By  on October 11, 2006

A one-time benefit related to the planned closure of a U.S. distribution center caused earnings to spike for Levi Strauss & Co. in the third quarter, offsetting sales declines in several key markets.

"We're where we expected to be at this point of the year, given the numerous challenges we faced that have put pressure on our revenue performance," said Phil Marineau, who will complete his tenure as chief executive officer at the end of the year, during the company's conference call.

Those challenges included the adverse impact of Wal-Mart devoting more of its women's apparel space to private-label brands; retail consolidation; a sluggish European retail environment, and a sales dip in the Japanese market.

For the three months ended Aug. 27, the San Francisco-based denim manufacturer saw earnings climb 28.8 percent to $49.3 million, compared with earnings of $38.2 million in the year-ago period. Much of the increase was attributed to a $29 million gain stemming from the planned closure of a distribution center in Little Rock, Ark. The company already has eliminated 186 jobs at the center and intends to lay off a total of 315 employees by early next year.

Revenues for the period fell 1.3 percent to $1.02 billion from $1.04 billion. Sales fell 1.5 percent to $1 billion from $1.02 billion, while licensing revenues rose 9.2 percent to $19.3 million from $17.7 million.

Wal-Mart's decision during the first quarter of the year to reclaim shelf space in its apparel area for its proprietary brands has stifled the momentum of the Levi Strauss Signature brand. U.S. Signature sales fell 10.9 percent to $92.8 million during the quarter from the prior year.

Scott LaPorta, president of the U.S. Signature business, said the entirety of the Signature sales decline resulted from a decrease of $13 million in women's sales at Wal-Mart. The Signature brand has run into problems in the European market, as well.

"As you probably know, last month we announced our intention to stop selling the Levi Strauss Signature brand in Europe after the spring 2007 season," said Marineau. "The brand has sold well where it is distributed in Europe, however, the European value retail channel currently does not offer us sufficient expansion opportunity."

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