Levi Strauss & Co

NYSE:LEVI

Earnings Call Transcript 2017-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co. Fourth Quarter and Fiscal Year Earnings Conference Call for the period ending November 26, 2017. [Operator Instructions] 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 2 hours after the completion of this call through February 13, 2018, by calling 1 [phone] in the United States and Canada and 1 [phone] for all other locations. Please use conference ID 7178757. This conference call also is being broadcast over the Internet, and a replay of the webcast will be accessible for 1 month on the company's website, levistrauss.com.

I would now like to turn the call over to Edelita Tichepco, Investor Relations at Levi Strauss & Co.

[Edelita Tichepco, executive]

Good afternoon, and welcome to our quarterly conference call. I'm pleased to introduce members of the Levi Strauss & Co. management team, Chip Bergh, President and CEO; and Harmit Singh, Executive Vice President and CFO.

Before we begin, let me briefly remind you of a few items. Our discussion today may include forward-looking statements, including statements regarding our strategies and expected financial and operating performance. Although these statements reflect the best judgments 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, today's earnings press release and our other filings with the SEC, all of which are available on the website at levistrauss.com.

We disclaim any responsibility to update our forward-looking statements. 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. Participants on today's call may discuss non-GAAP financial measures. Reconciliations and descriptions of our non-GAAP financial measures are available in the Investors section of our website as well as in today's earnings press release. Finally, today, we filed our annual financial report on Form 10-K with the SEC which is now available on our website.

Now I'll turn the call over to Chip Bergh.

[Charles Bergh, executive]

Thanks, Edelita. Good afternoon, everyone, and thank you for joining us today. 2017 was a turning point as our rate of reported revenue growth accelerated to 8%. We gained momentum with each quarter and finished the year much stronger than we started, delivering the highest annual growth rate in a decade.

We're poised to deliver mid-single-digit revenue growth again this year. Before I share some of the highlights, I want to step back to reflect on how we got here. Six years ago, we set out an ambitious plan to turn the business around with a goal of delivering consistent, reliable and profitable growth whatever the circumstances. Since then, despite a tough environment, we've executed against the set of strategies to create a more diversified business globally.

To sustain profitable growth and market leadership, we've continued to invest for the future, and these investments are paying off in brand advertising through the global Live in Levi’s campaign, with new product innovation in women's tops and exclusive collaborations and by creating elevated consumer experiences through our direct-to-consumer channels.

Now I'll share a few of the key full year highlights, and I'll give these in constant currency. The Levi's brand grew 9%. We grew in every channel in all 3 regions across men's, women's, tops and bottoms. We made big strides to connect the Levi's brand with a younger audience and solidify our position at the center of culture, whether it's having a strong brand presence at music festivals, like Coachella, or strategic collaborations with Supreme, RE/DONE, Google and others. These connections are an important part of the strategy and create a positive halo for the brand. Our most recent ad for the Live in Levi’s campaign, Circles, had more than 1.6 billion impressions across TV, digital, social and cinema since it first aired in September. And it was one of the top 10 most viewed ads on YouTube in 2017.

Looking at the Americas region, we grew 3% with double-digit growth in both Canada and Mexico. But the big story is that the U.S. grew by 2%. This performance was driven by our more diversified portfolio, delivering strong double-digit growth in retail and e-commerce that helped to offset a mostly flattish wholesale business. I consider this an accomplishment, given there were roughly 300 door closures amongst our top customers, which we were able to offset with strong performance in other doors as well as continued diversification of our customer base.

Our 2 value brands, Signature by Levi Strauss and Denizen are another part of our diversification strategy, and in 2017, they collectively grew more than 20% with strong performance in men's, women's and kids. Throughout the year, we gained additional floor space as well as new doors.

Europe delivered double-digit revenue growth for the second year in a row and continued to grow across every channel and market, driven by the strength of Levi's brand. This region demonstrates the true potential of our brand and sets the bar for consistent execution and an unrelenting focus on the consumer.

