Levi Strauss & Co. capped off a profitable year with something a slowdown in the fourth quarter, but president and chief executive officer Chip Bergh is bullish on the firm’s main brand and pushing for wholesale accounts to give it more play.
The San Francisco-based ceo is also keeping a close eye on changes coming out of Washington, D.C. Having already weighed in against President Trump’s stance on immigration in a letter to employees, he said he is also working to fend off the proposed border tax on imported goods, which would be a “disaster” for fashion.
For now, at least, the company is facing just a generally tough marketplace. Levi’s fourth-quarter profit slipped 5 percent to $96 million from $101 million a year earlier, as sales inched up 1.1 percent to $1.3 billion from $1.29 billion. Sales in constant currencies grew 2 percent.
Fourth-quarter results were impacted by continued weakness in the company’s largest market; sales in the Americas fell 2 percent to $799 million. The company also had heavier store expenditures, given that 30 of the 70 new Levi’s stores added last year opened their doors in the fourth quarter. And Levi’s also bought back some inventory from its franchisees in China, causing a $4 million bottom line hit.
Bergh said he’s starting to feel like “a broken record” talking about the challenging U.S. wholesale environment.
“It is an important, profitable part of our business,” he said. “It is largely the middle-tier players that are most heavily impacted. It’s Macy’s, Kohl’s, J.C. Penney, Sears that are really most-heavily impacted and they’re important customers.”
But Levi’s own direct-to-consumer business grew in the fourth quarter.
“We know that when we show up right, when we execute well, we can grow our business,” Bergh said. “The story that we’ve got for our key [wholesale] customers is: ‘Give us more. Give us more space. Let us become more of a lifestyle brand in your store.’”
The picture was more bullish for the full year, particularly on the bottom line. The denim company drove profits up 39.2 percent to $291 million from $209 million in 2015, as sales increased 1.3 percent to $4.6 billion from $4.5 billion. Sales in constant currencies rose 3 percent.
“The environment has been really tough this past year and I think in that context, I’m really happy with the results,” Bergh said. “This is our fourth-consecutive year with top- and bottom-line growth, profitable growth on a constant currency basis.”
That could be tough to keep up if imported goods are levied with a 20 percent border tax.
“We are supportive of trying to simplify the tax situation of companies,” the ceo said. “A reduction of corporate taxes would be a very good thing for American companies, but trying to pay for it with a border adjustment tax would be a disaster, especially for apparel….If a border adjusted tax were put in place, we’ve done the math for this company, it would wipe out our profit.
“The only option we would have, at least in the short term, would be to pass the cost onto our consumers,” he said. “For us to really make product in the U.S. and do it in a cost competitive way that would result in prices that the consumer’s willing to pay would require significant manufacturing innovation, whether it’s 3-D printing or robotics. I don’t think it will create a lot of jobs, it will create a lot of robots.”