Levi's Maker Lowers Annual Sales Forecast

From Bloomberg News

Levi Strauss & Co., the closely held maker of Levi's jeans and Dockers slacks, Wednesday reduced its annual sales forecast because of sluggish demand and will cut back production at plants in the U.S. for the rest of the year.

Sales will fall 3% to 5% for the fiscal year ending in November, assuming the value of overseas currencies compared with the dollar remains the same, Levi said. Previously, the forecast ranged from a decline of 2% to a gain of 2%. Levi didn't provide the sales forecast including the effect of fluctuating currency values.

Demand for men's clothing, including Levi's 505 and 550 jeans, slowed in the U.S. At the same time, the slowing economy led retailers to reduce orders, the company said. Levi said it sees no sign of a pickup in the second half. The company will shut down its eight U.S. factories an average of one week a month for the rest of the year to help reduce inventory.

"They are not alone," said Standard & Poor's analyst David Shapiro, who has a "BB" rating on Levi's corporate credit, the rating agency's second-highest junk bond rating, with a "negative" outlook. "No one is doing terribly well."

Fiscal second-quarter net income fell 3.5% to $43.4 million from $45 million a year earlier. Sales in the period ended May 27 fell 9.1% to $1.04 billion.

San Francisco-based Levi, which has closed plants and paid down debt to trim costs, is introducing new items and reducing delivery time to try to recover sales lost to rivals such as Tommy Hilfiger Corp. and Calvin Klein Inc.

"We aren't deviating from the turnaround strategy," President and Chief Executive Phil Marineau said in a conference call. "The speed with which we are going to do that has been somewhat slowed down."

Moody's Investors Service earlier this month cut its credit outlook on Levi to "negative" from "stable" on concern the company might not be able to pay down its debt in the current retail environment.

Inventory rose 20% from the end of last fiscal year, Chief Financial Officer Bill Chiasson said during the call. Levi temporarily shut down some U.S. plants in the second quarter, spokeswoman Linda Butler said.

The company's eight U.S. plants employ about 4,500 people and account for 25% to 30% of domestic jeans sales, she said.

Sales in the Americas fell 10.5% to $682.1 million. In Asia, revenue declined 21% to $85.1 million as some Japanese customers went bankrupt. In Europe, they dropped less than 1% to $276.7 million.

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