Lower interest expenses and taxes helped drive a double-digit earnings increase at Levi Strauss & Co. in the third quarter, but the gain was overshadowed by a modest overall rise in revenues and declines in the North American market.
"We face challenges with several of our businesses through the balance of the year," said John Anderson, president and chief executive officer, during a conference call with analysts.
For the three months ended Aug. 26, the San Francisco-based denim giant saw earnings spike 23.6 percent to $60.9 million, compared with earnings of $49.3 million in the same period a year ago.
Revenues rose 2.2 percent to $1.05 billion, compared with revenues of $1.03 billion a year ago. Revenues would have been flat if not for the favorable impact of currency exchange. Sales rose 2.3 percent to $1.03 billion from $1.01 billion. Licensing revenues were up marginally to $19.5 million.
The privately owned firm releases its financial results because of its publicly traded bonds.
North America, the company's largest business segment, saw a marked decline in revenues as the long-suffering Levi Strauss Signature brand continued its descent. Revenues for the region fell 4.3 percent to $633.3 million from $661.8 million. While the Signature brand was to blame for the lion's share of the declines, the U.S. Dockers business was also down.
"The Levi Strauss Signature business will continue to be down going into next year," said Anderson.
The core Levi's brand business maintained momentum in North America. Robert Hanson, president of the North American region, said the men's segment was particularly strong and that the Levi's boys' business "continues to outperform the category." Still, Hanson acknowledged there is little clarity on the strength of the economy and appetite of the consumer heading into the upcoming holiday season.
"We recognize the retail environment in the U.S. is uncertain at the moment, with weakening consumer confidence," said Hanson.
The company's European business seems to have turned the corner, with revenues up 14 percent to $245.6 million from $215.4 million.
"Europe has become a steady contributor to the company's goal of delivering sustained profitable growth," said Anderson.Revenues for the Asia-Pacific region gained 14.4 percent to $172.9 million from $151.1 million. Management said the company's Japanese business has begun to stabilize while the South Korean market experienced lower sales and margins as the country works through high inventory levels.
For the nine months, Levi's earnings rose 34.9 percent to $193.2 million from $143.3 million. Revenues increased 5 percent to $3.1 billion from $2.96 billion. Sales rose 5 percent to $3.05 billion from $2.9 billion. Licensing revenue grew 7.5 percent to $59.6 million compared with licensing revenues of $55.5 million.
North American revenues rose 2 percent to $1.8 billion from $1.76 billion, those in Europe were up 12.1 percent to $731.6 million from $652.7 million, and Asia-Pacific increased 6.6 percent to $577.5 million from $541.9 million.
The company continues to make little progress in paring down its debt. Long- and short-term debt totaled $2.17 billion at the end of the quarter, a 2.1 percent drop from the $2.22 billion in debt on the books as of Nov. 26, 2006, the beginning of the fiscal year.
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