Levi Posts First Profit in More Than a Year

After a long struggle, Levi Strauss & Co. said Tuesday that it might be on its way to finding the right financial fit.

Strong sales of the company’s year-old Signature line of casual wear and a weak dollar helped offset declines in sales of the Levi’s and Dockers brands, giving the jeans company what it said was its first quarterly profit in more than a year.

The San Francisco-based company’s net income in its fiscal second quarter ended May 30 was $6 million, compared with a $42-million loss in the same period last year. Revenue was $959 million, up 3%.

If Levi had converted the value of sales in foreign countries into U.S. dollars using 2003 exchange rates, total revenue would have dipped 1%. The company’s products are sold in more than 110 countries.

Chief Executive Phil Marineau expressed cautious optimism that steps Levi had taken in recent months, including deciding to sell its 18-year-old Dockers line and to concentrate on higher-margin products, were working.

“So far, so good,” he said in a conference call with analysts and investors. “We still face marketplace challenges, but all of our businesses are making good progress.”

Levi, a 151-year-old clothing maker fighting to remain relevant amid ever-increasing competition, seeks to reach a wide variety of buyers, putting its denim on shelves in stores from Wal-Mart to Barneys New York.

The Signature line is produced for mass-market retailers and is available worldwide. Its sales were $84.9 million, or 9% of the company’s total revenue.

But its more established products didn’t fare so well. In the U.S., sales of the Levi’s brand dropped 7% and the khaki-heavy Dockers line plummeted 26%. All sales were down about 8% in Europe, while in Asia they climbed 26%. The company said that was because of new and improved products, changes to store formats and general market growth.

Levi is privately held but releases quarterly results because some of its nearly $2-billion debt is publicly held.

Company executives said there were several reasons for the disappointing U.S. sales of Levi’s and Dockers, including that Levi last year sold some outdated Dockers pants at discounted prices to make way for new products. Also, the company is reducing its presence in warehouse stores such as those of Costco Wholesale Corp.

A Levi spokesman said such measures should continue to provide stronger margins and improve earnings.

In addition, executives said, new styles with different denim finishes and material innovations, such as Dockers slacks that look dry-cleaned even without ironing, should boost both lines’ sales.

“Our core business, our first-quality products are starting to stabilize,” Marineau said.

Though the CEO and others credited the Signature line with helping Levi make a good showing in the quarter, Tom Razukas, an analyst with Fitch Ratings, said it was too early to know whether Signature would fare well enough to make up for the sluggishness of other products.

“The traditional Levi’s brands are not showing a rebound,” Razukas said, adding that there were “still things that have to be done there.” He said he expected the company’s bottom line to benefit from its decision to sell fewer products in warehouse and club stores.

In May, the company said it wanted to sell the Dockers brand, which generated about 24% of 2003 revenue, according to documents filed with the SEC.

Marineau and other executives declined Tuesday to give a progress report on the Dockers sale.

Parting with Dockers might reduce Levi’s net debt by at least 30%. “That would be beneficial,” Razukas said.

In its last full fiscal year, Levi lost $349 million on $4.1 billion in sales.