Our diversified portfolio continued to take shape in 2017. The Levi's women's business grew across all regions and channels, fueled by the success of the 700 series and healthy sales of tops. Since launching our new women's line in mid-2015, we've grown 10 quarters in a row, 5 of which delivered double-digit growth. This business now generates more than $1 billion annually.

Our overall tops business was up 35%, driven both by our trucker jackets, which celebrated their 50th anniversary this year, and the Levi's graphic T-shirt business, which continues to be a key fashion item around the world.

Direct-to-consumer now represents more than 30% of our business. We continue to strengthen our retail channel with new doors like the Levi's flagship store in Osaka and renovations to key locations like SoHo. We also announced that we'll be opening new flagship stores in Times Square and on Madero Street in Mexico City this year. Our company-operated retail stores are an important part of our marketplace strategy to elevate the consumer experience by giving them personalization and customization that they can't get anywhere else.

The investments we've made in the online shopping experience are also paying off with 20% growth this year. We expanded our e-commerce presence by launching new websites in Canada, Mexico, Switzerland and Norway. And as mentioned last quarter, we rolled out the virtual stylist, an AI-powered chat bot, that replicates the in-store experience online by helping consumers find the right fit and style for them.

While we're motivated by this progress and what lies ahead, there is more work to be done to address the parts of our business that still need attention. With respect to Dockers, we launched the Smart 360 Flex khaki and reset of our Easy Khaki program, which have both shown promising results. We also launched the Always On global advertising campaign to drive improved awareness. However, we expect that it's going to take roughly 12 months before we complete the transition of all legacy products.

As we face inevitable door closures in U.S. wholesale, we're focused on growing our share of the business with our key customers, both through their online channels and their top-performing stores. We plan to increase floor space at our largest wholesale doors by expanding our assortment. At the same time, we'll focus on broadening our reach with premium and specialty retailers. And in China, we're improving partner profitability, pricing and product assortment. We know we need to build stronger brand engagement with consumers, both in-store and online. We're confident we can do this just as we have in other key markets around the world. For example, in both Shanghai and Beijing, we've been successfully converting to company-owned stores and initial results are promising.

Now I'll turn it over to Harmit to discuss our financial performance in more detail.

[Harmit Singh, executive]

Thanks, Chip. Welcome to everyone joining our call. Before I share with you our detailed results for 2017, I wanted to take a moment to highlight how we have evolved financially over the last several years. Strengthening the financial health of the business and creating shareholder value was the core objective we set for ourselves 6 years ago. We made it a priority to invest behind diversifying the business.

Our disciplined approach to capital allocation has consistently generated returns on invested capital in the mid-teens over the last few years and in the high-teens in 2017. As cash flows have steadily increased over the years, we have stepped up capital investments, especially behind projects that drive profitable growth.

In 2017, for instance, capital expenditures increased 15% and reached a high of almost $120 million. As you will hear later, we expect to raise the bar again in 2018.

Structurally, these investments have shifted our business model to higher growth channels, geographies and product categories, most of which are still underpenetrated, ensuring that we have a long runway for profitable growth. This is evidenced from the fact that over the last few years, our international markets, direct-to-consumer channel, women's and tops categories are all now driving revenue growth.

Our balance sheet is stronger and has transformed from one that constrained growth to becoming a real asset and enabling growth for the company. Net debt is $444 million and is less than half of what it was 5 years ago.

Our refinancing activities have significantly cut the weighted average cost of borrowing to 5.6% and improved our maturity profile. Cash and available liquidity are at all-time highs and leverage at 1.8 remains at its lowest level. We've also accelerated pension funding, and we've accomplished this, while continuing to return capital to our shareholders by steadily increasing annual dividends. In the process of turning this business around, we have created significant value for our shareholders.

Now I'll walk you through our quarter 4 results and full year results before turning to our outlook for 2018. My comments today will reference comparisons on a year-over-year basis in U.S. dollars unless I indicate otherwise.

