By  on April 11, 2006

The first quarter had its ups and downs for Levi Strauss & Co.

While operational improvements spurred double-digit earnings gains, continued weakness in the European retail market combined with a slowdown at a key U.S. retailer hobbled sales results. For the three months ended Feb. 26, the San Francisco-based denim giant saw earnings rise 13.7 percent to $53.8 million, compared with earnings of $47.3 million in the same period a year ago.

While the company made improvements on selling, general and administrative expenses, earnings gains were ultimately fueled by the absence of hefty charges related to the early extinguishment of debt, which fell to $7,000 from $23 million. Warnings of a slow start to 2006 that management had made when announcing year-end results in February proved prescient. Gains in licensing revenues weren’t able to overcome significant sales declines at retail.

Overall revenues for the quarter fell 5.8 percent to $960 million compared with revenues of $1.02 billion in the year-ago period. Sales fell 6.5 percent to $940.2 million compared with $1 billion in the year-ago period.

As has been the case since the second quarter of 2005, Europe’s poor retail environment was cited as having the biggest impact on sales. That said, the Levi Strauss Signature brand, which has been a rapid growth vehicle for the company and posted the largest gains in 2005, showed its first signs of weakness.

“We lost some fixtures at U.S. Wal-Mart stores to private label, but continued to grow the Levi Strauss Signature brand with other retail customers and gain share overall in the channel,” Phil Marineau, chief executive officer, said in a statement.

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