Gross profit dips $9mn at Levi's in Q1 FY'12
Levi Strauss & Co. announced financial results for the first quarter ended February 26, 2012. Net revenues increased 4 percent on a reported basis and 5 percent on a constant-currency basis, primarily due to the growth of the Levi's brand, from the price increases we have implemented in response to rising cotton costs, and the global expansion and performance of the company's brand-dedicated retail network.
First quarter net income attributable to the company was $49 million compared with $41 million in the first quarter of 2011. Higher net income resulted from revenue growth and lower advertising expenses, which were partially offset by lower gross margins reflecting the adverse impact of cotton.
“We had a good start to the fiscal year. We're pleased with our performance in the first quarter, and we delivered these results despite the pressure of high-priced cotton,” said Chip Bergh, president and chief executive officer. “Conditions remain challenging in some parts of the world. As we move through the remainder of the year our focus will be driving profitable growth through the core pillars of our business.”
First-Quarter 2012 Highlights
Gross profit in the first quarter decreased to $549 million compared with $558 million for the same period in 2011. Gross margin for the first quarter was 47.1 percent of revenues compared with 49.8 percent of revenues in the same quarter of 2011. The decline in gross margin was primarily due to higher-priced cotton, which our price increases did not fully cover.
• Selling, general and administrative expenses (SG&A) for the first quarter decreased to $439 million from $459 million in the same period of 2011. The decline in SG&A was primarily driven by lower advertising, reflecting timing shifts as well as spends reductions in some markets.
• Operating income of $110 million grew from $99 million the prior year as the decline in gross margin was more than offset by the lower advertising expenses and the increase in net revenues.
Higher net revenues in the Americas primarily reflect higher Levi's brand sales, mainly due to price increases, which were partially offset by related volume declines in certain wholesale customers. Higher revenues also reflect increased sales of our Signature brand products and the addition of Denizen sales in the region.
Net revenues in Europe decreased primarily due to a lower volume of sales to both franchisee stores and to the traditional wholesale channels, reflecting the ongoing depressed retail environment, most notably in southern Europe. Net revenues of the company-operated retail network grew, reflecting improved performance of our stores.
Net revenues in Asia Pacific increased primarily due to price increases in the Levi's brand, which were partially offset by volume declines. Revenue growth also reflects continued expansion of the company's brand-dedicated retail network in the region.
At February 26, 2012, cash and cash equivalents were $238 million, complemented by $555 million available under the company's revolving credit facility. Cash provided by operating activities was $105 million, compared with $46 million for the same period in 2011, reflecting higher trade receivable collections. The increased cash from operations yielded a reduction in net debt, which declined to $1.7 billion at the end of the first quarter of 2012, compared to $1.8 billion at the end of 2011.
“Given the challenges we anticipated in the first half of 2012, we're pleased with our strong cash flow and our improved working capital position,” said Blake Jorgensen, chief financial officer of Levi Strauss & Co.
Levi Strauss & Co