Shares of Levi Strauss & Co. (LEVI) dropped on Thursday morning despite reporting an 8% rise in sales in its second quarter results. The apparel company laid out plans to cut back on costs by selling more directly to consumers.

Levi Strauss CFO Harmit Singh joins Catalysts alongside Yahoo Finance Executive Editor Brian Sozzi to give insight into the company's performance and how it may operate moving forward.

"As we're making this pivot to a DC-first company, we have a project that's called Fuel, which is really about rewiring the company. We are looking at our go to market calendar and our thought is that we can make it shorter and faster and get a lot more agile. We have already reduced our SKUs which will begin impacting in the first half of next year by close to 15% and I think we can go more, and, by doing this, our view is we create the capacity to really expand the TAM," Singh tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino

Video Transcript

Shares of Levi's Strauss are singing today off just about 17% after the company's 8% rise in sales.

It wasn't enough to impress investors in the street.

The G maker stuck with his full year outlook of sales growth of 1 to 3%.

And now says it plans to cut back on cost by selling more directly to consumers.

A strategy that we have seen from Levi Strauss.

Let's talk about it with Harit Singh.

He is Levi Strauss, the CFO and Chief Growth Officer joining us now alongside Yahoo Finance's executive editor, Brian Assa Army.

It's great to see you again.

So let's talk about the quarter because going into this, lots of questions just about the strength of the consumer, some of the trends that you are seeing.

So talk to us about what you saw in the most recent quarter and whether or not that has continued up until today for this most recent quarter.

Good morning folks.

Uh Thanks for having me.

Um You know, it's not the reaction uh we expected on the on the stock, but as, as you know, the stocks had a great run up over the last 12 months.

Um you know, on the belief by us and our investors that are longer term strategies to grow the company to a $10 billion company and uh deliver operating margins are um you know, fairly strong overall, it was a strong call for us.

We met our revenue expectation and significantly beat our ps on the back of record gross margin.

And as you said, we reaffirmed our fuller guidance which implies an acceleration in the second half, both for revenue as well as profitability.

And that's after making investments in higher investments in marketing because the brands, uh you know, having a moment as well as um transforming our distribution and logistics strategy.

Uh to your question about um you know, uh what's really driving our strategy?

The first is our direct to consumer business, um which is now close to half our business was up 11% on the back of 14% growth a year ago.

Um Second, our women's business is really doing well.

Uh It was up 22% in our direct to consumer business and in the US, we are now number one.

you know, uh and uh and that's not something that uh we could have said a couple of years ago.

Uh And so as we think about the US as a marketplace, this is the third consecutive quarter of the U growing.

Um And so, as you think about the business around the world, us ahead of expectation, Europe largely on our expectation Asia slightly down driven really by foreign currencies impacting their business.

And our China business was a little soft but ex China Asia was up 9% in constant currency.

Harvey, it seems like the uh the street is locking in on the on the wholesale business.

And I, and I understand it did improve sequentially, but it was another quarter of it being down, should investors just expect that business to be in a long term structural decline?

You know, the you're right, sequentially global uh and globally wholesale uh you know, improved, but it was uh it was down our view.

Uh Brian is that over the, you know, over the long term, the business will get to modest growth.

But what's more important is that wholesale customers that are seeing a new product assortments, you know, the wider lose of faith as we expand our addressable market and get into skirts and dresses for her or the performance tech pan for him are, you know, beginning to open their checkbooks and buy into the new product line.

And that is working.

And so I think thinking about this business longer term, you know, our expectation is the wholesale business gets moors growth was more profitable, the growth.

Uh you know, I made single digit growth as a company that's really driven by a direct to consumer business.

It's a business that we can directly control.

And so that will be the lead.

Um Wholesale is a big um uh you know, it's a big business for us.

It's an important business for us and actually will complement direct to consumers.

So we, we talk about the company making a pivot to D DC first, but it's not D DC only wholesale will complement our business because we need wholesalers to reach our end consumer just from a distribution perspective.

And for the wide variety of assortments we offer, you mentioned expanding the product portfolio to increase your total addressable market.

I'm curious from your perspective in your seat as the CFO, what is your thinking when you're looking at the balance sheet on a decision like that?

How do you suss out the opportunities that are going to cost you guys a lot but potentially lead to long term growth versus those that may be expensive and not necessarily give you the iro I that you're looking for.

Yeah, I know it's a very, very good question.

Uh You know, both as CFO and with my growth officer role, um you know, as we're making this pivot to ad DC first company, we have a project uh and that's uh called fuel, which is really about rewiring the company.

We are looking at our go to market calendar and our, you know, our thought is that we can make it shorter and faster, get a lot more g we have already reduced our skills um you know, which will begin impacting in the first half of next year by close to 15%.

And I think we can go more.

And by doing this, our view is we create the capacity to really expand the time.

And you know, we have talked about dresses and skirts her, we talked about the non denim offer for him, et cetera.

And so, you know, being thoughtful because our view is we can improve our inventory turns right now.

Our turns are about two.

we can get to three while expanding time while adding SQ US on the stuff that's really working.

But actually reducing SQS on the uh on the assortments that are not working.

So we get a lot tighter, a global assortment.

Um you know, something that you have and you can offer across the world.

We're increasing that by being more directive in an assortment because the consumer is largely similar everywhere.

And uh once uh our product that's relevant.

And so, you know, by ensuring that are common assortments around the world are a lot more than what they are today, I think will just lead to that reserve Harvey.

Um Levi's is not the not alone at least this week.

Calling out weakness in China and General Mills called it out in its earnings call yesterday talking about weakness for Haagen Dazs Ice cream bars which I think caught a lot of people by surprise.

No question, weakening consumer sentiment in the country.

What's your diagnosis is this uh Chinese consumers having negative sentiment against us brands ahead of the election or is it product oriented?

How do you guys uh diagnose what's going on there?

Yeah, I, you know, we have a wonderful team in China that is looking to grow that uh business.

Um you know, China in quarter first, Chi and China is a small piece of a business is about 3% of our business.

Uh quarter two was, you know what I call an out sequence quarter because it was lapping the reopening of the Chinese economy a year ago.

And you know, last year China grew to 95 percent in quarter.

Do we said the business was down about 10% but it sequentially year over year, a month, over month got better as we exited the quarter.

I think it's more the macros, Brian because traffic is under pressure, what we are really doing to bring the consumer back into our store.

We are introducing more locally relevant products.

So think of performance school, which is make we're making a big play just because it's lighter denim that that's working as the as the world becomes a lot more warmer, you know.

So we introduced that that's working um you know, the Chinese consumer uh you know, has, has a slightly different uh taste.

So we're making the product a lot more locally relevant like we did in India.

And I think that would make a difference over time we're not planning for a lot of growth in the second half of the year from China.

Uh it takes a little while to make the assortment change, but we are really long on international.

Um you know, we expect Europe, for example, to return to growth in the second half.

We're seeing that in the orders we're getting from wholesale customers.

Our D DC business is sequentially improving, it was up high single digit and we think that momentum continues.

So, you know, thinking about international, you know, international is about 60% of our business.

We think it can be a higher business and is obviously higher growth margins.

And we have teamed on the ground working really hard to get there.

All right, Hary, we're gonna have to leave it there.

But thank you so much for joining us this morning.

We really do appreciate it.

That was Harit Singh Levi Strauss and CO CFO and Chief Growth Officer also joining us and bringing us this inter interview.

Yahoo Finance's executive editor, Brian Sazi.

Thank you so much.