Levi Strauss & Co (LEVI) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Company second-quarter 2013 earnings 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 July 15, 2013 by calling 800-585-8367. Please input the ID code of 96612735, 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 Chris Ogle, Senior Director of Finance, SEC Reporting and Investor Relations at Levi Strauss & Company.

Thank you. Good afternoon, everyone, and welcome to our conference call. I'm pleased to introduce today, members of the Levi Strauss & Company Management team. With us are Chip Bergh, our President and CEO, and Harmit Singh, our Executive Vice President and 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 statements, 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 filed our quarterly financial report on Form 10-Q with the SEC. You can link to our SEC filings from our website. Now, I'd like to turn the call over to Chip Bergh.

Thanks, Chris. Good afternoon, everyone, and thank you for joining us today. We had a good second quarter with top line growth of 5%, and improvements across many aspects of the P&L and balance sheet. Encouragingly, we achieved these results despite ongoing challenges in certain key markets in Asia and Europe. Also, we're seeing that some of the strategic choices we made last year are beginning to positively impact the financial health of the Company. I'd like to turn it over to Harmit, who will walk you through the financial results in greater detail before I discuss the progress against our strategies and our focus going forward. Harmit?

Thank you, Chip. A warm welcome to everyone joining our call. My comments today will focus on the results of the second quarter, and will reference comparisons on a year-over-year basis in US dollars, unless otherwise indicated. Total consolidated net revenues for the second quarter of 2013 were $1.1 billion, up 5% from prior year on a reported basis. Excluding currency effects, net revenues were up 6%. The increase was substantially driven by higher revenues in the Americas at both wholesale and retail. On a global basis, Company-operated retail revenues grew 11% and wholesale grew 3%.

Gross profit for the quarter grew 14% to $549 million, partly from the higher revenues, but predominantly due to higher gross margins. Gross margins were nearly 50%, as compared to 46% last year, consistent with the trend we have seen in the past few quarters. This was again mainly due to lower cotton costs. However, a higher mix of retail sales and more profitable core products also helped margin. Finally, the dENiZEN exit contributed about 1 point of gross margin improvement, but as we discussed last quarter, with the first half of 2013 behind us, we have largely worked through the year-over-year benefit from lower cotton prices. As such, we continue to expect that full-year gross margin will be approximately 50%.

SG&A expense increased 3% to $449 million, reflecting higher A&P spend. A&P spend was 5% of revenues in the second quarter, increasing $8 million from prior year, largely driven by later timing of our Spring advertising campaigns, as compared to last year. Outside A&P, SG&A decreased as a percentage of revenue, both for the second quarter and the first half of the year. The improved revenue and lower costs combined to drive second-quarter operating income up to nearly $100 million, and an operating margin of more than 9%, both more than double our second-quarter results of last year. Net income was $48 million, as compared to $13 million last year, reflecting our higher operating income.

Now I'll share more detail on the second-quarter results for our three regions. Net revenues in the Americas of $666 million were up 10% from prior year. Nearly a quarter of the increase related to ongoing growth in our Levi's retail stores, primarily outlets. Growth at wholesale was driven by our Levi's and Dockers brand, as certain key accounts particularly JC Penney, where we are lapping last year's very slow second quarter. Recall that the Levi's shop-in-hop launch was not until the latter part of our third quarter. The impact of licensing the Levi's boys business was a much smaller factor this quarter than we've discussed on the last few calls. With the completion of the second quarter, we have now anniversaried the strategic decision to license boys, and do not expect any further notable impact to revenues.

In Europe, reported net revenues were slightly down, but without the impact of currency, revenues grew 1%. Revenue grew in our own stores, especially in Russia and the UK. Sales to franchisees and traditional wholesale customers declined again, most notably in southern markets, which remained weak.

Our Asia Pacific region showed more indications or some indications of stabilization this quarter. Revenues were nearly flat, without the impact of currency. On a reported basis, revenues declined 4%. The competitive environment remains challenging, especially in China, where we continue to refine our strategy. The dENiZEN phase out in the region is now nearly complete, and this allowed us to focus on the Levi's brand, whose revenues returned to growth in India. Operating income grew in all regions, mainly due to the higher gross margin and lower costs. In Asia Pacific, this primarily reflected the dENiZEN brand phase out.

