Levi Strauss & Co Q3 FY2025 Earnings Call

Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company third quarter fiscal 2025 earnings conference call for the period ending August 31st, 2025. All parties will be in a listen-only mode until the question and answer session, at which time instructions will follow. This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. This conference call is being broadcast over the internet, and a replay of the webcast will be accessible for one quarter on the company's website, levistrauss.com. I would now like to turn the call over to Ida Orfin, Vice President of Investor Relations at Levi Strauss & Company.

Thank you for joining us on the call today to discuss the results for our third quarter fiscal 2025. Joining me on today's call are Michelle Goss, our President and CEO, and Harmeet Singh, our Chief Financial and Growth Officer. We'd like to remind you that we will be making forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in our reports filed with the SEC. We assume no obligation to update any of these forward-looking statements. Additionally, during this call, we will discuss certain non-GAAP financial measures, which are not intended to be a substitute for our GAAP results. Definitions of these measures and reconciliations to their most comparable GAAP measure are included in our earnings release, available on the IR section of our website, investors.levisstrowes.com. Please note that Michelle and Harmeet will be referencing organic net revenues or constant currency numbers, unless otherwise noted, and the information provided is based on continuing operations. Finally, this call is being webcast on our IR website, and the replay of this call will be available on the website shortly. Today's call is scheduled for one hour, so please limit yourself to one question at a time to give others the opportunity to have their questions addressed. And now I'd like to turn the call over to Michelle.