Fourth quarter revenues of $1.5 billion grew 13% on a reported basis and 11% in constant currency. Reported revenue was up 10% in wholesale and 20% in our direct-to-consumer channel. And importantly, we ended the year with strong momentum.

Gross profit dollars for the quarter grew 19% and gross margin of 53.4% was up 270 basis points, driven by strong growth from a higher gross margin business in direct-to-consumer and international as well as a 60 basis point favorable transaction currency impact, primarily from Europe and Mexico.

Fourth quarter SG&A as a percentage of revenue increased 350 basis points compared to last year. About 150 basis points of the increase reflects the planned acceleration of advertising investments and 100 basis points reflects higher selling costs associated with the expansion of our direct-to-consumer business. The remainder of the increase reflects higher compensation expense, which is related to both short-term and long-term employee incentive plans.

For the fourth quarter, the expense increase was driven by 2 factors: first, an increase of the accrual for our annual bonus expense due to strong fourth quarter performance; second, an increase in stock compensation expense recorded this period based on the appreciation of the company's stock price. As you may recall, our company has stock-based incentive plans, some of which are cash settled. The expense for cash-settled awards is measured and recorded each period based on the valuation of the company's stock and can result in some volatility in the P&L. For additional details on our incentive compensation, please refer to our 10-K.

Fourth quarter adjusted EBIT of $157 million was up from $146 million last year as strong revenue drove 7% adjusted EBIT growth.

Now I'll share more detail on the fourth quarter results of our 3 regions. Net revenues in the Americas grew 7% on a reported basis and 6% in constant currency. By channel, wholesale revenues for the region grew mid-single digit. This is driven by stronger revenue growth in the U.S., led by higher Signature and Denizen revenues, up over 20% in performance and expanded distribution at Target, Kohl's and Walmart.

Direct-to-consumer revenues grew in the mid-teens, reflecting stronger traffic in both mainline and outlet stores as well as strong conversion. Operating income grew 9%, driven by higher revenues, partially offset by an increase in selling expenses and higher advertising this quarter.

In Europe, revenue grew 28% on a reported basis and 21% in constant currency. Growth continued to be broad-based across all markets, channels, product and consumer categories. Women's grew 45% on the back of strong growth last year. Retail revenues were up over 20%, driven by continued strong traffic and conversion, and wholesale revenues were up in the high-teens on broad-based growth across our customer base.

Operating income for the region grew 24%, in line with revenue. In Asia, revenue grew 13% on both a reported and constant currency basis and was up double digits in both wholesale and direct-to-consumer channels with most markets posting growth.

China revenues grew, even after adjusting for the franchise support charge recorded in the fourth quarter of last year. We are making progress in this market. However, there's more work ahead of us.

India is consistently one of our fastest growing markets. We have more than 400 Levi's stores in India, operated by franchisees. In December, we converted a franchise store into our first company-operated store in the country, and we plan to open a few more.

Operating income for the region grew 28% year-over-year, primarily reflecting the $4 million charge taken in the prior year related to franchisee support in China.

Now switching gears to our full year 2017 results. Fiscal 2017 revenues grew 8% on a reported basis and 7% in constant currency. Direct-to-consumer sales grew 14% in constant currency and wholesale revenues grew 5%, primarily driven by strong performance in Europe and a strong fourth quarter in the U.S.

Gross margin for the full year was 52.3%, up 110 basis points and in line with the guidance provided, primarily reflecting direct-to-consumer and international revenue growth, the favorable transaction impact of currency as well as sourcing savings.

Adjusted EBIT was about flat to prior year, and adjusted EBIT margin was down 70 basis points due to increased advertising investments, higher stock compensation expense this year, as mentioned earlier, as well as several discrete items related to prior years, including the expense adjustment in the third quarter of 2017, of which $8 million is related to prior years and a $13 million benefit recorded in 2016.

Excluding these discrete SG&A items, adjusted EBIT in dollars would have been up mid-single digits. A reconciliation of adjusted EBIT can be found in our earnings release.