Now turning to cash flows and the balance sheet, where we continue to make substantial progress. Operating cash flow for the first half of 2013 was $254 million, as compared to $328 million in the first half of last year. Cash flow continued strong, a bit lower as compared to the prior year, mainly reflecting fact that our accounts receivable balance was more than $150 million lower at the start of 2013 than it was a year prior. We partially offset this low starting point with our higher operating income, and an improvement in collection trends. While inventory balances are a bit higher than they were a year ago, we believe they are at healthy levels. Inventory unit costs are roughly the same as they were at this time last year. We built more inventory units in the first half of 2013 than we did in the first half of 2012, reflecting catching up from our tighter inventory base at the beginning of this year, as well as our top line performance. Capital expenditures in the first half were $42 million as compared to $37 million last year, reflecting an increase in technology investment. We now expect full year CapEx to be in the range of $80 million to $100 million.

As we announced on our last call, we continued to reduce leverage during the second quarter by refinancing the senior term loan, using a combination of cash on hand and the issuance of $140 million in senior notes. With that transaction, our gross debt reduction in the first half of 2013 aggregates to nearly $200 million. We are committed to building a stronger balance sheet and to deleverage the Company over time. At the end of the second quarter, we had available liquidity of nearly $1 billion, as our cash balance was $390 million and we had $559 million available under our credit facility. Net debt was less than $1.2 billion, as compared to nearly $1.5 billion a year ago.

We are pleased with our first half 2013 performance. However, we believe that our year-over-year performance in the second half of 2013 will be more muted for several reasons, including lapping the benefit of the JC Penney shop-in-shops, no remaining year-over-year benefit from cotton costs and higher planned advertising expenditure, driven by the timing of our product launches. Additionally, due to the timing of our fiscal year end, which ends on the last Sunday of November, our retail network will not benefit from the Black Friday sales week this year. So, while we do expect full-year operating margin to improve compared to 2012, it will not be as significant as what we have shown in the first half. With that, I'll turn it back over to Chip to discuss our progress against our strategies.

Thanks, Harmit. So as you heard, a good second quarter and a good first half of the year. We've grown sales while managing costs, and significantly improved our profitability. We'll build on this momentum in the back half of the year, by continuing to pursue our areas of strategic focus. First, driving our profitable core businesses and brands. Second, expanding beyond the core to build a more balanced portfolio. And third, becoming a world class multi-channel retailer.

In the second quarter, we made progress driving our profitable core businesses and brands. Let's start with the Levi's brand which grew in the second quarter, largely driven by its focus on reinventing iconic items for today's consumer. The best example of this the Levi's 501 jean. In May, the brand celebrated the 140th Anniversary of the 501, which is one of our most profitable products. We held consumer events around the globe to introduce fans to the new 501s, including new non-denim color options for the Summer. The activation around the 501 was a key driver of this quarter's revenue growth, and we'll continue to focus on our iconic items through the remainder of the year.

Our global wholesale business, which is a critical part of our profitable core, grew double digits at our top 10 customers, largely driven by the Americas, reflecting a great response to new products at key accounts, as well as improved in-store consumer experience in several top accounts. Looking ahead, we'll continue to work with key customers to enhance the brand experience. For example, beginning this Summer, you'll see our brand come to life in a new way on the floors of several of our key wholesale partners' stores. We've been testing new fixtures and presentations in a select number of their stores, and we have plans for a wider rollout later this year.

We're committed to investing behind our brands to connect with consumers to drive them to stores. A great example is our decision to partner with the San Francisco 49ers in naming Levi's Stadium, which is scheduled to open in 2014. This $220 million 20-year deal joins two iconic San Francisco brands. The deal is being carved out of existing funding; it is not an incremental expense. It's a great fit, pun intended, and we'll continue to connect the Levi's Brand to the nearly 70,000 fans attending games, concerts and events, as well as millions of football fans in their living rooms everywhere. The Levi's Stadium announcement, and the NFL's announcement that Super Bowl 50 will be played at Levi's Stadium in 2016, generated quite a buzz during the quarter through Twitter and Facebook postings, and extensive positive media coverage, worth millions of dollars.