Thank you, and welcome, everyone. What I'll share today builds on the themes I've been emphasizing this year as we pivot to become a DTC-first, head-to-toe denim lifestyle retailer. The consistent execution of our strategic priorities is driving a meaningful inflection in our financial performance. And today, I'm pleased to share that we delivered another very strong quarter with upside across the P&Ls, giving us the confidence to raise our full-year revenue in EPS guidance. In Q3, we delivered our fourth consecutive quarter of high single-digit organic revenue Strength was once again broad-based across our business, including DTC and wholesale, international and domestic, women's and men's, and tops and bottoms. Our growth was led by continued strong sales and profitability in our direct-to-consumer channel, up 9%, fueled by strong comp growth as well as solid performance in global wholesale. Our largest market, the U.S., grew 3%, and our international business was up 9%, led by an acceleration in Asia. And we continue to see robust performance in our core as well as outsized growth in our key focus areas like women's and tops. The results we've delivered this quarter against an increasingly complex backdrop are yet another proof point that our strategies are working. Looking ahead, there are several factors that give me even more conviction that our momentum will continue. First, our narrowed focus enables us to maximize the full potential of the Levi's brand. We will continue to build momentum through impactful marketing campaigns, strategic partnerships, and innovative collaborations, ensuring that the brand remains firmly at the center of culture. Second, the total addressable market for denim is large and growing as consumer preferences continue to shift towards casualization. As the definitive market leader, are well positioned to take advantage and drive growth. Third, our denim leadership puts us in a prime position to define and own head-to-toe denim lifestyle, further expanding our adjustable market. As we drive this momentum forward, we'll continue to deliver an innovative and robust product pipeline across genders and categories. Fourth, our DTC first strategy is bringing us closer to the consumer and generating consistent and significant growth, while we have also stabilized and grown our wholesale business. Both channels are seeing strong improvements in profitability. Fifth, while international already comprises nearly 60% of our total business, there are still untapped opportunities for us to grow, particularly in Asia where our business has momentum and the opportunity for continued expansion is considerable. Underpinning all of this is our culture of performance with a sharpened focus on operating with rigor and executing with excellence, from go-to-market efficiencies and more productive store operations to end-to-end supply chain improvements. I will now turn to highlights from the third quarter in the context of our strategies. All numbers that Harmeet and I will reference are on an organic, continuing operations basis. Let's start with our first strategy, being brand-led. Levi's had another strong quarter of growth. In the quarter, we launched the final chapter of the reimagined campaign with Beyonce. This campaign delivered as intended, fueling momentum across the business, specifically driving growth in our Levi's women's business, up 12% year-to-date. In August, we debuted our new global campaign starring Shibuzi, underscoring our relevancy and authenticity with men. The campaign showcases our most iconic products, the 501, the trucker jacket, and the western shirt and we're pleased with how this campaign is being received by our fans. In addition, we also cultivated enthusiasm for the brand through a broad range of collaborations including a joint collection with Nike, fusing Levi's heritage denim craftsmanship with Nike's athletic sneaker culture. Our collaborations generate brand heat and introduce Levi's to new consumers and just this week we launched a special collection with Toy Story in celebration of their 30th Turning to product. Our evolution to a head-to-toe denim lifestyle retailer continues to gain momentum, all while strengthening our position as the global authority in denim. Our Levi's women's business continues to deliver outsized growth, up 9% in Q3, while our leading Levi's men's business grew a solid 5%. Driven by our diversified fit portfolio, we saw strong growth in our bottoms business, which was up 6%. We're continuing to inject newness into the looser fit trend with the new baggy utility silhouettes for him and the launch of our baggy dad barrel for her. And we're driving a revival in low-rise with our low and super-low collection of fits, which are delivering strong growth. As we evolve into denim lifestyle, we're making meaningful progress on our seasonally relevant assortments as consumers look for more buy-now, wear-now products. Following last year's reset, TOTS continued to drive notable growth, up 9%, with strength across women's and men's. For the quarter, our