Turning to our balance sheet and liquidity. Our business delivered strong free cash flow of $284 million, up almost 80%. Capital expenditures were $119 million, and the 2017 dividend payment was $70 million, which was up $10 million compared to last year. Inventory ended the year up 6%, primarily reflecting higher balances in Europe, driven by the region's revenue growth.

Finally, we wanted to provide some color on holiday results, which were really strong. For us, holiday is the combination of November and December. Keep in mind that these 2 months fall into 2 separate fiscal reporting periods and are not necessarily indicative of our first quarter 2018 results.

For our holiday period this year, revenue grew in the mid-teens in constant currency with strong growth across all channels and regions with Europe continued to lead, while U.S. wholesale grew in the low single digits.

Now I'll provide some guidance for our upcoming fiscal 2018. We expect constant currency revenue growth of between 4% and 6%. We anticipate gross margin to increase in the range of about 100 basis points, reflecting continued growth in the retail business, a weaker U.S. dollar and improved sourcing negotiations.

SG&A as a percentage of revenue is expected to increase in the range of about 100 basis points, of which 50 basis points reflects increased advertising and more evenly distributed throughout the year. The balance of the increase will be in technology investments and direct-to-consumer investments, including e-commerce, omni-channel capabilities and new stores.

We estimate the impact of tax reform to result in a transitional charge in the range of $110 million to $160 million, which will be reflected in our quarter 1 2018 financial statements. Absent this noncash transitional charge, we expect tax reform to have a favorable impact on our ongoing annual effective tax rate, which we expect to be in the mid-20s for fiscal 2018.

Inventory balances are projected to be slightly higher than last year, primarily in Europe to support the region's growth. CapEx is expected to increase by about $40 million to about $160 million, driven primarily by increased technology investments in e-commerce and omni-channel capabilities as well as the build-out of a new flagship store in Times Square.

We expect to open nearly 100 new company-operated stores on a gross basis, and we have announced a dividend of $90 million, a $20 million increase from last year, payable in 2 $45 million installments in the first and fourth quarters of 2018.

Finally, given the weakening of the U.S. dollar, we expect that currencies will favorably impact reported revenues and adjusted EBIT. Based on today's spot rates, we estimate the FX impact to be in the range of 150 basis points for revenue and the impact to EBIT margin to be in the range of about 50 basis points.

Now I'll turn it back to Chip.

[Charles Bergh, executive]

Thanks, Harmit. At the beginning of 2017, we said we wanted to end the year stronger than we entered it, and we succeeded. We also created strong momentum going into 2018, and I couldn't be more excited about our future.

I firmly believe we've only just scratched the surface of what I know we are capable of achieving. Thank you to all of our teams, customers and consumers for their passion, commitment and loyalty.

And with that, we'll now open it up and take your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of William Reuter with Bank of America.

[William Reuter, analyst]

In terms of the store openings, I think you mentioned 100. How will those be around the world geographically in terms of their concentration?

[Harmit Singh, executive]

Bill, it's largely outside the U.S., largely international, that's going to drive the bulk of the store openings and a good mix between mainline and outlets. Just as a point of reference, we, in '17, opened one new store in Europe every week, and this is on a gross basis. We tend to close stores because of relocation, et cetera. So the only thing I'd say is, 100 is a gross number, not a net number. And again, it's largely outside the U.S.

[William Reuter, analyst]

Okay. And then, you mentioned higher dividend, higher CapEx. But you guys have a ton of cash in your balance sheet. What are you guys thinking about doing with some of that cash? Would you guys consider M&A? Traditionally, it hasn't really been a big part of what you guys have done. But, I guess, what are you thinking about at this point?

