some signature through to Target, and we will be transitioning that across to the Denizen brand as we launch later on this summer.

Carla, are you still there?

Sorry about that. So will the Denizen completely replace the Signature at Target, and did you say how much the Signature was at Target?

No, we didn't say how much it was, but clearly our objective is that Denizen will replace the Signature business at Target.

Okay. And then, on the inventory front, how much of the inventory was for the Denizen rollout, either at Target or internationally?

It's still a relatively small portion of the overall inventory. As you know, we're building both Denizen, Curve ID product, but it's really, the bulk of the inventory increase has really been to maintain the correct inventory to match our growing business. As you know, we've come off of the relatively low inventory balances at the end of 2009, going into 2010, and we've been trying to build those during 2010, as well, as you know, part of the cost of cotton has also driven up the dollar value of those inventories during the timeframe, particularly during the last quarter.

Okay. And then just one more Target question. Will it be in every store in July, or how long will the roll-out take to get to every store?

No, it will not be in every store. We'll be doing a softer launch initially, then we'll roll the product out based on sales performance.

Okay, and then one question on the cost side. Have you said approximately what percentage increase you think you saw in COGS, in your cost of goods, I guess, in raw materials in the quarter, and then what you expect it to be in the next near-term, the near quarters?

Well, Carla, the way I'd answer that, the majority of our increase in COGS is cotton. Nothing is really significantly impacting our COGS other than cotton, and you can work out pretty much what that impact is.

Okay. Would you say that all of it is offset by the price increases, if they go through, or does that just partially offset it?

I think there will be a timing issue, as Blake mentioned earlier on. It's unlikely we will be able to match our pricing increases to the exact timing of what we're paying for cotton.

Okay. Great. I will let some other people get in the queue. Thank you.

Sure, thanks, Carla. Next question.

Your next question comes from the line of Grant Jordan with Wells Fargo.

Good afternoon. Thanks for taking the questions.

Hey, Grant.

You guys obviously had a strong revenue quarter. Do you feel like you took market share, or was that primarily just the sell-in of product?

No, we would say that we picked up market share, particularly in our men's business, and we started to pick up some market share in our women's with the launch of our Curve ID program. So, Levi's brand, we did pick up market share.

Okay, and do you feel like, as you think about where that market share came from, do you think it came from lower price points or higher price points?

It came from right across the board, really, but predominantly in the channels in which we operate.

Okay. You gave a little bit of color on the inventory build. How much of that was just related to trying to purchase ahead, or to maintain your supply chain?

It's a little of both. Obviously we want to make sure that we keep a strong balance of inventory, particularly in replenishment product to be able to respond to our core customers' needs. But also we're being very careful to make sure that we maintain the appropriate product mixes, where we know costs are going up, and trying to build inventory to take advantage of some of that. But at the end of the day I think I think in general it's primarily to support the overall level of where we feel business is going to continue to grow during the year.

My last question, I know it's early, but as you talk to your retail partners and your store operators, do you have any sense as to what consumers are saying as they see the higher prices?

It is very early. I think the biggest challenge is not just the price of our product or apparel products. I think it's trying to understand consumers' reaction to price increases in an inflationary economy, where the average consumer will get hit hard by gasoline prices, food prices, and apparel prices. And I think, as we talk to our customers as well as our competitors, no one's quite sure as to what the ultimate impact of the consumer will be, primarily here in the US, and to some extent, in Europe.

Great, thank you. That's helpful.

Your next question comes from the line of William Reuter with Banc of America.

Good afternoon. You guys talked about pushing through a price increase late during the first quarter, and I was wondering if you could give us any color in terms of whether this was even across price points, then I guess the general magnitude of that price increase.

Yes, we didn't quote specifically the magnitude of the price increase. What we had articulated is that we were beginning the first phase of our 2011 pricing strategy, which was really primarily isolated to the Levi's men's products, particularly within the Americas region. And that went into effect in the first quarter.

We do anticipate taking price increases on the other product lines and brands in the second half of the year, but it's important to remember that our wholesale customers set their own pricing strategy, and as Blake said, it's early days to see how this is going to play out in terms of the average out the door price for consumers. But we are taking price increases as we have articulated in the past, and we're going to watch it week-to-week to see how the consumer responds.

Okay, and earlier John answered a question around the impact of higher cotton on COGS. I guess I was going to try to ask maybe another way, and I'm wondering whether the decline in first-quarter gross margins was at all impacted by higher cotton or whether it was really pretty much all the sales allowances and higher discounting?