shorts business delivered strong growth across genders. We continued to infuse newness into the assortment through fit and fabric innovation, from our linen blend styles to the launch of the 501 Curve. And with respect to our premiumization efforts, we began to roll out our elevated blue tab collection to Europe in early September following a successful launch in Asia and the U.S. earlier this year. Blue Tab merges Levi's iconic aesthetic with the refined quality and thoughtful Japanese craftsmanship. Looking to the holiday season, we are well positioned with the right merchandise assortment and the right marketing campaigns. We're expanding the range of occasions and amplifying the many ways that fans can embrace our denim lifestyle assortment through elevated fabric, textures, and embellishments. We're excited to showcase Levi's through a fresh lens that reflects the season's full spectrum of style. Now shifting to our strategy to be DTC first. Global direct-to-consumer sales were up 9%, driven by strong performance in both our stores and online. We generated high single-digit comp growth yield by higher UPT, AUR, and full price selling as our expanded denim lifestyle assortment continues to resonate with our consumers around the world. And as we continue to grow our DTC channel, we remain focused on doing so profitably with our productivity initiatives resulting in more than 400 basis points of margin expansion in the quarter. We're pleased with the strong results from our store optimization initiatives, which have improved both the consumer experience and store productivity. We've enhanced our in-store lifestyle merchandising to make the store environment more inspiring and shoppable, highlighting our broader assortment of head-to-toe looks. We've also been focused on improving our assortment planning and life cycle management, resulting in lower promotions and higher full-price selling. Additionally, we're in the process of rolling out a new global selling model for our store team, which, coupled with our enhanced labor scheduling system, is improving the consumer experience and delivering operational efficiencies. We had another quarter of very strong growth in e-com, up 16%, driven by an increase in traffic across all segments. We expect e-commerce to continue to be our fastest growing channel on the path to comprising 15% of our total business, up from just 9% today. In our wholesale channel, net revenues were up 5%, reflecting growth across all segments. In the U.S., the Levi's brands were up 2% as we continue to invest in top doors and expand and elevate our assortments. Western wear is core to who we are, and we're pleased to have recently expanded our product assortment with Boot Barn and gained new distribution at Cavendish. We also see opportunities to increase our penetration with premium and specialty accounts as we broaden and elevate our lifestyle assortments. Now turning to our third strategy, powering the portfolio. Our international business grew 9% in Q3. Asia accelerated in the quarter, driven by double-digit growth in key markets like India, Japan, Korea, and Turkey. I recently visited several stores across India, Korea, and Japan, and it is clear that consumers are responding to the work we've done to ensure the best expression of our denim lifestyle assortment. Japan in particular is a market with a very high bar for denim. We've been investing in Japan over the past decade, transitioning the market from primarily a wholesale business to now close to 75% DTC. Walking our stores in Nagoya, Shinjuku, and Harajuku, which are some of our highest volume stores in the world, you'll see the fullest and most premium expression of the Levi's brand. Up almost 50% since 2019 and continuing to gain momentum, we remain optimistic about future opportunities in Japan, and we will replicate our successful playbook in this market across the globe. Beyond Yoga was up 2%, and DTC was up 23%, driven by comps, new doors, and e-commerce. Growth in DTC was offset by a decline in wholesale as the team focuses on higher quality sales in the channel. Looking to Q4, we have additional stores opening in Boston, Houston, and two more stores in Northern California, bringing our total store count to 14. We expect Beyond Yoga to end the year up low teens versus prior year. In closing, we delivered another standout quarter with sales and earnings growth that positions us to increase our outlook for the year. We are fully prepared and well positioned for holiday as we enter the season with momentum despite an increasingly uncertain external backdrop we have several tailwinds that give me confidence and not only delivering a strong finish to 2025 but also another strong year in 2026. finally i'd like to thank our incredible talented and passionate team for driving our transformation into the world's denim lifestyle leader and delivering outstanding service to our fans every day and with that i will turn it over to harmeet to provide a financial overview of the quarter and our expectations for the remainder of the year

