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Yahoo Finance Presents: Levi Strauss CFO Harmit Singh

In this article:
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Yahoo Finance’s Editor-at-Large Brian Sozzi sits down with Levi Strauss CFO Harmit Singh to discuss price increases and inflation, the company’s stores in Russia, and how the CFO role has changed.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: Harmit, good to see you and good to see you in person. I was thinking back before this interview. I have not actually met you in person. I have talked to you from my kitchen for the past 2 and 1/2 years.

HARMIT SINGH: You know, time flies, Brian. It's great to be here in person. And I'm coming to New York after a little over 2 years, and it's good to see things coming back to normal.

And we did our earnings here yesterday. And today, we're attending the JP Morgan conference. So it's great to meet you.

BRIAN SOZZI: I imagine it's good to-- it's well-timed, of course. You guys had your earnings out. And one thing that stood out to me was you have raised prices. Consumers haven't balked. Why do you think that's the case?

HARMIT SINGH: I think our brand is all about the fact that our brands are resonating. You know, there's a couple of messages in our earnings. First, we started the year with strong momentum on the back of a real good '21.

But it's really driven by the fact that our brands are resonating, all our brands. We have five brands. All of them grow. The category has being growing in our category. The denim sales in the US were up 11% relative to pre-pandemic. Our business was up 22%, and our earnings were up 35%.

The good news is despite the price increases, we are selling more units. So it's a balanced growth. So that's fact number one.

The fact number two is the areas that we're focusing on strategically whether it's growing digital, whether it's growing our brands, whether it's growing both men's and women's are all resonating. And our brands, despite the pricing, still offer tremendous value.

BRIAN SOZZI: On pricing, how much have you had to take up prices because of inflation? I think people would agree they've never seen inflation like we're seeing now.

HARMIT SINGH: Yeah, no, it's really unfortunate. And when we take pricing decisions, we do it thoughtfully. It's not that we pass every dollar of inflation onto the consumer. We actually look at, what can we absorb internally? Then we price for innovation.

So we're innovating at breakneck speed, new products, new styles. And after that, we price on our core product. So we've been taking pricing a year ago. We knew this was coming. And because we offered great value, we've been using both art and science, a lot of data science goes into this. So our pricing, our AURs--

BRIAN SOZZI: Average unit retail?

HARMIT SINGH: Average unit retail is up 10% year over year. And 70% of that is primarily pricing. The other 30% is driven by mixed changes, and it is ticking because it's being resonated. It's been driven by the fact that our consumer demand is also up given that our units are growing. And so as we think forward, we'll probably take a little bit more pricing, but do it thoughtfully and ensure that the consumer continues to get tremendous value.

BRIAN SOZZI: Where have you seen the most inflation?

HARMIT SINGH: Largely in commodities and in freight. So cotton is-- if you look back at the last decade, cotton is at a high. And so we're pricing for that after ensuring we will absorb what we can and then in freight.

We're also bringing-- because of supply chain-related issues, we're also air-faring a lot of stuff. So that does cost money, so things like that. We are also seeing some inflation in wages.

Where we're trying to offset is because we've been building a lot of stores even during the pandemic. We've been negotiating hard with our landlords. And we're getting rent reductions, which offsets some of the inflation. And we're looking at what we can do driven by volume and scale to leverage our scale and ensure that we can drive prices down.

BRIAN SOZZI: You've seen a lot of cycles in your time doing the CEO-- CFO thing, the CFO of Hyatt at one time and CFO of Pizza Hut US, now the CFO of Levi's for some time. Is there anything you see in the data that would you concerning about the state of the consumer? There's a lot of recession talk right now. But anything that you see that says we need to be more mindful of what's going on out there?

HARMIT SINGH: Yeah, no, we're mining data on a daily basis. We're talking to economists on a regular basis. The state of the consumer in the US is really strong. Balance sheets are strong.

Unemployment is at an all-time low. Wage growth is happening. But we're mindful of the lower end consumer. And so when we look at the data, we look at, are people-- what are the savings rates? Are people dipping into their savings rates?

We look at credit card data on a weekly basis. And so far, the signs are all good. But this is something that we are not taking lightly especially as we price and ensure we still offer value.

I'd say gasoline prices are high. People are driving less. So I think just because people tend to work like you and I. We tend to work from home a couple of times a week, et cetera. But we are mindful of what's happening out there.

The other thing we look at is demand signal from our wholesale retailers. Is future demand and future order book slowing down? Are there other cancellations? And so far, we're not seeing it.

BRIAN SOZZI: No cancellations for orders?

