Levi Strauss & Co. expects that adjustments in its product assortments and the global rollout of its “Live in Levi’s” advertising campaign will help it get its struggling U.S. women’s wholesale business moving as it approaches the final lap of a challenging 2014.
While overall revenues and its worldwide women’s business grew in the third quarter based on “really solid business outside the U.S.,” according to Chip Bergh, president and chief executive officer, the women’s business in its home market continued to weigh on the top and bottom lines. Total sales were up 1.1 percent, but the core men’s Levi’s business grew 4 percent and its directly owned retail businesses, including e-commerce, grew at an 11 percent clip.
“We’re bullish about the new women’s Levi’s product that’s in the stores — the softer, stretchier denim that’s there now — and we’re working with all our key wholesale customers to make sure that we’ve got the right inventory and the right amount of inventory,” Bergh told WWD. “The women’s denim category continues to be challenged in the U.S., but we left some money on the table last year by being out of stock on the items that mattered.”
In the three months ended Aug. 24, the San Francisco-based jeans and sportswear giant reported net income of $50.6 million, 11.3 percent below the $57.1 million reported in the comparable 2013 period. Eliminating charges associated with its cost-cutting program, interest and taxes, adjusted operating income contracted 2.1 percent to $118.6 million from $121.1 million a year ago.
Revenues increased to $1.15 billion from $1.14 billion, with a 4 percent increase in Europe and a 9.6 percent gain in Asia-Pacific, to $286 million and $171 million, respectively, offsetting a 1.8 percent decline in sales in the Americas, to $697 million.
Gross margin declined to 48.7 percent of sales from 50.2 percent a year ago, as higher product costs collided with promotional pressures, particularly in the U.S. and Asia. The expansion of the company’s retail network in Europe helped lift margins and profits in the region.
But Bergh felt that the third quarter provided proof that the company’s plans to cut costs and reallocate capital to invest in profitable growth showed signs of progress. Advertising expense was up 18.2 percent to $71.6 million in the quarter as the Live in Levi’s campaign gained traction.
“It’s beginning to roll out globally now, where it was just in the U.S. until recently,” Bergh said of the campaign. “This is our first time on television outside the U.S. in several years and we’re putting it in the markets where it matters most.”
Also, the company’s sponsorship of the San Francisco 49ers’ new home, Levi’s Stadium, has “resulted in over 40 billion impressions globally in just the first 15 months [since it reached an agreement], and we just wrote the first check a few months ago,” he said. “From history and experience, this move will deliver a very strong return on investment.”
He described the core men’s Levi’s business as “healthy and strong. Men’s denim is still kind of flattish and you can read into this that we are picking up market share.”
Direct-to-consumer expanded to 25 percent of revenues in the first nine months of the year, up from 23 percent a year ago, although the improvement hasn’t come without a cost.
“You have to promote a bit more to get people into the stores, but as we’ve done that, we’ve seen higher conversion,” the ceo said. “The same is true online.”
For the nine months, net income declined 47.2 percent to $112 million, while revenues slipped 0.6 percent to $3.37 billion.
Levi’s said Jenny Ming, president and ceo of Charlotte Russe Inc., has been elected a director. She fills the spot vacated by Fernando Aguirre, who left the board in August, and returns the number of directors to 11. Ming is the former president of the Old Navy division of Gap Inc.