Levi Strauss & Co. will rely on innovative product and even some upward price adjustments overseas as it looks to achieve its goal of a third straight year of improved sales and operating profits on a currency-neutral basis.
“This would be just the first time in more than 20 years the company had accomplished this, but we’re confident we can,” Chip Bergh, president and chief executive officer of Levi’s, told WWD as the company reported its second-quarter and first-half results.
Bergh has consistently been more upbeat about the second half of the year than the now-concluded first six months as investments in Levi’s new women’s denim collection; expanded marketing activities to back it and other initiatives; investments in direct-to-consumer programs, and some of what he referred to as “basic blocking and tackling” appear to be supporting his plans.
“We’ve had the same issues with traffic as the rest of retailing, and it’s a global phenomenon,” he said. “We have the new women’s denim program, which is just being rolled out now, but we’ve also gotten good results from what you might consider ‘no-brainers.’ What do people wear with jeans? T-shirts. So we’ve added them and that’s really helped us. And we’re focusing on the accessories business, in items like socks and underwear.
“Anything we can do to tack on an extra unit or two, we’re trying to do,” he concluded.
In the second quarter, the results were mixed. In the three months ended May 31, the San Francisco-based jeanswear and sportswear firm reported net income of $11.7 million, 2 percent above the $11.5 million reported in the comparable 2014 period. Adjusted earnings before interest and taxes fell 32.3 percent to $63 million from $93 million and were off 20 percent at constant currency.
Revenues were off 6.4 percent to $1.01 billion from $1.08 billion a year ago, while currency-neutral revenues were ahead 1 percent.
By region, sales declined in all three of Levi’s geographies but, excluding currency, were up in both Europe and Asia-Pacific. In the Americas, sales declined 3.6 percent to $622 million from $645 million, with a 2 percent drop excluding currency. Europe’s sales fell 14.9 percent to $222 million from $261 million, while rising 8 percent at constant currency. Asia-Pacific revenues were off 4.6 percent to $168 million from $176 million while improving 2 percent with the exclusion of currency impact.
For the year-to-date, net income dropped 18.5 percent to $50.1 million while revenues fell 6.5 percent to $2.07 billion.
Bergh noted that, in men’s, the 501 family, with strong contributions from 501 CT (custom tapered) and the Slim 511, saw sales grow 4 percent in the quarter. The smaller women’s business, just prior to its close-up with new brand ambassador Alicia Keys, was down less than 1 percent, better than in recent quarters and partially a byproduct of retailers focusing on the new women’s offering.
The discrepancy in reported and currency-adjusted sales in Europe — a total of 22.9 percent — shows the harsh effects of the currency headwinds that have been hurricanelike nearly all year. Levi’s earlier raised prices in Russia to compensate for the reeling ruble, and is about to institute a second increase there while putting one in place for Europe. The ruble has fallen 35.7 percent against the dollar in the past year.
“The Russian business barely blipped” when prices were increased, Bergh said. “And our business in Europe is on fire right now, but we’re going to have to take price and see the reaction to it.”
Currency has affected Levi’s tourist-area stores more than those that generally draw local traffic, although that hasn’t stopped Levi’s from raising direct-to-consumer’s portion of sales to 27 percent from 26 percent in the past year, while what Bergh termed a “catch-up game” has allowed it to boost e-commerce as a percentage of the DTC figure to 13 percent from 12 percent. On a currency-neutral basis, the company’s global retail business registered a double-digit sales increase in the second quarter.
Still, with the dollar strong and not showing signs of easing, the ceo doesn’t expect the tourist business to rebound strongly.
“The U.S. is no longer on sale,” he said.