HARMIT SINGH: Yeah, I mean, so far we're not seeing it here. We're not seeing it in Europe. And so that gives us confidence, and that's where we reaffirm guidance for the year where we said we'll grow 11% to 13% for the year and deliver an EPS of $1.52 to $1.56.

BRIAN SOZZI: Levi's was early in closing its stores in Russia. When do these stores open again?

HARMIT SINGH: We're looking at the situation on a daily basis. As you know, rules and regulations are evolving. And we want to make sure we do right by our employees in Russia and we also do right with the rules and regulations, stay compliant. So we're looking at it daily.

Our hearts and minds go out to the people impacted by the unfortunate war in Ukraine. We have stores in Ukraine. We have employees in Ukraine. And obviously our business-- small pieces of businesses in Eastern Europe.

But still, what really is very thoughtful is that our employees in Europe have really stood out, and they're opening the doors. They're opening their wallets. We as a company are opening our wallets to ensure that we can do our best for the people whose lives have been impacted by the unfortunate war.

BRIAN SOZZI: How do you see yourself doing business again there at some point?

HARMIT SINGH: We've got a few doors open, franchise doors open. But we're going to follow this, and we're going to do what's right and largely been driven by our values. As a company, we're very strong in our values.

So I don't know is the situation-- is an honest answer. It's a discussion we're going to be having with our board in a couple of weeks. And we'll see how this goes. The brand has been very strong in Russia, and it's very strong in Europe as you know.

BRIAN SOZZI: China, is that back to growth?

HARMIT SINGH: China this quarter was down. China is a small piece of a business. They were unfortunately impacted by the COVID resurgence. Just before the latest round of COVID resurgences, China was actually headed to growth and actually delivering growth.

But the good news for this quarter-- even though China was down, it was profitable. And China hasn't been profitable for us for a while. So I think as we think about the business in China, long term we still believe it is a business that we can grow and grow big time. In the short term, I think we're working with our employee base there, ensuring that they're healthy and safe, both the consumers and our employees.

BRIAN SOZZI: Two more for you because it's rare that we're getting you in person here. It's been some time. Let's talk about styles and trends. You're always an on-trend guy.

I'm very jealous of your entire look while I'm stuck in this boring suit. But I went on the Levi's site, and I see people wearing mom shorts. Is that some new form of style that I just don't know about?

HARMIT SINGH: No, I mean, you know, so the good news is we do continue to innovate.

BRIAN SOZZI: You didn't expect that word.

HARMIT SINGH: And you know, I'm sure there'll be a day when you'll be dressing a lot more casually--

BRIAN SOZZI: I'm not wearing mom shirts.

HARMIT SINGH: --even on national TV. But you know, shorts are doing really well. And the looser fit and the baggy fit is here to stay. I think because we were the first to actually drive that trend. But all our new styles are working well.

BRIAN SOZZI: A lot of vintage.

HARMIT SINGH: Yeah, a lot of vintage. This is one product, one brand, that people actually pass from generation to generation. So we do actually buy back stuff that people have kept and collected over the years and actually resell it. So I think that's the wonderful thing about the Levi's brand.

BRIAN SOZZI: Lastly, I mentioned you've been CFO, many prominent places, led a lot of companies through the IPO process. How has the CFO role changed compared to-- let's compare from today to 10 years ago.

HARMIT SINGH: Yeah, no, a couple of things. First, when I first started the CFO role, it was all about shareholder value. Today it's about stakeholder value. So it's important to drive a value across our stakeholders.

The second the role was a lot about control. Today, it's about influence and not only influence as a leadership style, but influence in areas outside finance, whether it's technology, whether it's ESG. And I'm a big proponent of doing right for the planet. And I co-chair the US chapter of Accounting for Sustainability.

And doing the right thing and doing it the right way, which Levi's does, I think is very important. So thinking about ESG, thinking about how that actually grows stakeholder value, I think, is critical. And I think those are the broad areas.

Technology is very big. I look after technology for the company. But ensuring that we're able to digitize our processes and ensuring we're able to digitize how we communicate with our stakeholders including our consumers is important. And that's why we are a big believer in e-commerce, which is today only about 9% of our total business. If we look at all the digital ecosystem, it's about 1/4 of our business. That can be much bigger going forward.

BRIAN SOZZI: Well, I'll leave it there. But actually, I will say that it's good to know that you exist above the waist and same goes for me. Harmit Singh, enjoy your time in New York. We'll talk to you soon.

HARMIT SINGH: And Brian, thanks for having me.

BRIAN SOZZI: I appreciate it.

HARMIT SINGH: Great to see you in person.

[MUSIC PLAYING]