harmeet thanks michelle in quarter three we delivered strong financial results exceeding expectations across sales gross margin ebit margin and eps we remain focused on establishing a strong track record of consistent execution and results. The strategic transformation across our organization has enabled us to evolve into a higher performing company with stronger revenue growth, expanded margin, improved cash flows, and higher returns on invested capital. Given the outperformance in quarter three and continued strong trends, we are also raising our revenue and EPS outlook for the year, despite incorporating higher tariffs than assumed in our previous guidance. Now, turning to our quarter three results, net revenue grew 7%, reflecting the power of our diversified business model. International markets drove approximately 75% of our growth, and the U.S. contributed 25%. This international strength reflects our continued expansion and brand resonance in key markets globally, while our U.S. business maintains solid underlying momentum. by channel growth was evenly balanced between wholesale and direct-to-consumer each growing and contributing roughly 50 percent of our revenue increase this balanced performance underscores the success of our ddc first strategy while maintaining strong partnerships in wholesale by gender women's contributed approximately 40 percent of our growth with men's accounting for the balance we continue to execute against our strategy to capture greater share in our under penetrated higher gross margin women's segment while our large men's business continues to generate solid growth as we fuel momentum in the category turning to gross margin performance we delivered another strong quarter with a quarter three record gross margin of 61.7 percent of net revenues expanding 110 basis points versus the prior year more than offsetting 80 basis points of tariff headwinds three key drivers fuel the continued expansion. First, our structural business mix continues to evolve favorably with the accelerating shift towards higher margin DDC international and women's categories. Second, targeted pricing actions we have taken across our assortment, as well as higher full price selling and reduced promotion levels in our direct-to-consumer channel as consumers continued to gravitate towards newness. Third, approximately 50 basis points of the upside in gross margin was driven by foreign exchange. While we are judicially approaching pricing opportunities across our business, in quarter three, we saw a significant increase in units demonstrating healthy underlying demand for our brand. I'm pleased to report that our adjusted SG&A performance came in line with our expectations, representing less than 50% of total revenue, over 150 basis points improvement from our first half run rate. The primary factors contributing to the increase in SG&A dollars include higher performance-based compensation, given the momentum in our business, costs associated with our store openings, as well as expenses associated with the transformation of our distribution network. The combination of robust gross margin and our disciplined approach to SG&A management delivered an adjusted EBIT margin of 11.8% and generated $0.34 of adjusted diluted EPS, both ahead of our expectations. Our focus on profitability as we accelerate growth has enabled us to grow both adjusted EBIT and adjusted diluted EPS up approximately 25% to prior year on a year-to-date basis. now let's review the key highlights by segment the america's net revenues were up seven percent our u.s business was up three percent delivering our fifth consecutive quarter of strong growth ddc grew six percent and now represents over 40 percent of the u.s market u.s wholesale net revenues were also up, despite the challenges posed by the transition of our U.S. distribution centers. Driven by broad-based strength across the region, LATAM has seen several consecutive quarters of double-digit growth, including Q3, which was up 23%. America's operating margin expanded 50 basis points, driven by gross margin and revenue leverage. Europe's net revenues were up 3%. All key markets delivered growth led by very strong performance in the UK. While weather impacted footfall in June and July, we exited the quarter with strong performance in August, and we continue to expect mid-single-digit growth in Europe for the year. Operating margin grew 80 basis points versus the prior year from strong gross margin expansion. Asia's net revenues accelerated to up 12%. The segment saw double-digit growth in both DDC and wholesale. Operating margin increased 50 basis points to prior year. Asia is up 8% on a year-to-date basis, and operating margin for the year is up 40 basis points to prior year. Turning to our shareholder returns program and the balance sheet. In the quarter, we returned $151 million to shareholders, a 118% increase versus last year. We've also closed the first phase of the darkest sale and with the proceeds we have implemented 120 million accelerated share repurchase program and retired approximately 5 million shares with the remaining shares to be settled by the first quarter of 2026. we have returned 283 million to shareholders year to date which is substantially higher than our annual cash payout target and for q4 we declared a dividend of 14 cents per share which is up eight percent to prior year we ended the quarter with reported inventory dollars up 12 driven by purposeful investments ahead of the holiday and higher product costs than a year ago due to tariffs. In unit terms, inventory was up 8% versus last year. As of today, we have 70% of the product in the U.S. needed for holiday. Before turning to guidance, let me briefly share our updated assumptions around tariffs. Our updated guidance reflects the latest tariff rates, which includes 30% for China and an increase to approximately 20% for the rest of the world. this is higher than our assumption and as a result we estimate the full year gross impact of tariffs before mitigation to be approximately a 70 basis points headwind to gross margin compared to 50 basis points previously however given the q3 results and after mitigation we continue to expect only a 20 basis points impact to gross margin. This translates to a 2 to 3 cent impact to adjusted diluted EPS, unchanged from last quarter's guidance. As respects to quarter 4, this equates to an 80 basis points headwind to gross margin and a 3 cent impact to adjusted diluted EPS. looking to 2026 we are continuing to take actions to offset the impact of tariffs as a reminder these mitigation initiatives include promotion optimization targeted pricing action vendor negotiation and further supply chain diversification now i will turn to our outlook for quarter four and then cover the folio while we're taking a prudent approach to our outlook given the complex macro environment and the absence of the 53rd week which contributed four points to the top line in quarter four of 2024 we remain confident in the underlying strength and momentum of our business in quarter four we expect organic net revenue growth to be up approximately one percent and on a two-year stack this equates to nine percent organic growth reported net revenues are expected to be down approximately three percent because of non-comparable items including the 53rd week denizen and footwear which are no longer included in the revenue base gross margin is expected to contract approximately 100 basis points in quarter four driven by tariffs as well as the impact of the 53rd week and we expect adjusted EBIT margin to be in the range of 12.4 to 12.6 percent we expect the tax rate to be in the low 20s higher than a year ago and adjusted diluted EPS to be in the range of $0.36 to $0.38. For the full year, we are taking our revenues up by approximately a percentage point and EPS by $0.02. We now expect reported net revenue growth of approximately 3% for the year, and we have increased our expectations for organic net revenues to approximately 6% up from prior year. We now expect gross margin to expand 100 basis points for the full year up from the 80 basis points stated in our prior guidance, including the incremental drag from tariffs. We continue to expect adjusted SG&A as a percentage of revenue to end the year at around 50 percent. An adjusted EBIT margin to be in the range of 11.4 to 11.6 percent. As we have previously shared, we continue to expect the tax rate to be about 23 percent. And we are raising our full year adjusted diluted EPS range by two cents to $1.27 to $1.32 to for the full year in closing our four consecutive quarters of high single digit growth and raised revenue expectations underscore the strength and resilience of our business as we accelerate profitable growth we are transforming into a best-in-class ddc first denim lifestyle retailer, unlocking new opportunities and delivering greater value for our shareholders. Our discipline execution and agility have enabled us to deliver 14 consecutive quarters of DDC comp sales, expand margins, drive cash flow, and return significant capital to our shareholders, including the recent ASR and our growing dividends. With our strategic focus on high growth segments, TOPS, Women's International, and DDC, we see a long runway of profitable growth ahead. Thank you for your continued trust and support. We are more confident than ever in our future. I will now open up the line for Q&A.

