The rest is one-year contract. And so we are doing our best to offset it from that perspective. If the current crisis continues through the second half of the year, there is some risk to COGS. But for example, in our guidance that one has provided on gross margin, we haven’t necessarily built in, for example, the exit of Denizen, which will help gross margin. So that will help offset it. The FUEL program is out there. We’re working through sizing some cost benefits and so there are a couple of things that we’re playing around just to make sure there’s enough contingency should this crisis continue.
Paul Lejuez: Thanks, guys, and best of luck, Chip and Michelle.
Michelle Gass: Thanks, Paul.
Operator: Thank you. Our next question comes from the line of Jay Sole of UBS. Please go ahead, Jay.
Jay Sole: Great. Thanks so much. Two-part question. One, can you just maybe dive a little bit into Asia? And maybe just walk us through some of the different countries, what’s going on there? What drove the business? And then on the $100 million of cost cuts, is that a number that’s sort of an annualized number where you’ll see sort of a run rate of, say, $25 million by 4Q or do you expect to achieve the $100 million of net cost cuts this year in total? Thanks so much.
Harmit Singh: Yeah. So, I’ll answer both. On the $100 million, $100 million is in ’24. It starts in Q2 and then accelerate as the year progresses. We haven’t yet talked about ’25. The program has just started, and so you will see benefits in ’25. I mean the entire objective, as Michelle mentioned, is as we make this pivot to a DTC-first company, we’ve become a lot more agile and a lot more smarter from that perspective, Jay. So that’s the answer to your first question. On Asia, Asia continues to see strong growth. We’re ending Asia up 18% on a full year basis. Yes, Q4 was slightly not as strong. And there was some timing, I would say, in two markets between Q3 and Q4, but I feel strong about Asia. China, for example, was up 13%, up 21% for the year and profitable which was great from that perspective.
In China, as an example, we have just initiated a local product engine. And the early read from that, given the feedback we’ve got from our franchisees and the folks in the ground is very, very positive. And so as we think about the outlook for Asia, we’re signaling as part of this outlook, high single-digits. It’s probably a little lower than the low double-digit we had in Investor Day, and that’s largely because Asia, you all may not know this, but Asia also oversees the Middle East. And given the Middle East crisis, we’re just being cautious, you never know how long that continues and [indiscernible]. So, we’re just being careful about that.
Jay Sole: Got it. Thank you so much. Very helpful.
Harmit Singh: Thank you, Jay.
Operator: Thank you. Our next question comes from the line of Matthew Boss of JPMorgan. Your question please, Matthew.
Matthew Boss: Great. Thanks. Chip, congrats. You’ll be missed.
Chip Bergh: Thanks, Matt. I’m going to miss all of you, too. It’s really been a pleasure working with all you guys and gals.
Matthew Boss: So, Michelle, could you maybe speak to global health of the denim category as you see it today? Any key fashion trends that you see emerging into 2024? And if you could just elaborate on the timeline for the expansion of the lifestyle opportunities that you cited. And then, Harmit, on the gross margin side, how best to break down product cost recapture within your gross margin guide relative to mix and full-price selling as we build up the gross margin for 2024?
Harmit Singh: Sure. So, Michelle, after you.
Michelle Gass: Yes. Hey, Matt, great to connect. So first, let me start with the denim category overall. Globally, denim category was up about 5%, mid-single digits this year and that’s actually planned to continue as we look forward. So, we’re excited about that, clearly, as the category leader. We continue to maintain our number one share position across men’s and women’s together by a significant margin. So, as we continue to invest in the brand around the world, that continues to be really important. And then to your point around fashion, I’d start by saying that we had a great year on the women’s side. For overall FY ’23, the Levi’s women’s business was up 4%. And for Q4, Levi’s women’s was up 9%. So, we’ve long said that we lead the category trends.
And again, this past quarter demonstrated that. And as we lead the trends, we’re seeing it resonate with the consumer. A lot of the low loose-fits are really driving the business. On the flip side, our Ribcage Bell did really well. So, we’re offering a lot of diversity in the line on the fashion fit, everything from the higher rise to the low rise. And — but as I said, the loose and baggy continues to be relevant and we’re anticipating that as we look forward into the year. The other piece we’re really excited about. I mentioned it in my remarks, is lightweight denim. As temperatures get warm, we want people to be in Levi’s year-round. That impacted us this past year. So, we’re going a lot bigger and deeper on things like Performance Cool and lightweight denim and have a lot of great fashion offerings for women there.
And then the other part of your question is around the denim dressing, I think, especially relevant, again, to fashion in women because we do see a big opportunity in categories like skirts. Skirts is actually a growing category, quite significantly. Skirts, dresses, tops and this past quarter, we saw dresses and skirts up 50%. And the team, as we look at the pipeline this coming year, we’ve made much bigger investments in those categories, both in DTC and in wholesale, and our key customers are responding as well in terms of their open to buy. So feel good, feel really good as we look forward.
Harmit Singh: And, Matt, to your question, let me just break up Q4. I know it’s a favorite question from some of my sell-side friends, and I’ll talk ’24. So Q4, up 200 basis points. I’d say broadly, product costs, about 140 basis points, mix about 75, 80 basis points. And then favorable FX, we were selling more full price, that’s probably 80 basis points and then it was offset by pricing reductions we initiated in the quarter three, that’s about 100 basis points of a drag. So that’s Q4. As we think about next year, I think product costs, probably 140 basis points to 150 basis points tailwind. It’s not higher because we’re going to be anniversarying this in Q4 of 2023. The pricing actions we anniversary at the end of H1, but the impact which is a drag in gross margin is about 40, 50 basis points.
And then between mix, off-price, a little bit of airfreight, it’s 30 to 40 basis points of tailwind. So that’s what breaks up the 140 basis points to 150 basis points gross margin for 2024, accretion for 2024.
