Levi’s First-Quarter Loss Narrows
Levi Strauss & Co. reported Tuesday a narrower loss and higher sales for its fiscal first quarter, but the storied jeans maker’s best-known brands continued to lose ground in the U.S. -- a trend that will contribute to more job cutting and other belt-tightening measures.
The San Francisco-based company said its loss was $2.4 million in the December-February period, compared with a $58-million loss a year earlier. The latest loss included $54 million in restructuring charges, mostly to account for Levi’s decision to scrap a recently purchased software system.
Sales rose 10% to $962 million from $877 million. If not for currency gains from the weaker dollar, Levi said its first-quarter sales would have increased 3.5%.
Levi Strauss is privately held but discloses its financial results because some of its $2.16-billion debt is publicly traded.
Despite the first-quarter upturn, sales of the company’s Levi’s and Dockers brands have declined -- a problem that has dogged the jeans maker during a seven-year slump.
“We are optimistic, but we are cautious about the difficult marketplace we are operating in,” Levi Strauss Chief Executive Phil Marineau said.
Coping with the challenges will result in more layoffs at the company, which already has eliminated 6,400 jobs in the last 3 1/2 years to whittle its workforce to 10,885 employees. The company said Tuesday that it would lay off an additional 200 North American workers next month and eliminate 75 vacant jobs.
Even more cuts could be made as turnaround consultants Alvarez & Marsal wrap up a four-month review of Levi’s operations. The consultants, who are being paid as much as $650 an hour, are scheduled to present their recommendations to Levi’s board this week.
Sales of both the Levi’s and Dockers brands slipped in the first quarter while the company’s recently introduced discount product line, Signature, continued to pick up market share.
The Levi’s brand sustained a first-quarter sales decline of 5% in the U.S., with most of the erosion coming from lower prices. The Dockers brand fared even worse, with U.S. sales dropping 17% from a year earlier.
Meanwhile, the Signature brand, unveiled last summer, generated first-quarter sales of $105 million, including $85 million in the U.S.
The introduction of the Signature brand, primarily sold through Wal-Mart Stores Inc. and Target Corp., has raised concerns among department stores that the discount clothes would siphon sales from the more expensive Levi’s and Dockers brands.
Citing Levi’s internal research, Marineau said Signature’s gains weren’t coming at the expense of the better-known brands.
The company plans to increase advertising of the Dockers and Levi’s brands to boost sales later this year, but Marineau is worried that won’t be enough to entice many budget-conscious consumers. He fears more men -- Levi’s primary market -- will cut back on their discretionary spending if gasoline prices remain high, as many energy analysts expect.
“Our assumption is that the operating environment in the United States and Europe is not going to get any better,” Marineau told investors and analysts during a Tuesday conference call.
To save money, the company is hiring contractors to handle some administrative chores and licensing the Levi’s brand production of men’s and women’s tops, as well as children’s clothing. Levi’s also will narrow its product selection.
“We are developing a lean and efficient cost structure,” said Jim Fogarty, an Alvarez & Marsal troubleshooter who is serving as Levi’s interim chief financial officer.