Thank you. The floor is now open for questions. If you have a question, please press star, then the number is 1-1 on your telephone keypad. Due to time constraints the company requests, you ask only one question. If you have an additional question, please queue up again. If at any point your question has been answered, you may remove yourself from the queue by pressing star 1-1 again. Our first question comes from the line of Laurent Vasilescu of BNP Parva.

Please go ahead, Laurent. Oh, good afternoon, Michel and Harmi. Thank you very much for taking my question. I wanted to ask about your European momentum. We had a major U.S. brand caution about the European marketplace the other week again around increased promotionality. Curious to hear what you're seeing in this important marketplace. How are your European pre-books look for next spring? And then Harmeet, just on the 4Q guide, the gross margin down 100 basis points, can you maybe just unpack that a little bit more? What's the 53rd week impact on the GM and what are the positive offsets? Thank you very much. Sure. Noron, thanks for calling in.

So Europe was up 3% for the quarter. You heard in my prepared remarks about the weather impact, but as soon as the weather cooled, we saw Europe accelerate to double-digit growth, especially as we exited the quarter. There were some shifting in July and August, but September remained strong. We've seen growth in the quarter across both channels. DTC was up 4%, wholesale was up 2%. Some key markets really performed. UK was up, you know, mid-team, and high single-digit growth in Germany and Italy. If you think across men and women, women continues to be strong in Europe. And the consumer is gravitating towards a broader assortment. loser fits 501 tops which is our fastest growing category so our view is unlike the other major brands that you mentioned we expect to end the year up mid single digit and this is accelerated substantially relative to a year ago September is off to a good start a pre-book for spring is up mid-single digit. Having said all that, our operating margins are also up 80 basis points. So I think that's our perspective of Europe. A big shout-out to the team on the ground that is working its way through it. On your question, I can broadly talk Q4 guidance, and then I'll talk gross margins in a minute. But on Q4, we expect the momentum of our business to continue, and our view is that fundamentally the underlying trends remain strong. Our Q4 guidance overall is impacted by three things. The year we're lapping, which includes a 53rd week, which held Q4 last year by four points in revenue and 20 basis points in gross margin. We do have an incremental headwind on tariffs. It's impacting gross margin first, you know, unmitigated, by 130 basis points and mitigated by about 50 basis, sorry, by about 80 basis points,

and EPS by 3 cents. Had it not been for tariffs, our gross margins in quarter four would have been

up. I mean, it's pretty factual. And then we're just taking a conservative approach to the quarter, given the complex macros, you know, there's tariffs, maybe potential impact on demand. We are not seeing it as we close out September and the continued transformation of our distribution center. The way to think about it, folks, is we're raising our fully top-line guidance to 6% organic. And if you think of the last three years, 23% organic growth was flat, 24% was about close to 3%, and this year 6%. So as I said in the prepared remarks, we're solidly on track to be a mid-single-digit growth company.

And EBIT margins should end the year in the mid-11%.

In 2023, they're close to 9%. So we've steadily improved that. Higher gross margin efforts on SG&A and flow through onto EBIT margin.

That's great to hear. Best luck with the holiday season.

Thanks. Thank you.

