By  on July 13, 2005

NEW YORK — Levi Strauss & Co. still isn't about to celebrate a turnaround despite a triple-digit increase in earnings in the second quarter.

Instead, the profits spurt simply sets the stage for what Levi's executives believe could shape up to be a pivotal second half of the year.

The 152-year-old, San Francisco-based company reaped the benefits of sizable reductions in cost of sales and restructuring charges, leading to a 375.9 percent earnings gain in the second quarter ended May 29 to $26.8 million from $5.6 million in the year-ago period.

Levi's continued to face depressed retail environments in the U.S. and Europe, however, causing sales for the quarter to slip 1.6 percent to $943.7 million from $958.8 million.

For the six months to date, earnings exploded 2,175.4 percent to $74.1 million from $3.3 million. Sales increased 1.5 percent to $1.95 billion from $1.92 billion.

"In a mixed second quarter retail environment, we delivered a solid quarter," said Phil Marineau, chief executive officer, during the company's conference call Tuesday. "We really are right where we expected to be at the midpoint of the year."

Marineau mapped out the company's top five priorities, stressing that number one on the list remains improving profitability and hitting financial targets. The company's second priority is igniting global growth of the Levi's business.

"We've made progress this quarter, but frankly, we're not there yet," Marineau said.

Continued growth of the Levi Strauss Signature brand in the mass channel ranked third. Bringing life back to a demoralized Dockers business ranked fourth, while improving cost and efficiency was fifth.

"Our gross profit improved for the sixth consecutive quarter," Marineau said.

Cost of sales in the second quarter fell 340 basis points to 53.6 percent of sales, or $506.2 million, compared with 57 percent of sales, or $546.1 million, reported last year. Unburdening the balance sheet of charges had the greatest impact on the bottom line. Restructuring charges plunged 80 percent to $5.2 million from $25.7 million. Earlier this year, the company doubled the performance measurement period for its employee long-term incentive program to three years, a move that resulted in incentive compensation expenses falling 73.8 percent to $3.7 million.

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