Turning to the Dockers brand, the work we've done focusing on the core, men's bottoms, is paying off. The brand grew in the second quarter behind consumer response to the Alpha Khaki and Signature Khaki. To provide a little more color, traditional khakis continue to be the largest percentage of the Dockers business, and this quarter's growth was driven by the Signature Khaki. With sales of this key pant up double digit, it was the brand's number-one seller. Momentum with the more modern Alpha Khaki has also continued, with sales up significantly, as consumers bought seasonal colors, as well as camouflage options. Also contributing to Dockers business growth was the work that we did with JC Penney to engage consumers in store. We expanded and enhanced the onflow of presence and increased the Dockers assortment, offering tops, accessories and shorts, along with our khakis. We're in the process of rolling this out with JC Penney, and look forward to seeing how it engages consumers.

Finally driving the core also means shutting down underperforming businesses. As you know, we chose to shut down dENiZEN in Asia last year to improve profitability, and to focus on growing the Levi's Brand in that region. As Harmit mentioned, that decision drove increased profits in Asia this quarter, despite declining revenues. We have substantially completed winding the brand down, and expect to complete that process in the third quarter.

Our second strategy is to expand beyond the profitable core. For us, this includes bigger opportunities in women's and key emerging markets around the globe, such as Brazil, Russia, China and India. Our results in the quarter against this strategy frankly were mixed. The Levi's women's business was flat this quarter, but continues to be a sizeable opportunity, and as such, we're putting resources against it. In the current season, we focused on elevating tops and dresses, and sales in these categories grew year-over-year.

This Fall, the brand is introducing Levi's Revel, a new premium jean for women leveraging Levi's innovative Curve ID fit system. Revel features body-shaping technology, top quality denim fabric and design details that we believe will help women look and feel their best. We'll use Revel to build excitement around Curve ID, and help drive female shoppers into our stores. This premium-priced product within our Curve ID collection will be available in select retail stores around the globe, and online this Fall, and we will expand the rollout in 2014.

Turning to the key emerging markets, we made progress in Brazil, Russia and India this quarter, but China continues to be a challenge for our business. Since we spoke with you on last quarter's call, we spent time in China, looking at our operations, and the competitive landscape. While some of the challenges are due to the macroeconomic conditions, others are clearly within our control. For example, we haven't invested enough marketing behind the brands, and we've fallen behind in e-commerce. We're addressing these quickly, so that we can build and grow our position in this key market. We're in the process of fixing the business in China. While it will take some time, we recently took a step forward by hiring two new leaders, a new President for the entire Asia Pacific region and a new Vice President and General Manager for China. Both bring extensive experience leading turnarounds, and growing consumer brands in Asia.

Our third strategy is to become a world-class multi-channel retailer. Retail continues to be an important component of our business, and grew again as a percentage of our total revenues. It yields higher gross margins and provides the best expression of our brands. We continue to focus on driving retail growth and productivity. We're elevating the service in our stores, and we recently launched a comprehensive training program for all of our store associates, focusing on product knowledge and customer engagement. We're also working towards creating a globally consistent and compelling consumer experience. We believe these initiatives will continue to drive growth in our retail business.

As we've discussed, eCommerce is an integral part of our plan, and we've invested in our eCommerce platform to drive sales. ECommerce sales grew again in the second quarter, and in particular, we've seen a very positive response to the enhanced European sites, which launched earlier this year. We still have a lot of opportunity to grow eCommerce. Sales from our Company-operated eCommerce sites now comprise only about 3% of our consolidated revenues, but this is up from 2% last year.

In summary, it was a good second quarter and a good first half for the year. We're seeing that the strategic choices we've made are beginning to positively impact the financial health of the Company, and while we're optimistic about our prospects for the remainder of the year, we're tempering that with caution due to the year-over-year benefits that Harmit mentioned will not recur in the second half of 2013. With that, we'll open up the lines, and we're happy to take your questions.

(Operator Instructions)

Your first question comes from the line of Carla Casella with JPMorgan.

I have a question on the Dockers strength in the quarter. How much of the JCPenney rollout of the new Dockers presentation was done in second quarter? Is any of that still left to benefit third quarter?

Carla, so, in response to your question, we have enhanced the on-floor presentation [related] to Dockers at JCPenney, and the rollout is in progress. So I think you will see the benefit or continue to roll over the next 6 to 12 months, as we continue to enhance our presence and rollout in most stores.

