Levi Strauss & Co.’s earnings flipped into the black in the second quarter as revenues grew vigorously.
For the three months ended May 29, the San Francisco-based company reported net income of $21 million, compared with a net loss of $14.4 million in the year-ago quarter. The 2010 quarter was negatively impacted by two significant discrete tax charges and an early debt extinguishment loss from a refinancing.
Net revenue in the quarter was $1.09 billion, up 11.9 percent from $976.5 million a year ago. Excluding the effect of currency exchange, net revenues were up 8 percent in the quarter.
The sales increase reflected growth in all regions, said the company, driven by the expansion and positive performance of the firm’s own stores. During the quarter, 16 new company-owned stores opened globally, with the total store count reaching 498. Including franchise units, which are included in the Levi Strauss wholesale segment and located primarily in Europe and Asia, there are more than 2,200 stores worldwide.
Denizen, the company’s new denim brand targeting emerging middle-class consumers in developing markets, is now sold in more than 250 franchise stores that opened in the past year in China, India, Singapore and South Korea. Denizen also launched earlier this month at Target stores in the U.S.
“Our top-line improvement demonstrates that our global strategies are working. Around the world, the Levi’s brand is performing well as consumers are responding to our craftsmanship and compelling products,” said John Anderson, president and chief executive officer of Levi Strauss.
Anderson will retire on Sept. 1 and Charles “Chip” Bergh, group president of Procter & Gamble Co.’s global male grooming business, will assume the president and ceo position.
Gross profit in the second quarter increased 8.3 percent to $540.7 million from $499.4 million a year ago, reflecting higher sales. However, gross margin decreased to 49 percent of revenue from 51 percent a year ago, due to higher cotton prices and an increase in discounted sales to manage inventory.
In response to cotton hikes, Levi’s increased prices on its men’s Levi’s product in the first quarter and will expand those price increases to Dockers, which is men’s only, and Levi’s women’s and juniors product in the back half of the year.
“Cotton prices are coming back down, but that’s for product going into production now, so it won’t be reflected in prices until next year,” Blake Jorgensen, chief financial officer, told WWD.
Net revenues in the quarter increased 7 percent in the Americas, with strength in the Levi’s Curve ID line for women. Dockers’ sales continued to lag, due to a lack of traditional product, such as wrinkle-free and stain-resistant styles, in certain key retailers, said Jorgensen. “We need to find the right balance between fashion and functionality going through certain channels,” he added.
For the first half of the year, net income was $61.6 million, up 46.9 percent from $42 million last year. Net revenue in the half was $2.21 billion, up 10 percent from $2.01 billion last year.
Separately on Tuesday, the Levi’s brand appointed Paul Zadoff as senior vice president of wholesale commercial operations for the Americas, reporting to Robert Hanson, president of the global Levi’s brand. Zadoff was previously vice president of global sales at Patagonia and in his new role will develop and implement long-term revenue growth strategies for Levi’s in the wholesale channel in the region.
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