Predominantly the sales discount and higher allowances, but there was some cotton in there, but it was not a major component.

Bill, if you remember, cotton prices really started to climb late summer last year, and we've seen steady increases from roughly $0.50 a pound to now over $2 a pound over the last nine months. So clearly some of the product that we were building in the fall were picking up higher and higher cotton prices over time. But the real impact of the higher-priced products will start to filter in over the next six to 12 months.

Okay, and then, one last one. In terms of your current levels of inventory, I'm wondering whether, it sounds like there may have been some discounting to push through some of your inventory during the first quarter. I'm wondering if you guys took enough markdowns and if, how you guys generally feel about your inventory positions now.

We're comfortable with our position now, but as you know, we're focused on making sure we keep lean inventories around the globe. One of the, we believe, benefits of moving to a global brand organizational structure is that we can now start to move toward standardized inventory practices around the world, where we might not have done that before. Robert has been working on that hard in the Levi's brand, and we're excited about continuing to press for maintaining good levels of inventory, of balance both being there for the sales when our customers need it, but also making sure we maintain a very strong focus on the capital associated with building those inventories and holding them.

Okay, I'll leave it at that. Thank you.

Thanks, Bill. Next question?

Your next question comes from the line of Karru Martinson with Deutsche Bank.

Just a follow-up on Bill's question. So are we -- we're done with the excess and obsolete inventory in those select markets, or is there more to go?

We're never done. It's an ongoing process, right? I think we will always have selected markets where product doesn't sell as fast as we thought it would, or as we thought it would, so we try to address that by making sure that we're writing stuff down or liquidating when required, and it's hard to predict what levels would occur in the future. We're just trying to be as transparent as possible that we do address that, and that's why we bring it up in the call.

Okay, and was the excess and obsolete inventory kind of marked down this quarter greater than the normal practice that you guys have?

It was pretty consistent with what we've done in the past.

Okay. And then when we look at the cotton impact for you guys, I was wondering, how is that filtering down to, with your vendors, what are you seeing on your supplier base?

No, I think that the biggest concern we've had is the continued pressure that higher priced raw materials might have on participants in the supply chain, so the cut and sew manufacturers, for example, are needing greater working capital to buy the raw materials, denim in the product. We're trying to do everything we can to support those members of the supply chain by either increasing the length of our orders, the size of our orders, or the consistency of our orders, and helping to establish lines of credit or a letters of credit where possible. We're not going into the game of actually financing, but we are trying to be as supportive as possible to all of the members of the supply chain, because as you can imagine, it's been a massive shift for them in their own economics to try to maintain their businesses. The prices have gone up four-fold over the last nine months.

Okay, and now when we launch the new Denizen brand here in the US and then Mexico, are we going to see some temporary one-time costs in terms of marketing or anything else that we should be aware of flowing through the numbers?

Oh, clearly we will be supporting these brand launches. You can expect to see us, as we have the last couple years, to continue to invest behind our three brands. Committed to do that, and, yes, it would be money behind Denizen.

And is the price point going to be similar to Signature, or is that going to be different here in the US?

It will be around the same region.

Okay. And just lastly, I was wondering if you could kind of talk to the sales trends that you were seeing at your own retail stores during the quarter in terms of average basket and traffic and what you were seeing there.

As we've said in the past, we don't disclose comp store sales results, but we've been pleased with the performance of the stores. They've contributed, as we said, to our revenue growth as compared to last year, and generally speaking, we've had our teams focused on driving conversion and trying to drive average ticket sales as we get people through the door. And generally speaking, as we've commented in the past, I think we feel good when we look at our results, relative to the competitive set.

Thank you very much, guys.

Thanks, Karru.

Your next question comes from the line of Todd Harkrider with UBS.

Congratulations on the Denizen expansion at Target.

Thank you.

But I heard from a large apparel firm in a different category saying that jean manufacturers are having to pass along 20% to 30% price increases, due to the cotton costs. Are you seeing that level of activity in regards to the category passing on that much, or do you think it's a little bit lower than that?

Probably not that high. Clearly the prices have gone up dramatically, but I think as you know, cotton, there's about two pounds of cotton in every pair of jeans. It's an overall, well it's a very large individual item, it's still one of many items that make up the price of a pair of blue jeans, a lot of labor, obviously, and finishing costs as well as transportation. So I don't think we've seen levels that high yet, but certainly double-digit price increases.

