Levi Strauss & Co.’s efforts to reduce its debt paid off Friday with Standard & Poor’s Ratings Services raising its credit rating and the rating on its senior unsecured debt one notch to “B” from “B minus.”
That leaves the San Francisco-based jeans and sportswear giant one tick shy of a “BB plus” rating, the highest speculative, or non-investment, grade in S&P’s rating lineup.
S&P credit analyst Linda Phelps said the move reflects the ratings agency’s view that the firm “could sustain its improved credit measures with lower debt levels and improved profitability. Adjusted debt levels declined because of debt reduction with operating cash flow and lower pension obligations.”
Long-term debt at Levi’s declined 9.9 percent to $1.5 billion during the fiscal year ended on Nov. 24. While fourth-quarter profits fell about two-thirds, the firm registered its most profitable year since 2008 with net income rising 59.3 percent to $229.2 million. Sales rose 1.6 percent to $4.68 billion.
Cash and cash equivalents rose to $478.3 million at yearend, up 20.5 percent from $406.1 million at the start of the year.
Phelps noted improvement in Levi’s profit margin for the year, with earnings before interest, taxes, depreciation and amortization rising to about 16 percent of revenues last year from about 14 percent a year earlier.
“We expect Levi Strauss’ operating performance to remain relatively constant, with steady performance at the core Levi’s brand and stable cotton prices,” she said. “Credit measures could improve with continued debt reduction with free cash flow. We will look for the company to maintain leverage below 3.5 times for a stable outlook.”