Troubles at Levi Strauss Revealed in SEC Filing
Levi Strauss & Co. on Thursday used a rare public filing to detail financial woes that have sapped the fabled bluejean manufacturer’s profit, derailed a highly publicized $750-million employee incentive plan and endangered the company’s world-famous brand.
Profit at privately held Levi, which has eliminated 18,500 jobs and closed 29 plants in recent years, plunged to $5.4 million in 1999 from $411.5 million in 1997, according to the Securities and Exchange Commission filing. Revenue skidded to $5.1 billion, from $7.1 billion in 1996.
Levi acknowledged in the filing that, as operating performance has deteriorated, the company’s debt load has soared to $2.4 billion. Agreements with lenders, Levi said, could “make it difficult for us to successfully execute our business strategy or to compete in the worldwide apparel industry.”
The filing describes the failure of an innovative, $750-million employee incentive plan unveiled in 1996 that promised to reward 37,500 employees with a one-time bonus equal to about a year’s pay. At the time, Levi Chairman Robert D. Haas said the plan would prompt “continued striving for new standards of excellence.”
The plan was derailed in 1999 because of the company’s continued financial troubles, according to the filing. Levi has redirected $343.9 million from the proposed incentive plan back into the company.
“Based on our financial performance, the targets under the plan would not be achieved,” according to the filing. The probability of the incentive plan making the planned payment in 2002 “is highly unlikely,” according to the filing.
The detailed accounting of Levi’s financial and business woes is included in an SEC filing for an exchange offer to register $800 million of notes the company sold privately to investors in 1996. Levi said the transaction would let investors sell the notes publicly. The filing reportedly was the first in-depth financial report filed by the company since 1986.
Levi, which remains the world’s largest apparel company, has struggled for years to reverse a sales slide that began when the company’s jeans lost favor among fashion-conscious younger shoppers, who buy the bulk of denim wear. Levi’s jeans are sandwiched between lower-cost alternatives sold by Sears, Roebuck & Co. and J.C. Penney and high-priced gear from such upscale names as Tommy Hilfiger Corp. and Calvin Klein Inc.
“It’s hard to kill a great brand, but these guys are going about it as assiduously as you could,” said Peter Sealey, an adjunct marketing professor at UC Berkeley and a former top marketing executive at Coca-Cola Co. “They’ve allowed the brand image to become something that’s not relevant anymore. The worst thing you can do is to get caught in the middle.”
Levi also has failed to keep pace with innovative advertising from such competitors as Gap Inc. and Limited Inc.’s Abercrombie & Fitch chain. The San Francisco-based company, which is still controlled by descendants of founder Levi Strauss, is saddled with high operating costs tied to its historical practice of operating its own manufacturing plants in the U.S.
Levi in 1996 initiated a long, painful restructuring that has reduced the number of U.S. manufacturing plants and shifted denim wear production to third-party plants in the U.S. and overseas.
Levi, which has shuffled its top executives, last September turned the chief executive’s office over to former Pepsi-Cola North American President and Chief Executive Philip Marineau. The filing noted that Levi’s ability to attract qualified employees is being “adversely affected” by the high cost of living in San Francisco and competition with Bay Area and Silicon Valley companies.
