Jeans maker Levi Strauss faces high cotton prices in Q4

08 Feb '12

4 min read

Levi Strauss & Co announced financial results for the fourth quarter and fiscal year ended November 27, 2011.

The company's net revenues grew in each geographic region in fiscal year 2011, primarily due to the strength of the Levi's brand and its global store network. Fourth-quarter net revenues were up 4 percent on a reported basis compared to the same period in the prior year and full-year net revenues were up 8 percent on a reported basis from the prior year. Fourth quarter net income decreased from the prior year due to the company's lower gross margin in the fourth quarter of 2011 and a $32 million increase in income taxes, primarily reflecting a $34 million tax benefit recorded in the fourth quarter of 2010.

“In the face of stiff cost and economic headwinds, Levi Strauss & Co. grew the top-line for the second year in a row,” said Chip Bergh, president and chief executive officer of Levi Strauss & Co. “As we move forward, we need to build on this momentum and on our global scale, strong brands and innovation pipeline, while improving profitability and cash flow to deliver sustainable long-term growth.”

Fourth Quarter 2011 Highlights

- Gross profit in the fourth quarter was $624 million compared with $647 million for the same period in 2010. Gross margin for the fourth quarter was 46 percent of net revenues compared with 50 percent of net revenues in the fourth quarter of 2010. The decline in gross margin resulted from the adverse impact of higher priced-cotton, which was not fully offset by the company's price increases, and increased sales to the discount channel to manage inventory.

- Selling, general and administrative (SG&A) expenses for the fourth quarter increased to $532 million compared with $528 million in the same period of 2010, primarily reflecting expenses associated with organizational changes and the company's investment in information technology.

- Operating income for the fourth quarter decreased to $92 million compared with $119 million for the same period of 2010, due primarily to the decline in gross margin.

- Higher net revenues in the Americas primarily resulted from price increases and continued growth in the Levi's retail business, which offset a decline in the U.S. Dockers brand.

- Net revenues grew in Europe from expansion of the company-operated retail network.

- Net revenues in Asia Pacific increased for the Levi's and Denizen brands, including the expansion of the company's brand-dedicated retail network. The growth in the region was partially offset by lower net revenues in Japan.

“Our fiscal 2011 results reflect the impact of higher cotton prices and the difficult economic environment,” said Blake Jorgensen, chief financial officer of Levi Strauss & Co. “We are focused on operating our business with discipline and improving our cash flow to help us navigate the challenges ahead.”

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