NEW YORK — Citing lower-than-expected orders from retailers, Levi Strauss & Co. on Thursday lowered its sales expectations for the year.

This story first appeared in the November 14, 2003 issue of WWD. Subscribe Today.

Levi’s said in a statement that it expected sales for the year to be down by 6 to 7 percent, factoring out the effect of fluctuations in exchange rates. Previously, Levi’s had expected sales for the year, factoring out currency effects, to be within 2 percentage points of last year’s results.

For the nine months ended Aug. 24, Levi’s reported net sales of $2.89 billion, which on a net basis was up 0.4 percent from the prior-year period but would have been down 4.2 percent on a constant-currency basis.

The warning means it is likely that fiscal 2003, which ends Nov. 30, will go down as the San Francisco-based company’s seventh straight year of sales declines. The company’s overall revenues last year came in at $4.14 billion, well off the 1996 peak of $7.1 billion.

“We came out of September expecting to achieve essentially flat sales for the year,” said president and chief executive Phil Marineau in a statement. “Our plans for October and November included higher shipments to most of our U.S. retailers because of consumer sell-through increases the previous three months and low retail inventories. However, retailers have continued to be very cautious about an apparel-market recovery, with most of them experiencing a disappointing October.”

When Levi’s reported its first-quarter results, including a 6.4 percent decline in revenue — which was off 11.2 percent factoring out currency effects — company officials said they then expected overall sales for the year to be up between 2 and 5 percent, after currency effects had been factored out. That was largely because they were anticipating a significant new revenue stream as they began shipping the Levi Strauss Signature line into Wal-Mart Stores Inc. in late spring.

That line hit Wal-Mart’s 2,800 U.S. locations in July, and when the company reported its third-quarter results, Levi’s officials acknowledged that without that new business, sales would have been down, instead of up 6.3 percent net and 2.6 percent when currency fluctuations were factored out.

Marineau said at the time that sales of the main Levi’s line were suffering as retailers cut back on orders out of concerns that the Signature line would eat into their business.

“They are worried about cannibalization of the Levi’s brand,” he said at the time.

A Levi’s spokeswoman said Thursday that the company sees no evidence of that cannibalization occurring. She blamed the slow orders on a weak retail environment.

“What we saw in October was the tide turned at retail,” she said. “Most of our accounts’ same-store sales were weaker in October. That seemed to be across the board for the month.…That sluggish environment has led to this cautiousness about stocking up.”

The news prompted the two major debt-rating agencies to issue warnings on Levi’s.

Moody’s Investors Service downgraded its rating on the company’s $500 million guaranteed senior secured term loan facility to “Caa2” from “Caa1,” and changed the rating outlook to “negative” from stable. It maintained its senior unsecured rating at “Ca.”

Standard & Poor’s Rating Service said it was placing its Levi’s ratings on CreditWatch, with negative implications.

“Although this announcement is not expected to adversely affect the company’s liquidity position,” S&P said it found “the timing of this latest announcement especially troublesome, given the series of controversial events within the company in recent months.”

Those events include a civil suit filed by two former employees this year that accused Levi’s of wrongfully terminating them for refusing to comply with improper tax procedures. Levi’s has denied those charges.

Privately owned Levi Strauss discloses its financial results because of publicly traded bonds.

The company also said it expects to report operating margins of 4 percent and 5 percent, after $120 million to $140 million in restructuring charges. Last year Levi’s reported a 6.3 percent operating margin and net income of $25 million.

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