[Harmit Singh, executive]

Yes. It's a good problem to have. As you know, we are building the company for the long term and remain focused on diversifying our business, especially towards higher growth channels, geographies and product categories that we mentioned. We have stepped up capital expenditures over the years without compromising our returns. We've stepped up investments behind advertising. And we see largely categories like tops, women's segment, our outerwear segment has underpenetrated around the world. So in short, what I'm trying to say is that, the -- we have a long runway for organic growth. Having said that, given where our balance sheet is and our cash situation, we'll continue to look at potential acquisitions, but again, the criteria that we use is that it's got to be a strategic fit for the company, both in terms of categories as well as in terms of values as well as something that we think longer term will continue to unlock and create value for our shareholders.

[Charles Bergh, executive]

I guess, the only other thing I would add to that, Harmit is probably too modest to say it himself, is, hopefully, you know that we are very financially disciplined. So as we look at any potential acquisition, we're going to do with an eye towards it needing to create value. And it's got to check all the boxes from a strategic standpoint, but it's going to need to deliver return. And we're going to maintain that same financial discipline, not let the money in the bank burn a hole in our pocket and start doing stupid stuff.

[William Reuter, analyst]

Okay. And then just lastly from me, given the growth rate and the momentum that the business has, I question whether you guys have thought any harder about doing an IPO. Is that something that you guys would consider doing? Has there been increased discussion at the board level that -- or anything you can share with that?

[Harmit Singh, executive]

Yes, Bill, as we've said in the past, our focus is to grow this business strategically. Structurally, where this business evolves, that is the decision for the shareholders and the board. And the good news is, to your earlier question, we have sizable liquidity and a reasonable amount of cash. That is no longer a constraint for us, I mean. So we are investing and growing this business for the longer term.

[Operator]

Your next question comes from the line of Grant Jordan from Wells Fargo.

[M. Grant Jordan, analyst]

First, just reading through the K, it looks like e-commerce penetration was pretty consistent year-to-year at 14%, which backing into Q4 number would indicate maybe e-commerce slowed a bit in Q4. Is that the case? And kind of what drove that?

[Harmit Singh, executive]

I think our e-commerce growth, Edelita is going to confirm it in call, for the year, as Chip mentioned, was 20% and for the quarter was in the high 20s, close to 26%. So are you reading the e-commerce number or the direct-to-consumer number? Because the direct-to-consumer number is a combination of both e-commerce as well as our brick-and-mortar stores.

[M. Grant Jordan, analyst]

Okay. Yes, the 10-K says e-commerce accounted for 14% in both years, but I'll just follow up on that.

[Harmit Singh, executive]

Okay.

[M. Grant Jordan, analyst]

Given some of the news around some of the wholesale retailers in the U.S., how aggressive have you been managing your receivables?

[Harmit Singh, executive]

We have. That is also indicative from a cash position. We constantly are able to collect, and we have great customers who generally are paying their bills on time.

[M. Grant Jordan, analyst]

Okay. So you're not anticipating any uptick in bad debt based on what you currently see?

[Harmit Singh, executive]

Yes, I mean, if there is a tick, again, it's going to be probably sporadic and is driven largely by bankruptcies as and when they happen. And then -- from our perspective, we are mindful of it. So we adjust credit limits so that we are able to grow our business but grow it profitably.

[M. Grant Jordan, analyst]

Okay. And then last question. I believe you gave us your outlook for constant currency revenue growth of 4% to 6%. Just based on where things stand today, any guess as to how much currency would add to that number?

[Harmit Singh, executive]

About 150 basis points, Grant. That's our thinking. But again, those are based on spot rates as of today. So these -- as you know, currencies can swing pretty widely.

[Operator]

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

[Carla Casella, analyst]

I'm wondering if the change in the tax affects any of the way you're looking at your sourcing organization or manufacturing capabilities.