Thank you. Our next question comes from the line of Matthew Boss. I'm J.P. Morgan. Your line is open, Matthew.

Great, thanks. So, Michelle, could you elaborate on the momentum that you cited entering the season? Maybe what are you seeing in the denim category or from the consumer broadly? And then, Harmeet, so have you seen any material change in demand trends in September or October globally, or is it just prudent planning for the remainder of the quarter that's driving the moderation that's embedded in your fourth quarter organic revenue guidance?

I'll answer your second first because I'm sure it's top of mind for folks. No, it's just being the prudent guidance is just being, you know, conservatism on the macros. we're not seeing any underlying change in trends as I reflected. I think we're really well set for holiday. And Michelle can give you a perspective on the category and the consumer. Sure. So, Matt,

thanks for the question. First, let me talk about the category. We're really excited. I mean, the denim category is accelerating both here in the U.S. and globally. And as the definitive market leader, we are very well positioned to take advantage of that. I mean, of course, as a leader, we help fuel the growth, and we're seeing that happen. Just to remind everyone, we are the market share leader across men's and women's globally, and we continue to maintain our number one share position in the U.S. as well for both men and women. I'd say most recently, we're really thrilled to see that we're gaining share in youth, premium, and with our signature business. So when we think about our business from a segmentation standpoint, doing really well with red tab. And for those consumers who are more value-oriented, we saw our signature business up double digits this quarter. What's driving that for our business in terms of market share gains and, again, as the leader helping to fuel the momentum on the category overall? I mean, it starts with product. We're bringing a lot of newness and innovation into our business through fits, fabrics, silhouettes. A lot of that's still happening with loose and baggy, but we're really seeing strength across the board. And importantly, not only is it continuing to be the leader in denim bottoms, but we're really expanding our addressable market as we think about going from denim bottoms to head-to-toe denim lifestyle. And, you know, we're seeing that momentum in categories like top. So, you know, when you take a step back, I mean, historically, we've been around many decades. We really built this business on denim, but we're building our future on denim lifestyle. So feel good about the category, our position. Now, more broadly to your question on the consumer, I think kind of building on Harmeet's comments and mine, our consumer continues to be resilient and we're seeing that around the globe. I mean, it starts with the business, our fourth consecutive quarter of high single digit organic growth globally. And I think it's important to make note that this for the quarter, this business was driven largely through unit growth, right? So it's unit growth that's really fueling that momentum. And we saw broad-based strength across geographies, across categories, that's both men's and women's, tops and bottoms, and both DTC and wholesale. So consumers responding, our strategies are working. I mentioned the denim category accelerating. I mentioned really kind of being relevant across these various consumer cohorts. And, you know, we get that we're operating in a complex environment here in the U.S. We're staying close to it. But, you know, when you think about the Levi's brand, you know, in times of uncertainty, consumers turn to brands that they know and trust, and Levi's is certainly one of those So, you know, we're optimistic as we enter the fourth quarter. You know, we expect the health and the momentum of our business to continue. we've been planning for holiday all year and I would say we have our most robust lifestyle assortment we've ever brought to the consumer with lots of seasonally relevant product across really all categories and again we continue to make progress on this head to toe so you'll see lots of you know the fashion bottoms as well as tops and outerwear third pieces and I think products that really go sort of from day to night at work to evening events, especially during that holiday season. But there's a lot of newness. And that will also be fueled by tremendous marketing. You know, we've had a great year of marketing with Beyonce. We've got Shabuzi right now. And you can expect us to continue to connect in a relevant way during the holiday season.

That's great color. Best of luck. Thanks, Matt.

Thank you. Our next question comes from the line of Ike Boruchow of Wells Fargo. Please go ahead, Ike.

Hey, thanks. Let me add my congratulations. Maybe Harmeet, just to focus on margins specifically, can you comment on two things? One, within the SG&A cost line, you talked a little bit about it earlier, but the distribution line is running around 7% of sales right now. Can you remind us the moving pieces on the warehousing and DCs you have going on? A year ago, it was around 6%. I think historically, it's been 5%. How quickly does that margin start to benefit you guys as you go into next year? And then to that point, are you comfortable beginning to lay out a timeline on the return to 15% margin you guys kind of put back on the table several quarters ago as the momentum picked up?

