By  on July 11, 2007

Strong North American sales helped offset marginal gains in Europe and declines in two key Asian markets for Levi Strauss & Co. during the second quarter.

"We've had another solid quarter, giving us a good first half," John Anderson, president and chief executive officer, said during a conference call with analysts.

For the three months ended May 27, the San Francisco denim giant reported a 13.7 percent rise in earnings, to $45.7 million, compared with earnings of $40.2 million in the same period a year ago. The gains were aided in large part by the favorable impact of currency exchange and significant reductions in restructuring and debt-related expenses.

The privately owned firm releases its financial results because of its publicly traded bonds.

Revenues increased 5.8 percent, to $1.02 billion from $960.8 million. Sales advanced 5.6 percent, to $997.3 million from $944.5 million, and licensing revenue rose 16.5 percent, to $19 million from $16.3 million.

Revenue gains were driven primarily by the U.S. Levi's and Dockers businesses; North American revenues rose 4.6 percent, to $579.3 million from $553.9 million.

"The Dockers brand had a particularly good second quarter," Anderson said.

Robert Hanson, president of the North American region, said the Dockers brand had achieved significant gains in its men's and women's businesses. The women's business had double-digit growth driven by shorts and alternative-length bottoms.

The U.S. Levi's business was boosted by gains in the men's and boys' segments.

The increases in Levi's and Dockers come at a time of continuing struggle for the Levi Strauss Signature business, which has had steady declines since Wal-Mart Stores Inc. opted to take back space for its proprietary brands during the first quarter of 2006. Those decreases have apparently extended into the company's other major mass channel customer, Target. Hanson acknowledged that the company had experienced an "erosion" of square footage at retail for the brand.

"We expect that the Levi Strauss Signature performance will continue to be challenging throughout the remainder of the year," Hanson said during the call.

European revenues gained 12.2 percent, to $220.4 million from $196.5 million. However, the vast majority of that improvement stemmed from a benefit of about $18 million related to favorable foreign currency exchange. Excluding currency benefits, European revenues improved 3 percent.Revenues in the Asia-Pacific region improved 2.9 percent, to $216.5 million from $210.4 million. Results were hampered by ongoing declines in Japan and South Korea, the two largest business segments in the region. According to the company, the Japanese business is undergoing management changes and is also facing high inventory levels at retail. It's a similar story for South Korea.

"[South] Korea is also experiencing high retail inventory and is rebalancing its product offering as sales of Levi's Engineered Jeans, which had driven growth in recent years, continued to fall as the product nears the end of its life cycle," said the company in its quarterly filing with the Securities & Exchange Commission.

Like the U.S. Signature brand, Anderson said, the Japanese and South Korean markets will face inventory challenges for the rest of the year. The company did introduce a new premium denim line in South Korea and Japan during the quarter that management hopes will energize the markets. Early response to the line, dubbed Levi's Copper, has been strong, Anderson said.

The company closed the first half of the year with an earnings increase of 40.7 percent, to $132.4 million from $94 million. Revenues advanced 6.5 percent, to $2.05 billion compared with revenues of $1.93 billion in the year-ago period. Sales rose 6.4 percent, to $2.01 billion from $1.89 billion. Licensing revenues increased 11.2 percent, to $40.1 million from $36.1 million.

Revenues for the North American segment rose 5.7 percent, to $1.16 billion from $1.1 billion. European revenues gained 11.1 percent, to $486 million from $437.4 million. Again, currency exchange played a prominent role in the increase, boosting results by about $40 million. Asia-Pacific revenues increased 3.5 percent, to $404.6 million from $390.8 million.

According to the company's SEC filing, the North American market accounted for 57 percent of revenues during the first half, or about $579.3 million. The European and Asian markets made up the remaining 43 percent, about $437 million.

The Levi's brand has consistently brought in most of the company's business. Levi's branded products represented 71 percent of first-half sales, or $708.1 million. Dockers accounted for 22 percent of sales, or $219.4 million.

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