[Harmit Singh, executive]

The quick answer, Carla, is no, largely because we've proactively thought through that a couple of years ago. And we think we're very well structured from a sourcing perspective. I think broadly speaking, as I mentioned in the call, we believe, and we are actually -- we applaud the tax reform act that was actually passed. But I think broadly speaking, from our perspective, the impact on our effective tax rate is about 3 to 4 basis points. Our permanent tax rate pre-reform was in the high 20s. We think it's going to probably come down to about the mid-20s right now. Strategically, I don't think we're going to do anything different. We're still focused on our 4 core strategies. As you know, we continue and have accelerated investments behind the business to unlock category growth in areas we're not as penetrated. So we continue to focus on that. So we are not going to do anything different just because of the tax reform.

[Carla Casella, analyst]

Okay, great. And then at this point, what percentage of your domestic stores are in a mall versus off-mall?

[Harmit Singh, executive]

It's approximately less than 5%. If you look at our U.S. and when you ask about domestic, I believe, the reference is the U.S. If you look at our portfolio of stores, bulk of our stores, we have about 230-odd stores, about 180 of the stores are outlet stores, the remaining are mainlines, either on high street or in a few cases in malls.

[Charles Bergh, executive]

Yes, that assumes you don't count outlets as outlet malls. Because most of the outlets -- almost all of the outlets are in outlet malls.

[Carla Casella, analyst]

Right. No, no, that's what I meant. That's helpful. And then, I think you got the question earlier, but you are not -- you did not take a charge this quarter for the Bon-Ton bankruptcy. Do you anticipate one in first quarter? Or were they a big part of your business at this point?

[Harmit Singh, executive]

No, again, a small part of our U.S. business. And the only thing I would say is that it is -- it happened after our fiscal. And if it's material, we'd have talked about it.

[Carla Casella, analyst]

Okay. And you don't sell much to Sears any longer, correct?

[Harmit Singh, executive]

It has steadily declined over the years, but we still sell a sizable amount.

[Operator]

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

[Hale Holden, analyst]

I had a couple of questions here. On the gross margin guidance for 2018, I was somewhat surprised to hear you call out improved sourcing negotiations after the large amount of work you guys have done on that in the last couple of years. So I was wondering how that was coming together and where that was coming from?

[Harmit Singh, executive]

Yes. It's not the bulk of the 100 basis points, but it continues to be a part of it. And it's largely driven by the increase in volumes or buying power as well as our strategic discussion with some key vendors longer term.

[Hale Holden, analyst]

Got it. And then on the increased pension payment outlook for 2018, it looks like you're taking that meaningfully from 10-K, though. I was wondering if that was contractual? Or due to a change in discount rate? Or if there's a tax benefit for doing that?

[Harmit Singh, executive]

Yes. A couple of reasons. First is, NPV positive, going back to the notion of being fiscally disciplined around it. Second, it's an acceleration of our unfunded liability. So we're accelerating it in '18. And the third piece is, tax reform has a piece to do with it. And as you can see from our -- from a cash position, we have the one great asset called cash.

[Hale Holden, analyst]

And then, my last question is, I'm sorry to bring up an oldie here. But I just was curious if the Batwing t-shirt will still be a driver in Europe? Or if you are seeing a pretty good blended mix? I mean, your growth outlook for '18 would suggest that you have a lot of levers of growth, and that's not necessarily a big part of it.

[Charles Bergh, executive]

I wish you could see me now, Hale. I'm wearing the latest Levi's logo. So we're just keeping on from strength to strength. And I do think on -- a lot of other brands are now talking about it, too, right. So the logo Ts, they're back in a big way. They're fashion items to some extent. And the Batwing Tee is still really strong. We're doing it on fleece as well. So sweat -- I'm wearing a Levi's logo sweatshirt right now, and we've now got the sportswear logo, which is just going to take it to the next level. So you got to keep finding ways to pump freshness into this idea, and we're doing that.

[Hale Holden, analyst]

You should have worn that on CNBC when you updated us. We saw you in a suit there.

[Charles Bergh, executive]

I know. It wasn't a suit, to be clear. It was a Down Trucker jacket [indiscernible]

[William Reuter, analyst]

Yes, it was a trucker jacket.

