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Levi’s Q2 Drops on Wholesale Weakness, Charges

Revenues drop 1.6% as women’s denim business continues to struggle.

Levi Strauss & Co.’s second-quarter profits dropped 76.2 percent as the company continued to battle difficult wholesale conditions in the U.S. and absorbed charges from its recent restructuring.

For the three months ended May 25, net income dropped to $11.5 million from $48.1 million in the year-ago period. Stripping out charges for the restructuring initiative, early extinguishment of debt and other items, adjusted operating income fell 6.5 percent to $92.6 million from $99 million a year ago.

Revenues declined 1.6 percent to $1.08 billion from $1.1 billion in the 2013 quarter and were down 1 percent at constant currency. By region, sales in the Americas were off 3.2 percent to $645 million, up 3.2 percent to $261 million in Europe and down 2.2 percent to $176 million in the Asia-Pacific region.

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Gross margin dropped to 49 percent of sales from 49.9 percent a year ago.

“While we are encouraged by business improvements in Europe and Asia, ongoing traffic declines and an increasingly promotional environment continue to pressure our Americas region,” said Chip Bergh, president and chief executive officer of the San Francisco-based jeans and sportswear giant. “We have a strong second-half plan in place, including the launch of the new Levi’s advertising campaign that brings to life the consumer insight that ‘you wear jeans, you ‘Live in Levi’s.’”

Operating income in the Americas was down 8.4 percent to $109 million from $119 million.

The company noted that sales of women’s products at wholesale were down in the Americas, hurting gross margin and operating income, and that improvements in Europe were attributable to the “performance and expansion” of the company’s stores on the continent while wholesale softness lingered.

For the six months, net income declined 60.4 percent, to $61.4 million, while revenues slid 1.5 percent to $2.21 billion.