LEVI’S COMEBACK ABOVE PLAN
Byline: Scott Malone
NEW YORK — Declaring that its financial turnaround is coming along ahead of schedule, Levi’s reported Wednesday that its sales decline in 2000 slowed to a single-digit drop and that margins had improved.
“The turnaround of Levi Strauss & Co. continues to progress. Frankly, we are substantially ahead of where we expected to be a year ago,” said Phil Marineau, president and chief executive officer. “We’ve progressively slowed the sales decline as we’ve gone through the year. We had two years of double-digit sales declines.”
Sales for the year ended Nov. 26, dipped under that level with a 9.6 percent decline to $4.65 billion. Marineau said in 2001 the company expects its sales to level out, which he defined as an increase or decline of 2 percent, adjusted to factor out fluctuations in foreign currency exchange rates.
The strong dollar has pinched the export revenues of U.S. companies this year. Levi’s said factoring out currency fluctuations, its sales would have been off 7.1 percent this past year.
For the year, Levi’s reported net income of $223.4 million, compared with income of $5.4 million in 1999. Excluding nonrecurring items, the company said net income would have been up 97 percent, to $201.8 million. The privately held firm releases financial figures because of its public debt.
Levi’s bottom line was complicated by one-time items. For the fourth quarter, the San Francisco-based company reported net income of $75.4 million, compared with $157 million a year earlier.
However, year-ago results include a $343.9 million credit the company took as a reversal of its bonus program, when it realized that its dismal results meant it probably wouldn’t have to pay a lot of bonuses in 1999.
In a conference call with fixed-income debt analysts, chief financial officer Bill Chiasson said factoring out one-time adjustments, fourth-quarter net income would have been $54 million in 2000, compared with a $2 million loss in 1999. Sales for the quarter were $1.29 billion, down 8.6 percent.
On the women’s side, Marineau said in a phone interview, the company’s misses’ sales of Levi’s and Dockers merchandise were strong. He attributed that to a stronger focus on the category.
“In juniors,” he continued, “the super-low-rise flares we introduced in Silvertab sold through tremendously over the course of back-to-school and the holidays.”
The company also improved its delivery rates on its signature 501 style — Levi’s inability to keep up with demand for that style of jeans hurt third-quarter results.
Supply-chain management has been a major focus of Marineau’s since he joined Levi’s in the fall of 1999. Prior to his appointment as ceo, the company had struggled to meet delivery deadlines and as a result was burdened with high levels of out-of-season inventory.
To improve its speed to market, the company has established a uniform, 13-step process covering every aspect of design to delivery, Marineau said. Previously, Levi’s divisions had used different procedures.
Levi’s executives also said they trimmed their advertising budget last year — for the fourth quarter, advertising expenses represented 9.1 percent of sales, compared with 10.1 percent of sales. Chiasson said the company expects its 2001 advertising budget to represent between 8 and 9 percent of sales.
“We do, however, expect to have increased media presence next year as we begin to target our ad dollars more effectively,” he said.
To do that, Marineau explained, the company is cutting down on its big-ticket television ad buys.
“We’re spending more continuously across the year and buying less of the very expensive prime time,” he said. “We also have a better blend of print to broadcast. Next year we have the largest print budget I think we’ve ever had.”
Marineau acknowledged that the company’s debut as a television advertiser on the Super Bowl broadcast on Jan. 28 is a notable exception to its cutting back on TV buys.
By region, Levi’s sales in the Americas were off 5 percent for the quarter to $892.9 million. Asia-Pacific sales were down 3.8 percent to $106 million, while European sales were off 19.5 percent, to $287 million.
The executives noted that the strong dollar had a particularly negative effect on its European sales — on a constant-currency basis, European sales would have been off 3.9 percent. Marineau also noted that recent restructuring efforts in Europe are expected to improve Levi’s results. The company has imposed a pan-European management structure, instead of the country-by-country approach it took previously.
Marineau added that the company has continued its momentum into early fiscal 2001. U.S. sales in December were up 3 percent, he said.
“The month of December doesn’t make a year,” he said, “but I think we’re off to a good start.”