Levi Strauss & Co. saw its first-quarter sales and profits erode as the jeanswear giant battled currency headwinds, shifts in its calendar and continuing weakness in the U.S. wholesale business.
In the three months ended March 1, net income dropped 23.2 percent to $38.4 million from $50 million in the 2014 quarter. Adjusted operating income fell at a similar pace, down 24.5 percent to $120 million, while operating profit grew 14.7 percent to $107.4 million.
Revenues fell 6.6 percent, to $1.06 billion from $1.13 billion, and were down 1 percent at constant currency. Revenues in the Americas pulled back 8.5 percent to $574 million from $627 million with softness in the U.S. wholesale channel and the absence of a Black Friday at the start of the quarter and the transition of the women’s Dockers business to a wholesale model weighed on results.
The largest impact from currency fluctuation came in Europe, where revenues declined 7.7 percent to $277 million, from $300 million, but were up 9 percent at constant currency. The weakness of Russia’s ruble was a principal component of the slide in the region.
Asia-Pacific sales rose 4.3 percent to $204 million from $203 million.
Gross margin fell to 50.9 percent of sales from 51 percent in the year-ago period and would have risen to 51.3 percent without $35 million in unfavorable currency translation effects because of lower negotiated product costs and a streamlined supply chain, the company said.
“The underlying health of our business remains strong, as we continue to focus on what we can control, and the savings generated from our improving structural economics helped to fuel our direct-to-consumer growth initiatives and investments to generate consumer demand,” said Chip Bergh, president and chief executive officer of the San Francisco-based company.
“While the second quarter will again be a difficult comparison to the prior year, we remain confident in our ability to grow full-year sales and adjusted EBIT on a currency-neutral basis as we continue to focus on driving retail conversion, engaging with consumers globally with our Live in Levi’s campaign and look forward to the full global reset of our Levi’s women’s product line in the second half of the year,” he added.
Bergh pointed to strong performances among a number of recently introduced products — the 501CT (customized and tapered) for men and women and the slim-fit 511 for men — as indications that a series of innovations demonstrate the degree to which “innovation and newness are driving the business.”