Harmit Singh, Levi's CFO, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the company's third-quarter earnings beat, digital transformation, holiday outlook and much more.
BRIAN SOZZI: Welcome back to The First Trade. Levi shares are surging this morning after the jeans maker returned to profits in its most recent quarter. But the company also unwrapped other surprises for investors ahead of the holidays. Levi's CFO Harmit Singh is here with us now. Harmit, always good to speak with you. Thanks for taking the time here.
So the big story I think this morning is, despite the pandemic just continuing to weigh on your sales, you returned to profits. Explain to investors how you made this happen.
HARMIT SINGH: Sure, Brian. Thank you for having me. And good morning to all of you. I think, you know, we are very pleased with the progress we've made in quarter three as well as we're pleased with the progress we are seeing and encouraging trends as we enter quarter four.
We delivered what I call a trifecta. Our gross margins were higher than a year ago. We made money despite our sales being down 27%. And we grew and delivered positive cash flow. I think our cash flow was close to $200 million. It's primarily driven by the strength of the brand, but more importantly, by the cost and working-capital actions we have taken as a team and the financial discipline that's being executed around the world.
So we're encouraged to see our results progress. And, you know, we were negative in terms of net income and EBIT only for one quarter. So returning to profitability was huge for us.
ALEXIS CHRISTOFOROUS: Harmit, you've made a lot of investments in building out Levi's direct-to-consumer business. It seems to be paying off. And talk to us about the gains you're making in that key women's apparel category. Where do things stand? And what's your goal there?
HARMIT SINGH: Sure. You know, our direct-to-consumer investments are paying back. Our e-commerce business was up globally over 50%. And we think about digital ecosystem. That not only includes our own e-commerce sites, but also wholesale.com. That was also up 50% as a share. That's doubled to 24% of our total business. Women's business has been on a tear since we relaunched it in 2015.
It was also one of our strengths in this quarter. Our total women's business is about 37% of our total revenue. We think direct-to-consumer business-- that includes franchise-- becomes more than half our business. Women's wear, we're picking up share. We picked up share in some markets in Europe and China. Also gets to be at par in terms of size with our men's business. And our digital footprint, we believe, with double to more than a third of our revenue over the next five years. And we're making money in digital. So, you know, all in all, you know, we drive higher profitability and improvement in operating margin.
BRIAN SOZZI: Harmit, powerful comment by you on the earnings call last night. You said you believe that you'll get back to pre-pandemic revenues in 2019 the second half of 2021. What gives you that confidence?
HARMIT SINGH: I think, you know, it's clearly the strength of the brand. You know, I believe that the pandemic is accelerating casualization of the workplace. And, you know, if the culture settles to working from anywhere, casualization as well as, you know, the focus on comfort clothing, it's going to benefit us. We are also being guided by our values. As you know, we launched and we took ownership over e-commerce. Our Levi's indirectly a leader in resale.
So, you know, connecting with the [INAUDIBLE] as well as digitizing the consumer experience gives us confidence in terms of getting back to a '19 level sometime in the second half of 2021.
BRIAN SOZZI: Harmit, before we let you go, somewhat under the radar yesterday, you announced a deal with Target. You will expand that relationship from 140 stores to 500 stores. And on the earnings call, you released that now you are testing items in Dick's Sporting Goods. Little different business models here. Why'd you make that shift?
I think a lot consumers know you for just being in the department stores. But maybe that's why you made that shift.
HARMIT SINGH: Yeah, you know, one of our core strategy is diversifying, you know, our business. And that is diversifying and growing with top retailers. It's about growing product categories. It's by growing gender-- we talked about women's-- and geographies. So the expansion at Target and the introduction at Dick's part of the diversification strategy. You know, it's a win-win both for Target and us. We've been testing this for a while. And we were excited to announce the expansion.
We believe that we're getting new consumers to shop at Target. And we're doing this without cannibalizing our business with other wholesale customers. We're very pleased with the positioning of our brand Target. Our focused assortment of men's and women's resulting in higher-than-average [? AURs. ?]
On Dick's, you know, they're a clear winner in sports, athletic, outdoor market. And it's another distribution point for us. So, you know, our view of the world is, you know, that we continue expand distribution as well as grow with our existing traditional wholesale customers in the [? shop doors. ?] And I think the combination of the two, or the one plus one, which is growing [? PBC ?] and growing a healthier wholesale business is going to be powerful and help us grow market share as well as profitability.
ALEXIS CHRISTOFOROUS: Harmit, Levi's said it's going to start paying a dividend in the fourth quarter. You hope to resume that if these positive trends continue early next year. The fourth quarter includes the holiday shopping season. What are you expecting? And do you think you have enough inventory in case you're met with the demand?
HARMIT SINGH: Yeah, we are seeing a strong demand for our brand. And, you know, while there is some uncertainty in terms of a resurgence of the virus as well as uncertainty around the election, our view of the world is that holiday will start earlier. It's driven by Prime Day. That happens next week. You know, many retailers are closing their doors on Thanksgiving. We're one of them.
So we think the holiday gets extended. Rather than a week or two, it's probably a month or two. We are really focused on doing what we can control. And that is, you know, launching relevant products. Our holiday focus is all about sustainability. It's about a campaign that focuses on giving better gifts that last. And we believe gifting will be important. And, you know, what better gift than Levi's, you know, assortments at different price points? So we are confident that we step into it. If there are uncertainties, we'll face it. We're a nimble organization.
So we'll figure it out. And our brand strengthened in countries around the world, especially Europe, is really, really good. In fact, in some markets like Europe and in some parts of the US, we are actually chasing inventory. So to your point, you know, planning inventory is important. But we feel good about the health of the inventory as we step into holiday.
BRIAN SOZZI: All right, we'll leave it there. Levi's CFO Harmit Singh, always good to speak with you.
HARMIT SINGH: Thanks, Brian and the team. Appreciate it. Have a good one.
BRIAN SOZZI: You too.