And I think one of the things that I would add is when we're talking about price increases, it's not just only the raw materials, we're consistently upgrading in the innovation behind our products, making sure that we're driving the best consumer value that we can out there, and so we're consistently trying to put more innovative product into the market, and on our continuing product to upgrade the quality and the value of them, and that has an impact on the overall pricing strategy. The Levi's brand has been taking price increases pretty consistently over the past number of years, but it's been, based on the fact that we've been putting what we believe to be a more innovative and value-added product into the marketplace.

Understandable. And then, do you still think you can hit the low 50s gross margin rate for the year, or do you think with higher cotton costs and the promo activity in the first quarter, do you think the high end of the gross margin guidance could be off the table now?

I will stay with my original guidance, which is the high 40s to low 50s. I think we're still comfortable in that range.

Okay, that sounds good. And then you talked about converting your Signature stores in India to Denizen stores. Do you expect to pull the Signature out of India, or do you expect to just have Signature in wholesale, and then roll out Denizen as your retail format for the moderately-priced price point?

In India, we will only have the Denizen brand when the transition is complete.

Sounds good. Appreciate you taking my questions. Good luck.

Thank you.

Next question.

Your next question comes from the line of Emily Shanks with Barclays Capital.

Good afternoon. It's Mike Perez on behalf of Emily. Thanks for taking the question. Most of my questions have been answered, but regarding your own European retail stores, can you provide some color on the operations there, specifically as it relates to expanding that footprint in 2011?

Our retail footprint, particularly in Europe and Asia is a mix of our own stores as well as franchise stores, and we're always looking at how to upgrade our stores as well as our franchise partners in either location, remodeling or new stores. We'll continue to do that. I think our focus primarily this year is on limited expansion of main-line stores in Europe and Asia, or Europe and Americas, and primarily, franchise expansion of main line stores in the Asian market.

Europe, though, we are in the process of opening a store, on the Champs-Elysees, for example, which will be a flagship in France. That will be late this year, early next year. You can see that store being constructed right now. But there will be some other selective upgrading of stores. Where we have done that for instance, our Regent Street store in London last year, the results have been fantastic for us and we're generating a lot of great traffic and sales from that store, so we'll continue to look for opportunities like that.

Thanks. The timing of the dividend this year came in the first quarter. Do you have any plans on paying an additional dividend in the second quarter?

No, the plans are that that is the 2011 dividend. We did it in the first quarter, primarily anticipating that there may be a tax increase for our shareholders at year-end. That tax increase obviously didn't occur, but we had to make the decision around the dividend before we knew that, so that's what we were simply doing at the time. At the end of the day, it's a decision made by our Board of Directors on the ability to pay a dividend, and for now, our plan is that we'll keep the annual dividend as we have over the last couple years.

Great. That's helpful. Then one more, if I may, regarding the price of cotton. Do you have any hedges in place at all for cotton?

No, we don't buy cotton, because we actually don't buy denim. We're buying finished goods from our manufacturing partners around the world. Those partners will be buying denim from the denim manufacturers, who they, in turn, are buying cotton. We have looked at different alternatives to try to hedge some of the risks. We are not yet doing that. We simply hedge cash flows around the globe of our regular sales dollar flows, but we're continuing to look at opportunities that may exist, but as of right now, we're not doing anything in that line.

Okay. That's helpful. Thanks and good luck.

Next question.

Your next question comes from the line of Rishi Parekh with Sterne Agee.

How are you doing? With regards to the inventory that you have pulled forward can you give us an idea if this covers you for the next several months, the next quarter, and can you just also give us an idea of how units have fared in inventories year-over-year? Is it up 10%, up 20%?

We don't give details around inventory units. I would say that we're comfortable with the current levels of inventory to be able to service our business, and we're trying to manage that going forward, not just for the next couple months, but really for the full year. I think we're comfortable with the current levels to support our revenue growth, what you're seeing in this quarter.

We are, as I said, you will see that the dollar value of the inventories has actually come up because the price of cotton has come up. If you just looked at the price of cotton during the last six months, you can see the level of run-up that's occurred, and why that may have marked up the dollar value of our inventory. But overall, assume that our inventory levels are fairly consistent with past practices, if you go back over the last two or three years, and we're very comfortable with where they put us going forward.

Okay, and I apologize if you already answered this, but with regards to the risks of supply disruption, are you finding that you have to carry more inventory for your wholesale customers and is that also being reflected in inventory today?

