By  on October 13, 2010

Net income at Levi Strauss & Co. dropped by 30.8 percent in the third quarter while sales improved as the company increased spending on new stores and advertising its Levi’s and Dockers brands.

For the three months ended Aug. 29, the privately held company posted net income of $28.2 million, down from $40.7 million in the year-ago quarter.

Net sales were up 6.7 percent to $1.09 billion, while licensing revenue was down a marginal 0.1 percent to $18.6 million. Total net revenue was $1.11 billion, up 6.6 percent from $1.04 billion a year ago.

Sales growth was driven by the strong performance of the Levi’s brand in the Americas, the company’s acquisition of 73 outlet stores operated by a third party in 2009 and the expansion of the company’s retail store base, offset by wholesale declines in Europe and Japan.

Selling, general and administrative expenses were $457 million, up 15.5 percent from $396 million a year ago, primarily due to the spending on new stores and marketing. The increased costs drove operating income down 12.3 percent to $86.3 million, from $98.4 million a year ago.

“We feel good. It’s paying off,” John Anderson, the firm’s president and chief executive officer, told WWD of the company’s increased spending. “We will continue to support our brands in the foreseeable future. It’s working well, our customers are very appreciative of it, it’s driving consumer trials of our product.”

The amped-up advertising included campaigns for the Levi’s brand with its “Go Forth” program, the new Levi’s Curve ID fit system and the new Denizen brand in Asia. In retail, Levi’s has added 42 company-owned stores so far this year, bringing its store count to 456 worldwide. In addition, franchisees operate another 1,700 stores.

Revenue in the Americas was up 9 percent to $673 million, from $616 million, on increased wholesale sales and incremental contributions from the acquired outlet stores, offset by lower Dockers sales in the U.S.

“In Dockers, we were selling a smaller amount of excess and obsolete product,” said Anderson. “We feel good that we’ve transitioned to selling new product, like the skinny fit. There’s a lot of noise in the market about khakis coming back, and we feel we are in a good position.”

European sales were down 3 percent to $259 million on a reported basis due to unfavorable currency effects. On a constant currency basis, sales increased 6 percent. In Asia-Pacific, sales climbed 11 percent, to $177 million, on a reported basis and 5 percent on a constant currency basis.

At the end of the quarter, Levi Strauss held $261.2 million in cash and cash equivalents on its balance sheet, down 3.5 percent from $270.8 million a year ago. Long-term debt was $1.8 billion, down 2.1 percent from $1.83 billion last year.

On a conference call, chief financial officer Blake Jorgensen said the company is aiming to pay a dividend to shareholders in 2011, possibly as early as the first quarter. The payment would be in the $20 million range, similar to one it paid earlier in 2010.

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