So let me, I'll start with gross margin. I'll give you some color about what happened in Q3 so people and yourself understand. Then I'll go quickly into SG&A and distribution. So think of gross margin in quarter three, up 110 basis points, higher than what we had expected when we talked about this a quarter ago. Three basic factors. One is the structural mix, which is higher women's DDC and international that we think continues for a long, long time. The second is we have taken moderate pricing, and we're driving higher full price sales. And the third is the FX benefit, which we have called at about 50 basis points. This is more than offset, about 80 basis points of headwind from the tariffs. And so that's why, you know, A, we were ahead of last year. And over-delivery was affected. It's difficult to predict. We haven't predicted effects for quarter four, as an example. And full price, you know, it's something we're focused on. It's difficult to forecast that. So that's gross margin. Then you think about SG&A. Our SG&A, you know, for the quarter was below 50%. If you think the first half of the year, it was higher than 50% of revenue, higher than, you know, so the run rate was lower than the first half of the year, which was higher. The way we think of SG&A, I mean, there are two ways to look at it. A, gross profit dollars are growing at a faster pace than SG&A dollars. So if you think of year-to-date, gross profit dollars are up $220 million, and SG&A is up $126 million. So clearly driving high flow through. If you look at it just as a revenue to SG&A, SG&A up 6% and revenue up 8%, so clear leverage. As we think we end the year, if 6% is the revenue guidance organically, SG&A is probably in the mid-single digits of this clear leverage on that. And this quarter, you know, SG&A being up relative to a year ago, there's performance comp, which is a big piece. We're having a good year. Distribution costs, which I'll come to in a minute, so I'll answer your question. You know, we opened on a gross basis 40 new stores. I mean, you know, and that's really, you know, the trifecta factor in DDC is driving the result. Well, marketing expenses moved a little between Q4 and Q3, especially as we launched the Shibuze campaign and some foreign exchange headwinds. To your question, Ike, about distribution, overall, as you know, we are remapping our distribution network to more of a hybrid network built for omni-channel from a manual network that was built for wholesale. So there are clear benefits that we will see over time. In the short term, and transformations obviously have a short-term impact, over the short term, in the U.S., we'll be running parallel DCs as we ramp up the new DC that's run by a third party. So if you think of distribution costs, about 7%, and they've increased from a year ago, I would say about half of that is the reclass in distribution expenses from selling to distribution for e-commerce. And the other half is equally split between volume, which is driving more distribution expenses, and the cost of parallel running. Our expectation is that parallel running of DCs, because the good news is our demand is pretty robust. So as we make this transformation, we have to do it in a way that we not only fulfill the demand for our customers and consumers, but also ramp up and close this DC. So our view is, and it's art and science. So we're working through that. But I think by the end of quarter 1-26 is when we probably ramp down the parallel running of the DCs, early 26. And when we report results for quarter 4 in early 26, we'll give you a perspective on distribution expenses. But over time, long term, we should reduce cost per unit and the cost of running parallel DCs. Does that help, Ike, answer your question?

Yes. I'm just curious timeline on the 15%. Is there anything you can share?

I think you're asking for a quick preview on to Invested Day or a preview on that. But I think the way to think about that, Ike, is our EBIT margin should end the year in the mid-11s, right? And they've grown nicely over the last couple of years. I think the basic building blocks are the following. The gross margin expansion continues. I mean, our view is that the structural piece continues. And, you know, if you take probably a five-year period, you can say that's 200 basis points. You know, that should help EBIT. The SG&A leverage, you know, as we get to mid-single-digit growth company, I think the SG&A leverage is about 200 basis points. We may amp up advertising a little bit, you know, given the wonderful programs our chief marketing officer and these are invoking. I think that helps drive the band, make the band stronger, and importantly, drive revenue. I think that's probably a 50-odd basis points of headwind, and that will come with revenue. So I think that's your building block. So you think of gross margin expansion, SG&A leverage, and a little bit of reinvestment in every time you can get to the 15%.

