NEW YORK — Levi Strauss & Co. posted net profits of $47.3 million on a 4.5 percent increase in revenues in its first quarter, but faced with a wave of retail consolidation, company officials backed off from any predictions as to whether 2005 would mark the end of the firm’s eight-year run of sales declines.
“Anytime you have transitions of this magnitude in this industry…the rhythm of the marketplace is going to be disrupted for a while,” Phil Marineau, the San Francisco company’s president and chief executive officer, said in a phone interview on Tuesday.
Several of Levi’s top customers have been involved in recent deals: Mervyn’s was bought last year by a group led by the private equity firms Cerberus Capital Management and Sun Capital Partners; Kmart Corp.’s merger with Sears, Roebuck & Co. was completed last month, and Federated Department Stores is expected to close on its acquisition of May Department Stores in the third quarter. Of all those retail firms, only Federated didn’t make Levi’s top-10 customer list last year.
However, Marineau noted that, even with the ongoing consolidation, “the largest single customer we have [J.C. Penney] only accounts for 6 percent of our business. We’re not dependent on any one retailer to a greater degree.”
He said the consolidation is changing the balance of power between retailers and vendors, though he asserted that neither the combined Sears-Kmart nor Federated-May would account for over 6 percent of Levi’s volume.
“We don’t see as much price competition as we used to,” he said. “But we see more and more people wanting us to hold the inventory and chase demand.”
With the price of oil, and thus gasoline, rising over the last couple of years and interest rate hikes expected — both of which would tend to dampen consumer spending — Marineau warned that the outlook is “unstable” for the retail industry as a whole.
“This just, I think, makes us naturally nervous,” he said.
The $47.3 million in profits for the quarter ended Feb. 27 compared with a $2.4 million loss a year ago. Last year’s loss included a $54.4 million pretax restructuring charge.Sales were $1.01 billion, up from $962.3 million in the year-ago period, although the firm warned that some orders that typically would have gone out in the second quarter were shipped during the first, somewhat inflating the figure.
The firm closed the quarter with $2.1 billion in debt. Last month, Levi’s refinanced more than $550 million of its long-term debt, retiring some bonds that had been due in 2008 and issuing new notes due in 2012 and 2013. The privately owned company releases its financial results because of its publicly traded bonds.
While Levi’s has posted eight consecutive years of sales declines — although it also recorded two quarters of sales growth last year — Marineau emphasized that top-line results weren’t his primary focus.
“We still have a great deal of debt and our focus is improving profitability and continuing to de-lever the company,” he said. “We know we have to grow the top line, but we’re not going to do it at the expense of growing profitability.”
In keeping with its recent pattern, the firm saw stronger performance in its foreign operations than in its core domestic business.
In the U.S., sales of the Levi’s brand were down 5.4 percent to $280 million, but operating profit was up 15 percent to $70.1 million. The firm noted that much of the brand’s revenue decline was the result of last year’s move to license its tops business and to a $4.6 million decline in sales to warehouse clubs. Marineau said sales of first-quality Levi’s branded products in the U.S. were up 2 percent for the quarter, with retail sell-throughs of Levi’s misses’ products ahead 13 percent and juniors’ sales up 8 percent.
The U.S. Dockers brand saw a 3.8 percent rise in sales to $147.2 million, with operating income increasing 33.3 percent to $33.4 million. The brand’s president, Bobbi Silten, will be stepping down from her post in June. Marineau said he’s been looking outside the firm for a successor. He noted that, while the Dockers men’s business has performed well, in women’s, “we’ve not offered enough reason to pay a premium over private label brands.”On a conference call with bond analysts, Silten warned that Dockers’ women’s business would be “challenging” through the rest of the year, with plans to exit its largest core khaki program and relaunch the brand in the second quarter.
Sales of the Levi Strauss Signature mass market brand rose 0.9 percent to $87.2 million, with profits down 36.3 percent to $7.2 million.
In Europe, where Levi’s has been focusing on premium products retailing for $100 and up, sales rose 9.8 percent to $296.4 million, with operating profit up 61.8 percent to $90.5 million. Without the continuing rise in the value of the euro against the dollar, sales would have gained 4.5 percent, the firm said.
At Levi’s Asia-Pacific division, which also includes the Middle East, Africa and South America, sales rose 18.1 percent to $155.7 million, with operating income up 42.5 percent to $41.7 million. Factoring out exchange-rate fluctuations, sales would have gained 14 percent.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews