By  on October 9, 2009

Falling sales in the U.S. and European markets coupled with rising costs led Levi Strauss & Co. to a 41.2 percent earnings slide during the third quarter.

For the three months ended Aug. 30, the San Francisco-based denim giant saw earnings decline to $40.7 million, compared with earnings of $69.2 million during the same period a year ago. Selling, general and administrative expenses rose $7.4 million, or 1.9 percent, to $396 million.

“There’s no question we’re in tough times,” John Anderson, president and chief executive officer, said during a conference call with analysts. “Despite these conditions, our Levi’s brand performed well globally, particularly in America.”

Revenues fell 6.3 percent to $1.04 billion during the quarter from $1.11 billion. Sales declined 6.1 percent to $1.02 billion from $1.09 billion and licensing revenues dropped 17.1 percent to $18.6 million from $22.4 million.

Unfavorable currency exchange rates and a weak retail environment sent revenues for the company’s European business down 13 percent to $266 million compared with $305.9 million a year ago. The poor exchange rate negatively affected revenues by about $36 million. Declines were linked primarily to the wholesale channel and the women’s Levi’s Red Tab business.

Despite expectations of persistent tough market conditions, the company continues to invest in expanding its retail operations in Europe. Levis marked the opening of its largest store in Europe in September — a 6,480-square-foot flagship in Rome. Similar projects are being eyed for Paris and London.

In the Americas, lagging sales of the Dockers brand in the U.S. and the mass channel Signature label pulled down revenues 5.1 percent to $615.9 million from $648.9 million. The Levi’s brand has been a primary driver, particularly the men’s 501 style and straight and skinny fits. Sales of men’s and women’s Levi’s product were up during the quarter.

“We are seeing wholesale customers continue to manage their inventories pretty tightly, regardless of market conditions or brand performance,” said Robert Hanson, president of Levi Strauss Americas.

Hanson said wholesale customers have become accustomed to driving performance off lower inventory levels and are unlikely to change their habits in the near term.

The Asia-Pacific region was the only area to post gains during the quarter, revenues were up 1.6 percent to $158.4 million from $156 million. The sole weak point in the region has been Japan. Management saw a rapid shift in the shopping habits of Japanese consumers during the second quarter as they gravitated to cheaper fast-fashion retailers.

“We’ve seen a fundamental recalibration of consumers,” Anderson said of the Japanese market. “Outside Japan, we’re not seeing that.”

For the first nine months of the year, earnings fell 49.3 percent to $84.6 million from $167 million. Revenues declined 7.5 percent to $2.9 billion from $3.13 billion. Sales were off 7.3 percent to $2.84 billion from $3.06 billion. The Levi’s brand accounted for 77 percent of net sales, or $2.18 billion. Licensing revenues fell 13.5 percent to $56.8 million from $65.6 million.

All three global regions saw revenues decline, led again by Europe with a 16.4 percent fall in revenues to $754.5 million from $902.3 million. Currency exchange accounted for $129 million in revenue declines. Revenues for the Americas slid 4 percent to $1.64 billion from $1.71 billion. Asia-Pacific revenues declined 3.3 percent to $504.6 million from $521.7 million.

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