[Charles Bergh, executive]

[indiscernible] tomorrow and I was going to wear the Batwing Tee.

[Hale Holden, analyst]

We look forward to that.

[Charles Bergh, executive]

I'll show it off at some point.

[Operator]

[Operator Instructions] Your next question comes from the line of Karru Martinson with Jefferies.

[Karru Martinson, analyst]

Given that you guys are -- cash is no longer a constraint for you, and it's nice to hear that. When do you feel like the rating agencies change the outlook here? And is IG kind of a focus for you?

[Harmit Singh, executive]

Yes, the -- we have discussions scheduled with the rating agencies. As I -- as we said earlier, an IG rating is not the focus. What is focus -- of prime focus is having a capital structure that allows us to access capital at great rates, which we have demonstrated in the past, as well as access it at all times, good times, bad times, et cetera. I think the discussion with the rating agencies really revolve around a couple of things. One, the diversification of the business. I mean, as you can see, it's a very different business today. And the second is growth in earnings longer term, as against reduction in debt.

[Karru Martinson, analyst]

Okay. And when we look at the diversification of business, you certainly have some strong gains with women. Where are you as a percentage of sales in women versus kids versus men? I mean, where do you see that going over the next, let's say, 2, 3 years? Or where would you like to see that business be?

[Harmit Singh, executive]

Yes, I mean, the one thing I can talk about is the men's versus women's. I mean, women's is closing up to about nearly 1/3 of our total mix. It used to be in the low 20s, now is in the high 20s. That category is growing, and we are underpenetrated. So again, we don't have targets, Karru, from our perspective. I think given the strength of our products, given the strength of our marketing, strength of our execution, this will continue to grow longer term.

[Charles Bergh, executive]

I mean, just to pile on, the one thing about the women's category, both tops and bottoms, it's incredibly fragmented, as you know, much more so than the men's business. And so as you go around market-by-market, it's rare to find a market where the leading brand has any more than about a 10% share, number one. Number two, whether it's tops or women's, we have some markets that I look to that kind of provide a lighthouse, if you will, to the future. We've got some markets where our tops business is about the same size as our bottoms business. We've got some markets where our women's business is approaching 50% of the total business. So I think having a stretch goal for women's where we're still really under-penetrated is something that we're really trying to do, same thing with tops. I mean, our tops business has accelerated, but why can't we double it and double it again in short order, given we're still a fraction of the total category. So it does kind of get back to this point that we really do believe that we still have lots of organic growth opportunities. We don't have to go do an acquisition to continue to be able to grow in the mid-single-digits or beyond. And if we really get clicking on all cylinders, that's very achievable.

[Karru Martinson, analyst]

And just lastly, kind of from a big picture perspective, certainly didn't hear much about athleisure. Where is -- where are we in the denim cycle? And kind of where does the fashion go from here?

[Charles Bergh, executive]

Well, I think there is pretty good indication that denim is back. We've been talking about athleisure for a long time here, and denim is still dramatically bigger than the entire athleisure category. And while athleisure was growing, it was growing off of a much lower base. Back when we relaunched our women's business, you guys will remember me talking about -- the first thing we tried to do is understand from women, why were they okay wearing yoga tights to a nice restaurant on a Friday night. And what they liked about yoga tights was they were comfortable, that stretch was comfortable, the fabric was comfortable, and they look good in it. And so we said, why can't we do that with denim. And that's basically what we did as we relaunched the women's business now 2.5 years ago. And if you look at the fabrication, the softness of the material, the stretch of the material, how it fits, how it wears, that's why our women's business has been growing for 10 quarters in a row. And I think women are coming back to denim because we've given them what they're looking for, which is comfort, fit and good looks.

[Operator]

[Operator Instructions] There are no further questions at this time. I would now like to turn the floor back over to the company for any closing remarks.

[Charles Bergh, executive]

Right. I just want to thank you all for joining us today and for your insightful questions, and we'll be back again with you in April to talk our first quarter results. Talk to you then.

[Operator]

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