Just to pile on, Carla, so we got additional space at JCPenney in most stores, and additional inventory into the stores, and a good chunk of that hit the second quarter. What I expect we'll see is consumer offtake expanding as a result of the larger space and more inventory. We now have tops in JCPenney, and a more expanded assortment, so I expect that JCPenney as a percentage of our total will grow as a result of that enhanced experience and larger floor [plate]. So we saw a good chunk of short-term inventory pipeline fill in the second quarter, and there may be a little bit that trickles into the third quarter, but hopefully we'll see consumption grow in the third quarter and beyond, that will extend the benefit of JCPenney. Hopefully that answers your question.

That's great.

I mean, the thing you should note -- sorry, Carla -- the only thing is, expanding beyond the Dockers question on JCPenney, and just talking about the JCPenney shop-in-shop concept, I mentioned in the comments, just to remind everybody, we began the rollout of the shop-in-shop in quarter three. So as you think about quarter three onwards for the rest of the year, the benefits that we have been seeing so far are going to flatten to a large extent.

On Levi's.

On Levi's, yes.

Great. And then, they've changed the promotional strategy a bit. Have they done that on the Levi as well, or are you still selling the same amount of full price today as you were six months ago, before they were really couponing?

So, great question. When we opened the denim bars in JCPenney, now nearly a year ago, they went to basically an everyday low price non-promoted. Their AURs went up pretty significantly. Their profitability went up pretty significantly, and it was kind of a win-win all the way around.

To date, they have not promoted -- to my knowledge anyway, they have not promoted Levi's. In fact, the Father's Day advertising that they ran, where they were running a lot of promotions, they specifically called out in their radio advertising that the promotion was not eligible on Levi's. So I think they like where we're going. I don't know if that's a forever thing, but they've seen higher sales per unit on Levi's since moving to the denim bar, and it's worked. It's grown pretty significantly for them. It's still working, and I think they're sticking with it.

That's great, and it sounds like others are following with similar new fixtures.

Just my one last question is on the new fixtures you talked about at some other retailers -- what's the timing and cadence of rollout there? Will it be -- how many doors do you expect this year to get the new fixtures?

So it varies by key customer. I think at Kohl's they are going to go much more quickly and much more broadly, and that will probably be fundamentally a third- and fourth-quarter thing. Hopefully we'll get most of them in before back-to-school. Macy's is going to be a little bit more deliberately timed, focusing on the biggest and top-performing stores earlier, and then expanding to probably about 200 stores over time. So I would expect that Macy's will probably get about 50 stores in this fiscal year, and then the balance over the next 12 to 18 months.

And are you funding the fixtures, or are they?

It's kind of being shared.

Okay, so that's built into your $80 million to $100 million CapEx target?

Carla, just to clarify, it's not CapEx. It's more redirection of advertising and marketing.

Right. It's not CapEx.

Oh, okay, thanks. I'll open the floor to someone else. Thank you very much.

Your next question comes from the line of William Reuter, Bank of America.

This is actually [Spencer] in for Bill. I was wondering if you guys could just talk about the benefit to gross margin from licensing the Levi's boys business, and if there were any other businesses over the near term that you were thinking about licensing?

Spencer, the benefit from licensing on margins is small, it's minimal, and so not significant enough to call out.

In terms of your second question about licensing any of the businesses, nothing at this point. We keep looking at our portfolio and the way we do business more strategically, and over the long term on a global basis. So, again, as was articulated by Chip, as we talked about our strategies, the effort is to drive the profitable core, so under that lens we look at stuff, but nothing at this point of time.

Okay, that's helpful. Then, with the strength in retail sales, I was wondering if you could just comment directionally? Are you seeing positive same-store sales in your owned locations?

Again, we don't disclose same-store sales, but as you look at retail, our global retail was up 11%. That's a combination of both expansion, as well as enhancing productivity within our stores. And we continue to focus on driving productivity across both controlled retail, which is Company-operated, as well as franchise operations globally.

And then, outside of the expanded floor space you're getting in, and certain retailers going into back-to-school, how do you guys feel about inventory levels at wholesale?

