NEW YORK — Levi Strauss & Co. returned to profitability in 2004, as company officials said Thursday their focus would remain on boosting cash flow and paying down the firm’s $2.02 billion debt.

Executives at the San Francisco-based company described the top-line results as “stabilized,” though the $4.07 billion in reported revenue was 0.4 percent below last year’s $4.09 billion and marked Levi’s eighth consecutive year of sales declines.

This story first appeared in the February 18, 2005 issue of WWD. Subscribe Today.

President and chief executive officer Phil Marineau said 2004 “was a year when, across all fronts, we made substantial progress against our objectives — improving the profitability of the company, stabilizing sales and increasing margins.”

For the year ended Nov. 28, the company posted net income of $30.4 million, which followed a $349.3 million loss a year earlier. For the fourth quarter, Levi’s took a $19 million net loss, compared with a $245 million loss the year before. Sales were $1.16 billion, off 3.4 percent from $1.2 billion the prior year.

Levi’s sales peaked at $7.1 billion in 1996. While the sales drop-off has continued in recent years, the rate of decline has slowed. Marineau said in a phone interview that Levi’s is “not chasing revenue growth at the expense of increased profitability and cash flow.”

He noted that during the year the firm had licensed out several categories of goods that had been produced in-house, such as men’s Red Tab tops, now made by Li & Fung, and also reduced its sales to off-price retailers and wholesale clubs. Both of these moves were efforts to intentionally reduce revenue in favor of improving earnings.

“Our first priority is to enhance profitability and cash flow and to pay down debt,” Marineau said. “Over the next couple of years, that will be our focus.”

Marineau said the reduction of sales to off-price channels was part of a strategic shift to protect Levi’s core business.

“Going forward, we’ll be managing the Levi’s brand in the U.S. as a premium-priced brand, relative to the average price point” in the jeans business, he said. While great attention has been paid to the $100-and-up jeans category in recent years, he noted that the average pair of jeans in the U.S. still sells for around $20, while Levi’s average pair retails for around $28.

“Selling at the club channels…is against the strategic price positioning,” Marineau said.

Much of the cost-cutting in 2004 came in the form of job cuts and other restructuring steps urged by Alvarez & Marsal, the consulting firm Levi’s hired in December 2003. Since the start of its 2004 fiscal year, the firm has cut worldwide head count by 28 percent to 8,850.

The company closed its remaining company-owned factories during the year and shifted production to foreign contractors. That shift led to inventory shortfalls through the second half of the year, with the company reporting that it wasn’t always able to fill customers’ orders in full and on time.

Marineau said Levi’s continues to work on improving its sourcing efforts and “as we go to the back-to-school season, we will be getting our targeted service levels, as well as being fully in stock.”

Marineau said following the departure next month of A&M consultant Jim Fogarty — who is serving as interim chief financial officer — the consulting firm’s work with Levi’s will be essentially complete. Hans Ploos van Amstel, of the firm’s European division, will be shifting into the cfo post.

Fogarty noted the firm’s women’s business grew during the course of the year to represent about 25 percent of total sales, up from about 20 percent in 2003.

The firm continued to experience sales declines in its core Levi’s and Dockers brands in the U.S. and Europe, though its sales in Asia were up for the year and the mass-market Levi Strauss Signature brand saw sales rise 55 percent to $336 million.

In North America, total sales for the year came to $2.43 billion, a 6.3 percent decline from 2003. Sales of the Levi’s brand in the U.S. were off 9.2 percent to $1.25 billion and U.S. Dockers sales dropped 20.9 percent to $649.4 million.

Sales in Europe rose 5 percent in the year to $1.04 billion. The growth was the result of the appreciation of the euro versus the dollar over the past year. Factoring out exchange rate fluctuations, European sales would have been off 5.7 percent, the company said.

Sales to the Asia-Pacific region gained 18.8 percent in the year to $603.9 million. Factoring out currency fluctuations, sales would have been up 12 percent. In general, the decline of the dollar over the past year had the effect of boosting Levi’s reported foreign sales.

Levi’s is privately held, primarily by the descendants of founder Levi Strauss. The firm reports its results to the Securities and Exchange Commission because of its publicly traded bonds.

The firm’s filing with the SEC disclosed that Marineau’s compensation last year grew more than fourfold. His combined salary, bonus, incentives and other compensation totalled $6.6 million, up from $1.4 million. Last year, Marineau was paid no bonuses or other incentives, largely as a result of the firm’s hefty loss.