Levi Strauss & Co. said its second-quarter loss widened as financing costs erased the positive effects of higher sales and margins and advantageous currency swings.

This story first appeared in the July 7, 2010 issue of WWD. Subscribe Today.

For the three months ended May 30, the net loss attributable to the San Francisco-based denim and sportswear firm rose to $14.4 million from $4.1 million in the year-ago period. Included in the bottom-line result was a $16.6 million pretax loss on the early extinguishment of debt. Operating income, exclusive of the debt effect, was up 23.4 percent to $69.2 million from $56.1 million a year ago.

Sales rose 8.1 percent to $958 million, versus $886.5 million in the 2009 quarter, and licensing revenue grew 3.2 percent to $18.6 million from $18 million. Total revenues moved up 8 percent to $976.5 million from $904.5 million, and gross margin rose 522 basis points to 51.1 percent of sales against 45.9 percent in the year-ago period. The company said that the improvement reflected the increased contribution of the company’s stores and their higher margins compared to wholesale operations.

In the Americas, sales were up 8 percent, to $558 million, and grew 6 percent on a constant currency basis. In Europe, sales increased 9 percent, to $240 million, and gained 7 percent at constant currency. Asia-Pacific sales hit $178 million, an 8 percent rise that, upon conversion for currency effects, translated into a 2 percent decline.

“We continue to invest behind the brands,” John Anderson, president and chief executive officer, said on a conference call with analysts. “We believe we have a compelling consumer proposition. We selectively look to continue to invest in retail. It’s a battle.”

He said Japan continues to detract from results in the Asia-Pacific region, but added that he was somewhat encouraged by results in Europe: “If there’s good news, it is that there is no further deterioration.”

For the six months, net income dropped 4.5 percent to $42 million, from $43.9 million, as total revenues picked up 8.6 percent to $1.97 billion, from $1.82 billion. Year-to-date operating income was up 8.8 percent to $176.5 million from $162.1 million during the first six months of 2009, and gross margin improved to 51.3 percent of sales from 46.4 percent.

Cash and cash equivalents rose to $353.1 million as of May 30, 30.4 percent above the $270.8 million on the books as of Nov. 29. Inventories rose to $452.5 million from $451.3 million six months earlier.

Long-term debt stood at $1.78 billion on May 30, down from $1.83 billion on Nov. 29.

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