LOS ANGELES — Levi Strauss & Co. reported a 14 percent gain in third-quarter net income, driven primarily by favorable currency exchange rates, new stores and decreased interest expense.
The San Francisco-based company also reported revenue growth in all its global regions. For the three months ending Aug. 24, net income increased to $69 million, from $60 million in the year-ago period. Revenues rose 6 percent to $1.11 billion versus $1.05 billion last year. Excluding favorable currency exchange rates, global revenue increased 2 percent.
The company’s interest expense decreased to $37 million, down from $53 million last year.
“Our results give us confidence that our global strategies are working, even in the face of weak economic conditions in major markets in the world— particularly the United States,” Levi’s CEO John Anderson said in a Thursday conference call with investors.
Already a global household name, Levi’s has intensified its international ambitions in the past year, including the recent launch of “Live Unbuttoned,” its first-ever worldwide ad campaign that coincides with a re-tooling of the 501 button-fly jean and has generated buzz for its racy viral, interactive ads. Though direct retail still accounts for less than 10 percent of overall sales, Levi’s has opened 63 branded stores worldwide in the last 12 months, for a total of 246 doors (most Levi’s stores located outside of the U.S. operate on a franchise model).
Anderson has said he expects the bulk of the brand’s sales will be generated in overseas markets within three to five years. “We still believe our U.S. business is going to grow, but we see very strong growth in India, China and Eastern Europe,” Anderson told DNR.
Executives said that domestic sales, which increased by 1 percent in the quarter to $649 million, were hurt by the recent bankruptcies of major retailers that carry Levi’s product, including Mervyns and Goody’s.
The company’s U.S. Dockers business managed to reduce excess inventory, yet struggled with continued poor performance. “We’ve taken a hard look at what it will take to turn around this business,” said Robert Hanson, president of Levi Strauss Americas.
To that end, Dockers recently introduced slimmer fits to its pants category and will re-merchandise its classic khakis according to a new fit portfolio in a 100-door retail test starting mid-October, though Anderson told DNR the company would not see the full impact of the changes until next year.
Strong performance in the brand’s European direct retail stores offset softer wholesale business and eroding performance in mature European markets. Net revenue grew 16 percent to $306 million, or 3 percent excluding currency rates. Men’s Red Tab denim performed well, with women’s product proving “challenging,” Anderson said.
Sales in the Asia Pacific region grew by 6 percent in the quarter.
Meanwhile, a search for a new CFO is currently underway, Anderson said, following the August departure of Hans Ploos van Amstel. Heidi Manes, the company’s corporate controller and principal accounting officer, currently serves as interim CFO.
A privately-held company, Levi’s reports income due to its publicly-traded debt.
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