NEW YORK — Citing Levi Strauss & Co.’s difficulty in maintaining market share, Moody’s Investors Service has lowered its ratings of the jeans maker’s debt, amounting to about $2.3 billion.
Moody’s cut its ratings on Levi’s revolving credit facility and Eurobonds to Ba1 from Baa3. The ratings had been placed under review on Sept. 10. Moody’s also said it was continuing the review for further possible downgrade.
“The rating actions reflect the challenges the company is having in stemming market share erosion and its weaker than anticipated financial performance, as well as the impact of shifting fashion trends that are favoring khaki and fashion denim products at the expense of Levi’s core five pocket jean,” Moody’s said.
The ratings agency further noted that the firm is being hurt by designer brands such as Polo and Tommy Hilfiger, and the development of private-label jeans by discount, department and specialty store retailers.
“As fashion has shifted, the company has not provided a sufficiently differentiated product offering to be appealing to trend-setting youthful customers and has lost market share,” Moody’s said. “Initial indications are that the market share erosion has continued during the back-to-school season when the company experienced weak sales performance of its core denim jeans and will likely result in much weaker than anticipated financial performance this fiscal year.”
Moody’s said that while Levi’s has taken steps to control inventories better and close production facilities, the ongoing drop in sales could further hurt financial results for the remainder of the year.
Pointing to steps taken to diversify product and attract more fashion-forward customers, the ratings agency noted that Levi’s new Engineered Jeans line recently made its debut, and the company has implemented a new advertising and marketing strategy as well as management changes, including a new president and chief executive officer. Philip A. Marineau, who had been president and ceo at Pepsi-Cola North America, started as ceo on Monday.
However, “even if the company is successful in positively lifting its performance in the next fiscal year, Moody’s does not expect these initiatives to lift near term performance significantly,” Moody’s said.