Levi’s Profit Rises, but Sales Drop

Levi Strauss & Co.’s fiscal firstquarter profit rose 14% despite a sales downturn driven by persistent problems in Europe and Wal-Mart Stores Inc.’s recent de-emphasis of the jeans maker’s discount brand.

The San Francisco-based company said Tuesday that it earned $53.8 million for the three months ended Feb. 26. That compares with net income of $47.3 million a year earlier. Boosting profit this year was easier because Levi suffered a $23-million setback last year to account for an early repayment of debt.

Revenue for the period totaled $960 million, a 6% decline from $1.01 billion last year. If not for unfavorable international currency rates, management said, sales would have fallen 4%.

Levi is privately held but discloses its financial results because some of its debt is publicly traded.

The sales drop-off wasn’t a surprise. The company had warned last month that its first-quarter revenue might fall as much as 8%.

Still, the erosion served as another reminder of the struggles that have plagued the company for the last decade as its brands lost some of their luster among customers who preferred different fashion styles or less expensive clothing.

With the help of a turnaround firm, Levi ended eight straight years of sliding sales in 2005, only to begin the new year in a familiar funk. Now, the company expects its sales to continue to falter through at least the first half of this year.

Despite the rough start, San Francisco fashion industry consultant Harry Bernard believes the worst is over for Levi.

“The bottom has already been reached,” he said. “What’s going on now appears to be some cleanup and reshuffling.”

Levi’s biggest headaches are in Europe, where first-quarter sales fell 19% to $240.9 million.

Phil Marineau, Levi’s chief executive, said he had spent the last six weeks in Europe looking for ways to revive sales there.

“To be honest, we took our eye off the ball on some of our product assortment” in Europe, he said in an interview Tuesday.

Levi also had to cope with a new challenge in the first quarter when Wal-Mart, the nation’s largest retailer, decided to devote less floor space to the jeans maker’s discount brand, Signature. The line, introduced in mid-2003, had been a sales catalyst for Levi.

Bentonville, Ark.-based Wal-Mart primarily curtailed its orders of Signature women’s clothing so its stores could highlight its own private-label brands, Marineau said.

Signature sales in the United States totaled $70.2 million, a 20% drop from $87.9 million last year. Wal-Mart’s snub didn’t account for all the decline. Levi also said it shifted some of Signature’s first-quarter shipments into the current quarter.

Levi hopes to soften the Wal-Mart blow by persuading more retailers to sell its Signature line.

Demand for Levi’s namesake brand also sagged in the United States, where sales dipped 2% to $277.1 million.

Levi’s Dockers brand, which management considered selling in 2004, emerged as a bright spot in the first quarter, with U.S. sales rising 5% to $158.7 million.