If Levi Strauss & Co.’s quarterly results are any clue, denim is indeed making a comeback.
Fueled by stronger gross margins realized from streamlining its supply line as well as broad-based growth in its wholesale and retail businesses – and across each of its regions – Levi’s posted a 15 percent net income gain to $58 million in the third quarter, compared with $51 million in the same period last year.
Adjusted earnings before income and taxes rose 8 percent to $128 million in the quarter from $119 million in the same period last year. On a constant-currency basis, adjusted EBIT rose 23 percent.
Currency translation pains once again took a toll on the top line. While sales fell 1 percent to $1.14 billion in the quarter from $1.15 billion last year, on a constant currency basis sales gained 7 percent. In Europe, the currency impact resulted in a 10 percent year-over-year decline, but in constant dollars results were up 12 percent – creating a 22 percent variance.
Chip Bergh, president and chief executive officer, told WWD that the company expected the second half of the year to show broad-based growth, “and the quarter delivered,” he said.
Regarding the new women’s collection, Bergh said it was a standout in the quarter with double-digit growth for the direct-to-consumer product segment. Launched into stores in August, Bergh said “we’re very encouraged with the early response.”
In the company’s own retail units, Bergh said the women’s line did well — from super skinny and slim to boot-cut and boyfriend. Levi’s results reveal more evidence of momentum in the women’s denim market. So, has the female consumer grown tired of leggings and joggers? “Certainly there’s a resurgence in denim,” Bergh said, adding that the consumer response to the new women’s collection will likely further propel the category.
In the quarterly report, the company said the revenue gain was “complimented by retail sales growth of 8 percent, reflecting expansion of the retail network in Europe and Asia.” By region, operating income showed an 18 percent gain in the Americas to $144 million, a 2 percent increase in Europe to $51 million and a 48 percent gain in Asia to $26 million.
The company also said it “anticipates that it will incur additional restructuring charges related to the global productivity initiative, and now expects that the majority of the related actions will be implemented by the end of 2016.” It did not disclose what those charges would be, though. The charges are expected to result in a net annualized benefit of between $175 million and $200 million, “relative to the cost structure and profitability of the company and foreign currency exchange rates prior to the commencement of the initiative,” the company said.
Other cost savings are expected in future quarters, the company said, adding that it will come from “streamlining its planning and go-to-market strategies and implementing efficiencies across its retail, supply chain and distribution network” as well as “pursuing improved procurement practices.”
Regarding the upcoming holiday shopping season, Bergh said in the quarterly report that “although we expect traffic at retail to remain challenging in the fourth quarter, we are confident in our ability to grow full-year sales and adjusted EBIT on a currency-neutral basis.”
Bergh told WWD he expects the fourth quarter to include a “very promotional holiday.” Also, this quarter has one less week as compared to last year, which will make for a difficult year-over-year comparison, the ceo said. Meanwhile, the overall retail market is seeing less tourism spending and traffic, he noted, which “will be particularly challenging” for the entire market, but Bergh reiterated that the product launch will benefit the company.