Thank you.

Thank you. Our next question comes from the line of Paul Kearney of Barclays. Please go ahead, Paul.

Thanks for taking my question. Within the wholesale business growth, can you speak to how much was driven by maybe new points of distribution or expanded assortment versus like-for-like on stronger sell-throughs? And how would you categorize inventory levels within the retail channel setting into holidays?

Sure, Paul. Thanks for the question. So, you know, as we said in our earlier remarks, we're quite pleased with the continued growth that we're seeing in the channel. This is now four consecutive quarters with this quarter at 5%. We do expect the year to be slightly positive in the wholesale channel for the entire year, which was actually up from our prior expectation, which we had said previously flat to slightly up. We saw positive growth in this channel across all segments. We saw particular strength in U.S. wholesale. We saw it in Asia, Latin America, and in the signature business, which is more for that value consumer. The growth is largely being driven with existing accounts as, you know, their consumers are responding to our fashion fits, women's, women's especially is outperforming, and lifestyle. So, while we, yes, we are bringing in some new accounts like Westernware, we've got new distribution and Cavendish, we're expanding in Boot Barn. The growth is largely coming from our execution with our existing partners.

Great. Thank you. Best of luck.

Thank you.

Thank you. Our next question comes from the line of Oliver Chen of TD Securities. Please go ahead, Oliver.

Thanks. Hi, Michelle. Hi, Harmeet. Regarding Americas, the low single-digit growth, is your expectation that that continues in Q4? And on wholesale side, it's been a little more challenging channel, but do you think it'll remain sustainably positive or will that be potentially volatile? Second, there's a lot of great initiatives and partnerships, but part of the thesis is also like amplify to simplify with inventory management and SKU rationalization. So how do we reconcile those two in terms of where you are in that journey?

Sure. Thanks, Oliver, for the question. As it relates to the Americas, or I can speak to the biggest part of the business, which is the U.S., we're really proud about how the team has been executing in that market this is our fifth consecutive quarter of growth and because you all know it's our largest most mature most competitive market and both channels DTC was up six percent wholesale up two percent and we continue to see long-term growth opportunities in both those channels so I think about the DTC business here in the U.S. we have the potential to even double our store count and further accelerate e-commerce on the back of the momentum we have and on wholesale which I was just talking about more broadly global wholesale but wholesale in the U.S. remains strong and our key partners are responding and their consumers are responding to our expanded product pipeline across men's you know especially women's where we continue to be under indexed in particular in the wholesale channel and then that head-to-toe lifestyle. As we look forward, I'll just say that as we look to Q4 in the U.S. and in the Americas, we expect the business to remain healthy against executing the same strategies we've been talking about, leaning into DTC, driving units per transaction, driving conversion, driving greater full-price sell-through. As I was mentioning earlier, though, a lot of our growth is coming off of units. So while we are seeing that enhanced AUR, we're also driving a lot of volume growth. But I will say as it relates to U.S. wholesale, while we expect continued positive growth in DTC for the fourth quarter, we do expect in U.S. wholesale to be down given that we're lapping a very strong quarter last year and we had that 53rd week. So as we lapped last last quarter, fourth quarter, strong results, the 53rd week, and just frankly, to be continuing to be prudent as we think about this channel, given the complex macro environment we're operating in in the U.S. So, Oliver, does that fully answer, and then you had part two of the question. Let me answer that, and then I'll come back and make sure I've fully answered, but then part two, I'm glad you asked the question about skew rationalization, because we continue to make really good progress there. So while we talk about expanded assortment lifestyle, we are also at the same time reducing SKUs. And we've decreased our SKUs by about 15% compared to last year. And this has been an ongoing journey over the last 18 months or so. So we're continuing to raise the bar there. And what's really enabling us to do that is through a tighter globally common or globally.