The loss of two major U.S. retail customers and a depressed European retail environment caught up with Levi Strauss & Co. in the first quarter, hitting revenues and earnings.
The San Francisco-based denim giant saw earnings fall 50.5 percent to $48.1 million for the three months ended March 1, compared with earnings of $97.1 million during the same period a year ago.
Overall revenues fell 12.1 percent to $951.5 million from $1.08 billion, including sales that slid 12.2 percent to $931.3 million from $1.06 billion and licensing revenue that fell 7.9 percent to $20.2 million from $21.9 million. Levi’s-branded products accounted for 78 percent of sales during the quarter, or $726.4 million, compared with 76 percent of sales a year ago.
“We knew that 2009 would be tough and our first-quarter results reflect those expectations,” said John Anderson, president and chief executive officer, during a conference call with analysts.
The bulk of losses was concentrated in the European and Americas markets, where global economic turmoil has spurred retail bankruptcies and a drastic pullback in consumer spending. Results were also heavily impacted by the strength of the U.S. dollar.
Revenues for the Americas market, which includes the U.S., Canada, Mexico and Latin America, fell 13.1 percent to $503.9 million from $579.8 million.
Interim chief financial officer Heidi Manes said in an interview that much of that decline stemmed from the loss in volume from the bankruptcies of Mervyns and Goody’s Family Clothing Inc. last year. Manes noted that examining the results without the lost business from Mervyns and Goody’s showed an increase in sales in Levi’s-branded products. However, continued low demand and higher sales allowances and discounts for the U.S. Dockers brand weighed on results. Revenues from branded stores in the Americas were also flat compared with last year.
Robert Hanson, president of Levi Strauss Americas, said 2009 “will continue to be a very challenging year for the Americas,” adding that management was seeing no signs of a rebound in consumer sentiment.
Declines were more marked in Europe, where revenues declined 18.7 percent to $267.3 million from $328.7 million. Currency exchange negatively impacted results by $45 million. Excluding that impact, revenues would have fallen 5.6 percent. Anderson noted weaker performance in the Levi’s women’s business during the quarter.
The Asia-Pacific region proved the lone bright spot, with revenues improving 3.4 percent to $180.3 million from $174.4 million. Currency exchange negatively impacted results by $9 million.
Management said results were in line with expectations, but it is clear the company’s wholesale business in major markets like the U.S. and Europe will face considerable pressure going forward.
“As you can imagine, [retailers] are concentrating on keeping their inventories as low as they can,” said Hanson in response to a question about the upcoming back-to-school season. “Our focus in this environment is on driving to gain market share and on managing our inventories really tightly.”