We feel good about inventory levels, generally speaking. We tightened inventory last year. If you look at the last couple of years, inventory was tightest a year ago. And as I noted, inventory went up a little, but the good news is the increase in inventory is really driven by our in-seasonal products, as well as in markets where volumes have picked up. So we keep a close eye on inventory levels, and generally speaking, we feel good.

Now, if you look at -- you had asked about wholesale, but I'm talking about inventory in general. If you look at inventory across the world, we probably have a little bit more inventory in markets like China, and we talked about that last quarter. We're working through it as we speak, but nothing that will adversely impact results over the long term.

Just to pile on, maybe just to clarify a little bit -- so as we think about our US wholesale customer inventory position, I feel like we're in a pretty good place with our key partners, particularly heading into back-to-school, and we worked that collaboratively with them, so I feel like we're in a pretty good place there. As Harmit said, the one place that we're really watching very, very carefully from an inventory situation is China, where the business slowed down, and we're on top of that one. But in general, we're in a pretty good place from an inventory standpoint.

Okay, that's it for me, thanks for taking my questions.

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

When we look at the global retail up 11%, and you're talking about enhancing productivity in stores, but what exactly are you guys doing to help that side of the equation lift?

So I talked about it a little bit in the prepared remarks. I mean, we are very focused on growing retail. If you think about our key strategies, driving that omni-channel retail presence globally is really, really important to us strategically, and it's not like we're going to go throw a lot of money and open a lot of new stores. So it's -- how do we get more out of the store footprint that we have? And so we are focused very much on driving productivity. And a lot of it comes down to training and getting our staff in the stores really focused on what it takes to close a consumer when they walk through the door. So I talked about this training program that we've put in place to enhance their knowledge of denim.

We want the consumers' experience when they walk into the store to be number-one, really on brand, but number two, to be an amazing service experience, where maybe they learn something about denim that they didn't already know. So we've got a program that we're rolling out globally to all of the associates that work in our stores around the world called Denim Leadership, and that's really focused on providing better service and better leadership to the consumers as they come into our stores, and that's a big piece of the equation. There are some other things that we're doing behind the scenes in terms of systems and other things, but that's probably the biggie.

Okay.

And Karru, just as a clarity, the number that I talked about -- the 11% -- that's for Company-operated retail. We have globally approximately 2,900 stores, and Company-operated is about 500. So, while Chip talked about the programs, we're also focusing around the improvement in productivity across franchise stores, which is largely stores outside the US.

Okay. And when we look at the CapEx here, I think last quarter we had talked about a kind of $100 million to $120 million number, and I'm sorry if I missed this, but what's the delta to the new $80 million to $100 million target?

Just to clarify, when you said delta, specifically what are you trying to get at?

It sounds like we moved about $20 million of planned CapEx spend, whether into the next year or not, just wondering what did that entail?

Yes, it's basically -- last year we spent about $84 million, and this year, if you recall, the reason our capital is planned a little higher is because we were looking at doing a couple of things. One was investing behind eCommerce, and the second is -- we were in the process of, from a risk mitigation strategy, establishing and co-locating a data center. So as we have progressed during the year, largely some of these programs have just spilled into 2014, so it's more a timing issue, and less of spending less against some of the programs.

I mean, I guess the other thing is just pragmatically, where we're at $42 million, I think, through the first half of the year. So to spend at the upper end of the $100 million to $120 felt unrealistic, just given staffing levels and the ability to take on that much work. So kind of pragmatically, it's not going to be as high as $120 million, and we think the right range is somewhere in the $80 million to $100 range, and call it like we see it.

Sure, understood. When you talk about deleveraging the Company over time, where do you feel is the right level at where you would want to be?

Good question, Karru. We've not talked about a target level for leverage. The way we look at it is -- it's important to strengthen the balance sheet. It's important to drive the balance sheet to a point where it's less of a constraint, more of a strength. And the fact that we have paid down debt of over $400 million over the last couple of -- 12 to 18 months, is evidence to that extent. I think what you'd see us doing over time is -- when we can, pay down some debt, and then deploy the capital. Also, balance that with capital deployment [towards] growing the business over time. It's something that's been recognized by the agencies. Our credit ratings have improved, especially as we did this latest round of refinancing, and it's also reflected in the leverage ratio that you're seeing.