We're conscious that there are potential risks in the supply chain, as I mentioned earlier, we're watching very closely our manufacturing partners out there, to make sure they're able to handle the increased working capital needs that they're facing to buy higher-priced raw materials. And so, we're keeping that in mind as we look at the inventory. I'd say we're not holding extraordinary amounts of inventory because of that, but it certainly filters into our thinking.

Thank you.

Next question.

Your next question comes from the line of Ken Monaghan with Rogge Global Partners.

Rogge, that's okay. Hi, guys. You obviously had a very strong quarter in Asia-Pacific region. Could you talk about whether Denizen was reflected at all on that, or whether that's really just getting started and really not the driver?

Denizen was not the driver. It's just getting started. It really was the growth that we're getting across the board in Asia, particularly driven by China and India. Most of our countries in Asia are performing very well.

And with the 100 stores you've got up and running so far, between what was already opened last quarter and what you've opened since then, could you talk about whether you have seen any cannibalization of your Levi brand sales versus the Denizen brand sales?

There has been no cannibalization. It's positioned at a different consumer, different price points, and in many cases, it's different locations so we're not seeing any noticeable cannibalization.

A reminder, the Signature stores in India, are literally being converted overnight into a Denizen store, and so oftentimes the Signature customer now is coming into a new store, and so we've already essentially tested the cannibalization issue relative to Signature in that marketplace, and so we're confident that Denizen is also not adding to that in any way.

And as you look at the money you're spending on marketing, between the improved rollout on the Levi's men's, and then what you're doing with the Curve ID product, and what you're, as a result, seeing on the top line sales in the Americas, when you're talking to your leading wholesale customers, how are they trying to manage their open-to-buy? Are they putting more dollars into it because you're putting more product out there? And as they try to manage the cotton price increase, or are they basically staying at levels that are sort of flat year-over-year at this point?

Well, I think our wholesale customers have been pleased with the performance of the Levi's brand across the board really as we mentioned Levi's grew across all three regions. The fact of the matter is, as you can imagine, they are concerned about how the consumer is going to react to this inflationary environment from a raw materials standpoint, so they're managing their inventories very carefully. What we're doing, and it's standard practice, is we just we plan our demand and supply carefully, customer by customer, to make sure that our inventory strategies match the consumer take-out. And we're able to flex by customer to keep the inventories aligned with consumer demand.

So that's what we're doing. We did say earlier, and I would reiterate it, it's early days, and there's no sort of predictive trend line that we can focus on at this point. So we planned our business, customer by customer, we're executing it that way. I would say we're they're conservative, appropriately, in managing their own capital as are we focused on that, and we will see how it goes. Our intent is to have the inventory, as Blake mentioned, to meet consumer demand, as we move through these unpredictable times.

You also mentioned that you had picked up market share, you thought in the Americas in particular, on the Levi's men's as well as you were seeing some market share improvement through the Curve ID for women. As you talk to your wholesale customers, do you get the impression that not only have you picked up share in this last quarter, but they -- as they contemplate their open-to-buy purchase decisions for the coming several quarters, in light of the cotton price increases, that you are going to be gaining more traction in terms of share going forward, or is it too hard to say at this point?

It's too hard to really predict what's going to happen. What I would say, we're focused on with Levi's, is to execute our strategies. We've got strong innovation platforms in the men's business with innovations like Levi's Water<Less, continued focus on innovations such as our skinny, super-skinny, and tapered fits, and really nice wash offer. On women's, we've got a category-defining innovation like Levi's Curve ID, which has been driving the business. We've supported that with an improvement in our on-floor presentation and then, the Levi's Go Forth marketing campaign.

So I feel we've said all along we were going to come into these unpredictable times, the recession, and now inflationary environment with raw materials, prepared to win against the competition, and we're really focused on executing our strategies aggressively. Our customers have been with us along that route, which is why we've been able to achieve the share results that John spoke of, and they're with us moving forward. We just need to read how the consumer will respond to the current environment carefully, and execute it month-by-month moving forward.

Thank you.

You're welcome. Next question.

Your next question comes from the line of [Jenny Yun] with PIMCO.

Hi. Good afternoon. Just a quick question. How much of your revenues and EBITDA come from Japan?

We typically have not disclosed, but due to the nature of the issue, we've guided people that it's less than 5% of our global revenue, and you can assume that the profitability is less than that as well. So it's a relatively small part of our business. It was a larger part of our business years ago, but the entire market there has shrunk with the aging population, and the difficult economic times, obviously long before the current tragedy.

