Levi Strauss Has Second Quarter in Its Pocket

Levi Strauss & Co. said Tuesday that second-quarter profit rose by 48% as sales fell only 6.4%--a marked improvement for the San Francisco-based jeans maker that had been reporting double-digit decreases in recent quarters.

Analysts linked the improvements to better inventory control, cost cutting and a renewed emphasis on fashion. “The sales declines are decreasing and they are managing their inventories with discipline, and that is having an impact on gross margins,” said analyst Todd Slater of Lazard Freres & Co.

Levi said profits for the three months ended March 28 rose to $45 million, from $30.4 million a year earlier. Levi is a privately held company, so it doesn’t report a cents-per-share figure. Sales slipped to $1.15 billion from $1.23 billion a year earlier.

Levi also reported strong European and Asian sales of its new Engineered Jeans line, which features a softer feel and a contoured fit. The products are now working their way onto U.S. retail shelves.

“We’re very pleased with the performance,” Chief Executive Philip Marineau said during the conference call. “The results reflect the . . . plan we have to turn around the performance of Levi Strauss & Co.”

Levi’s gross margins improved to 42.4%, up from 40% a year earlier. Chief Financial Officer William Chiasson linked improvements to cost reductions, plant closures and an ongoing shift to higher-margin products. Chiasson also said that Levi has been reducing inventory. The company had 84 days worth of inventory at the end of its second quarter, down from an average of about 100 days.

The company used cash from operations to reduce outstanding debt to $2.3 billion from $2.7 billion at the end of the year. The company said it had $128 million in cash.

Marineau acknowledged that Levi still has problems. “To be honest, this is not a quick fix . . . but we’re very encouraged about where we are as we go into the fall back-to-school period,” Marineau said.