Levi Strauss & Co.’s growth accelerated in the first quarter with a 22 percent sales gain, but chief executive officer Chip Bergh is keeping a wary eye on the brewing trade war between the U.S. and China.
While President Trump’s first round of $50 billion in tariffs against China skipped over apparel, the industry’s luck might hold out for only so long. When China responded, Trump counterpunched and said his administration would designate another $100 billion in levies.
“It’s going to be hard to get up to an additional $100 billion without apparel and footwear getting involved,” Bergh told WWD on Tuesday.
The company does produce some U.S.-bound goods in China and is working up contingency plans.
“We do have some flexibility to shift our sourcing location for the United States away from China,” the ceo said. “We can’t do that on a dime necessarily because everybody else is going to be trying to do the same thing.”
But he said the business could offset the impact “over a period of time.”
“Big picture, a trade war with China would not be a good thing, the consumer is going to get impacted,” Bergh said. “Think of that as higher cost coming into the U.S. that will ultimately get passed along to the consumer by many of these manufacturers, so it won’t be good for the U.S. economy, it won’t be good for the U.S. consumer.”
More directly impacting the Levi Strauss supply chain is the Trump administration’s efforts to renegotiate the North American Free Trade Agreement, with the ceo noting, “We source quite a bit of our North American volume from Mexico.” But Bergh said while the situation was still uncertain, he was “optimistic and hopeful that this is going to be resolved very soon.”
Setting the Trump trade wild card to the side, the Levi’s business is clicking along nicely with the biggest first-quarter setback coming from changes to the tax code, which resulted in a $136 million charge and weighed on the bottom line.
Net losses for the quarter tallied $19 million, down from profits a year earlier of $60.1 million. Excluding the non-cash charge, the firm’s profits nearly doubled to $117 million.
Revenues for the quarter ended Feb. 25 shot up 22 percent to $1.34 billion — marking a significant acceleration from last year, when the company’s topline grew 7.7 percent to $4.9 billion.
While the Dockers brand and its business in China remain challenged, the namesake Levi’s business has seen solid growth, expanding internationally and growing in women’s and tops.
To maintain that momentum, Levi’s has ramped up its marketing support and launched a number of buzzy collaborations, including a successful link up with Air Jordan.
The company boosted its revenue outlook for 2018 to growth of 6 to 8 percent in constant currencies, up from the 4 to 6 percent previously projected.
Levi’s has been actively looking to guard its cache, having recently sued Kenzo to protect its red tab.
“We do aggressively go after people who violate our trademarks, period,” Bergh said. “At the end of the day, the brand is one of the most important assets we have as a company. This is a pretty routine course of action for us, we try to resolve these things amicably with the infringers, if they don’t cooperate, this is what happens.”
Kenzo has declined to comment on the case.