Thank you very much. Appreciate it, guys.

Your next question comes from the line of Kevin Coyne, Goldman Sachs.

Just a couple of quick questions. It's been an extremely hot Summer in the western half of the US, and I guess I have two questions related to that. People are likely spending a lot more time at the mall, so are you getting the sense that some of your wholesale customers -- have they talked about the potential pull-forward or benefit from additional mall traffic? Secondly, when we think about your SKU sales on the Dockers side, is it -- can you give us a sense as to, let's say, shorts or summer tops, as to what the growth rate there was?

So I'll take this one on. I mean, I always struggle a little bit when we start linking business results to the weather report, and always get skeptical when that's where a lot of people go. Two months ago or three months ago, we were talking about how the cold Winter had extended so far, and it was impacting shorts sales, and now we're talking about how hot it is. So I kind of raise my eyebrows a little bit when we start getting into the weather report.

Having said that, I haven't heard any of our customers talk to me specifically recently about the hotter Summer driving more traffic, so I don't know if they'll report that as they come out with their earnings, that their traffic is up. I know here recently, we're not seeing a huge increase in traffic in our own stores, and those tend to not necessarily be mall-based. But more outlets here in the US, but we are not seeing a huge increase in traffic. So from our standpoint, we haven't seen it, and I haven't had any customer talk about significantly higher traffic, but we'll see, as they come out with their earnings over the next couple of weeks.

On your question about shorts and short-sleeved tops, on Dockers specifically, it's such a small part of the business, that it's not what moved the needle. We do have a short offering out there right now. My sense is it's doing pretty well, but from a year-over-year increase, I think it has a negligible impact on what happened to Dockers this past quarter.

Great, that's very helpful. Maybe just going back to a comment on last quarter's call, where you had kind of given us a sense where A&P would accelerate in the back half of the year, and still be, I guess, a little bit higher than 2012's rate of mid-5% area. I guess we still expect that acceleration. Is that still likely that -- for the total year, that A&P is higher year over year?

So I'll go first, and then Harmit can probably correct me, but we do expect to spend more this year than last year, both in absolute dollars and as a percent of -- he's sitting here shaking his head no -- as a percent of sales, we should be somewhere around mid-5%s this year, which is slightly up on a percent of sales basis versus where we finished last year, which, from memory, I think was around 5.2%, 5.3%?

I think it was -- again, if I have the numbers correct, I think we spent 5.7% last year. And then, so -- I think the way we're thinking about it, Kevin, is that so far year to date, we've spent I think 3.9%. It was about 5% in quarter two, and in the first quarter it was a little low. We're looking at, on a full-year basis, spending in the mid-5%s, which is approximately close to a year ago. And the reason we think it will pick up in the second half of the year is, again, largely driven by product launches. We announced the launch of Revel, which is on the backdrop of a successful Curve ID launch for women a couple of years ago. And as we think about some of the markets where we are a little soft, we're spending some money to drive the brand. So as we think about the second half of the year, we think we'll spend approximately the same amount we spent a year ago in the second half, and end the year close to where we ended the year last year.

Great, that's helpful, and just one follow-up. As it relates to Revel, just to clarify the comment, is that going to be exclusively in the Levi's stores and online, and it won't be initially in the wholesale, but is the plan eventually to put it with your wholesale customers?

So the plan -- the answer to your question is, yes, it will initially start in roughly the top 750 or so Levi's stores globally, so that's owned and operated as well as franchisees, and on Levis.com. So that's where we will start. We will then expand from that as we get into next fiscal year. We're looking at the wholesale opportunity, but to be frank, Curve ID was less than successful in wholesale because of the inventory required to hold it, and this is built off of the Curve ID platform. So more than likely it's not going to be available at wholesale, although we'll see how it goes in the early days as we launch it, and if there's pull for it, we'll consider it down the road.

Great, thank you.

Your next question comes from the line of Andrew Berg, Post Advisory Group.

Yes, going back to one of the earlier comments about back half of the year, and comparisons to last year, you indicated you look at the benefit of Black Friday this year. Can you give us some level, or somehow help us quantify what the benefit, or what the impact was of Black Friday last year, so we can think about how to properly model that out for this year?

Yes, it's about 1 point of quarter-four revenues.

