Weak U.S. sales and skyrocketing costs sent earnings for Levi Strauss & Co. tumbling during the second quarter.
For the three months ended May 25, earnings plummeted 98.5 percent to $701,000, compared with $45.7 million in the same period a year ago.
Revenues fell 7.9 percent to $936.3 million from $1.02 billion, while sales slid 8.2 percent to $915.1 million from $997.3 million. Licensing revenues improved 11.6 percent to $21.2 million from $19 million. Further weighing on results was a significant rise in selling, general, administrative and restructuring costs, which increased $40.8 million, or 11.8 percent, to $385.6 million.
John Anderson, president and chief executive officer, said during a conference call with analysts that the company would likely face continued difficulties for the rest of the year as the economic pressures that have beleaguered the U.S. begin to show in key markets around the world.
"We're now seeing slowing momentum in key markets in Europe and Asia, driven by higher fuel and food costs," Anderson said. "We expect the operating environment to remain challenging for the balance of the year."
Revenues for the Americas plunged 19.3 percent to $477 million compared with $591 million in the same period a year ago. Management chalked up the bulk of the declines to challenges encountered implementing a new "enterprise resource planning system" and a substantial slow down in U.S. Dockers sales.
Robert Hanson, president of the North American region, said issues with implementing the system were so significant that shipments were suspended for a week. Problems persisted after shipments resumed.
"Issues continued with respect to fulfilling customer orders in a timely manner, and this did result in some customer cancellations," he said. Hanson also acknowledged that some retailers struggling to make sales may have taken advantage of the company's delays to cancel orders. Sales were further affected by Goody's Family Clothing Inc. filing for Chapter 11 bankruptcy protection last month.
Sales declines at Dockers were larger than anticipated as core items failed to entice consumers. New Dockers products are being introduced, but management warned the process will be slow.
"We have more work to do to improve our core product assortment and get the brand back on track," Anderson said. The Levi's and Signature by Levi Strauss businesses both turned in smaller declines.
European revenues increased 9.8 percent to $268 million compared with $244 million a year ago. However, without the benefit of currency exchange, revenues fell 4 percent. Management cited weak performance in the wholesale side of the business, offset by sales growth in company-owned stores.
Asia-Pacific revenues rose 5.5 percent to $191 million from $181 million. Again, excluding the positive benefits of currency exchange, revenues fell 1 percent. While developing markets like China and India continue to achieve revenue growth in the region, problems have continued in the key Japanese market.
Earnings for the first six months of the year fell 26.1 percent to $97.8 million from $132.4 million.
Revenues fell 1.7 percent to $2.02 billion from $2.05 billion. Sales declined 1.9 percent to $1.98 billion from $2.01 billion, and licensing revenues increased 7.6 percent to $43.2 million from $40.1 million.
Anderson said the core Levi's brand is poised to take advantage of an economic rebound. However, it's clear that management expects to see the economic pressures that have pulled U.S. sales down to pop up elsewhere.
From overseeing America’s fastest-growing speciality retailers to codifying cool, WWD talked to the women who are leading the way for the future of beauty. Check out our Instagram Stories to see how these women built today and are creating tomorrow. (📸: @hannah_khymych) #wwdbeauty
For @laperlalingerie's spring 2018 show, the brand chose to host their event at @thevenetianmacao. With Chinese megastars @bingbing_fan and @hubing in attendance, La Perla debuted a rock ‘n’ roll-inspired collection. The show marked the start of Sands Macao Fashion Week, which runs from October 19 to 24 — the city’s first such event. Pictured here are models backstage with glimmering eyes. #wwdfashion (📷: Cheuk-Yin To)
Trending for spring 2018: top stitch design. Gone are the days of stitch just for seams — designers are using the once-minimal detail to create strong decorative elements. (📷: Paola Testa; Styled by @andrew_shang) #wwdfashion
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)