So it's less important in the overall economic scheme, but we're very focused on the market because it's a critical market for us, and all apparel makers, and obviously we're trying to do everything we can to make sure we're supportive in our own business, as well as in the community, to try to help the country get back on its feet.

Okay, that's helpful. And just so, from my own sense on how kind of things are trending in the retail sector in Japan, what's the traffic like in your retail stores there, can you give us any color on that?

Well, as you can imagine, one of the challenges, just power and availability. Stores are open on limited hours. It's just too hard to predict, because it's unfolding, as we've heard, more earthquakes recently, now the situation with the radiation concerns. We've just got to wait and see. We'll be able to give you more guidance, as I mentioned, early on next quarter, but nothing is good anywhere, as you can imagine.

That's helpful, thank you.

Thanks. Next question?

Next question comes from the line of Phyllis Camara with Pax World Fund.

Thank you. Can you tell me, can you talk about Denizen, and how does that really differ from the Signature label? What are you doing differently? I thought Denizen was maybe lower price points, as is Signature. What else are you doing different for the brand?

Number one, Denizen is a global brand, and I think that's the first thing to understand. It was, as you know, launched in Asia. And we are building on that strength. It's positioned as an aspirational brand, targeting 18 to 28 year-olds who seek high-quality fashion at affordable prices. So we're very disciplined in the positioning of this brand, and we want it to be consistent around the world and a business that we can own around the world. So I think that's the big difference, but there's also similarities. It's clearly aimed at an emerging middle class, and it's aimed at people that aspire to branded product, and it's aimed at people who want good fitting up-to-date, affordable jeans.

Okay. So it's maybe a little more fashion-forward, though, than the Signature brand was?

I think, yes, I would say there will be some more head-to-toe looks than perhaps what you saw in Signature. We want to outfit people with the full look, rather than the Signature offering, which was predominantly bottoms.

Is it still going to have the red tab?

It will not have a red tab, and neither did Signature have a red tab.

Okay. Thanks so much.

Okay. One more question?

Yes, and your final question comes from the line of Martin Downen with Highland Capital. >> <Martin Downen - Analyst - Highland Capital> <downenmartin> Hi, guys. Can you comment on the shift in fashion trends that you may or may not be seeing? I know you were seeing the straight leg, then skinny, and super-skinny. Some things were environmentally focused, with some of the women's jeans and kind of hearing rumblings of a shift towards some flare going forward. Can you give us what you're seeing fashion trends moving forward?

Sure. You know, I think Levi's has been, for a number of quarters now, we've been quoting our leadership in our fit portfolio. So if you look at the men's side of the business, we took an early leadership position in the evolution into the skinny, the super-skinny fit. We also took a strong early lead position in the tapered fit trend, which is a slightly looser fit at the top, that narrows to a tighter ankle opening on the bottom on the men's side of the business. So that is happening on the men's side.

We feel we have taken a leadership position on consumer relevance, sustainability innovation. So if you look at our Water<Less finishing concept it continues our focus on sustainability. We launched the care tag to the planet a year ago to help consumers understand how they could have a positive impact on the environment in how they care for the jeans. We've decided to take that forward into Water<Less finishing which uses anywhere between 28% and 96% less water in the finishing process, but it was all focused on putting out a beautiful finish that is sustainable. So I think we're taking a leadership position in innovations like that.

We recently launched the commuter cycling collection from Levi's as well, which was designed by our team members that cycle to work, for and with consumers that actually have that at the core of what they do. So we're just getting into a consistent rhythm of launching innovations each delivery. On the women's side, we've been in a trend of skinny and super-skinny leg openings for quite some time now, and low to medium rises.

There has recently been a trend towards more medium to higher-rise product. Again, with skinny leg openings, but as you mentioned, we're seeing a shift back to flare, and we've also seen a recent, let's say slight recovery in our boot cut business. So that's indicating that there's a shift going back on the women's side of the business, too, especially the flare, which is more of a fashion trend, but also boot cut. In general, whenever you are in a heavy cycle like skinny, there is going to be a shift. We're focused on how to address that shift as we move forward in our fit portfolio.

And there are no further questions at this time. I would like to turn the floor back over to the presenters for any closing remarks.

To sum up, we're off to a solid start for the year, but we know it will be challenging. Both our Levi's and Dockers brands grew globally, and we're encouraged by the early results from our newest brand, Denizen. We are committed to driving long-term growth and will continue to invest behind our strategies. Thanks for joining us, and we look forward to talking to you on our next call. Thanks, everyone.

Thank you. This concludes today's conference call. Please disconnect your lines at this time.