Okay.

So if you take last year's quarter-four revenues, 1 point of that is what we expect the impact to be.

Okay. With regard to Revel, can you comment on what the price point for that product is?

Yes, it will be premium price to their base Curve ID product, and if you think about it in the US context, roughly around $98 to $128. There are a couple of different price points depending on the finish and the wash, but it's in the $98 to $128, so we cross $100 on women's jeans really for the first time with Revel. And it's premium-priced to the base Curve ID product. It is a true innovation, and the consumer feedback as we've developed it and tested it with consumers is really, really positive, so we need to price behind our biggest innovations to continue to drive our profitable mix, and that's what we're doing here.

Okay, and then lastly, just a housekeeping question. Can you comment on what your current capacity is under your restricted payments basket?

Yes, it's a little more than $600 million. It's a little higher than what we said last quarter because of the recent refinancing.

Yes, thank you.

Your next question comes from the line of Hale Holden with Barclays.

Hi, this is Jon Kahnowitz. The competitive issue that you've talked about in Asia Pacific and I guess China in particular, you mentioned more marketing and eCommerce build, but more structurally, do you think there's anything else that needs to be changed out there? Are there product issues or any pricing changes that you think need to be made, or any changes to the new [distribution] channels or anything like that? Thank you.

The short answer is yes. It's a complex situation, and it's hard to shorthand it in a quick script, but the competitive environment in China -- if you think about China three or five years ago, and compare it to China today from a competitive environment standpoint, a number of vertical retailers have built a very sizable presence in China over the last couple of years. Think GAP, think H&M, think Inditex, think Uniqlo -- in the big cities, they have major presence today, and they barely existed five years ago. So that has fundamentally changed the landscape.

Number two is, if you know China, or know China well, things hit a tipping point very, very quickly there, and the whole eCommerce part of the business has exploded in the last couple of years. And up until just recently, you could only buy Levi's on one eCommerce site in all of China, and we're now quickly working to address that. And then the last thing is, we've got a fairly significant franchise network, and we -- as Harmit indicated earlier, we've got some opportunities to clean up and strengthen our franchise network, not just in China, but just in general across all of Asia, and kind of set ourselves up for long-term success as we build out the franchisee capability there.

So there are a number of competitive and structural dynamics that are going on that we have to play a little bit of catch up on. And that's why I alluded in the script that, even though we've made management changes in China and in Asia broadly, we're quickly tackling a couple of the things that are low-hanging fruit for us to address getting more competitive advertising levels on air, things like that. Some of these are structural, and it's going to take a little bit more time, but we're in it for the long term, and we need to get it right, and get it right so that we can be successful long term in that critical market.

Okay. I'm sorry, so when you say cleaning up some of the franchisees, do you think it's just a matter of finding the right partners, or do you think some areas might just be either categories or geographical areas where you would just pull back and maybe (multiple speakers)

It's working with them to build capabilities, and to build scale with them, so that they can manage our business on a scale -- I like to say that franchisees who feel like their ability to put dinner on the table depends on their ability to drive success on our brands is where we want to be with our key partners, and we need to build their capability and work with them. Again, some of the training programs that we're doing in our own stores, we're doing them with our franchisees as well, to help them close every consumer that walks through the door, drive the consumer basket size up, drive AURs up, sell two T-shirts with every pair of jeans -- things like that are opportunities that we just need to instill in all of our business partners.

Got it. Okay, thank you very much.

Your next question comes from the line of Carla Casella with JPMorgan.

Just one follow-up. Given that you're doing so well on the earnings front, and that you're actually -- the balance sheet item now for stockholders' equity is positive, is the family giving you any pressure to increase the annual dividend?

Nope. No pressure at all.

But thanks for asking, Carla. They might after this call. (laughter)

And then for Revel, did you give the timing of how many doors that would be rolled out to this year? I may have missed it.

So it will hit our stores later in August, and it will be in roughly 750 stores for the balance of this fiscal year. That's globally, 750 Levi's stores and on Levis.com.

Okay, thank you.

At this time, I'd like to turn the floor back to Chip Bergh for any closing remarks.

Okay, I have no closing remarks except to say thank you, all, very much for joining us, and we look forward to talking with you again at the end of next quarter. Thank you.

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