Net revenues decreased 2 percent on both reported and constant-currency bases, due to lower sales in Asia Pacific and the impact from licensing the Levi’s brand boys business. First quarter net income increased 117 percent to $107 million compared with $49 million in the first quarter of 2012, driven by a stronger gross margin and improved operating margin.
“In the first quarter, we generated strong cash flow and posted a higher gross margin and net income, despite slightly lower revenues,” said Chip Bergh, president and chief executive officer. “We’re committed to reducing debt and strengthening the balance sheet. Our cash flow and a successful debt refinancing we executed after the quarter closed have allowed us to pay down $185 million of our debt this year.”
First-Quarter 2013 Highlights
- Gross profit in the first quarter increased to $592 million compared with $549 million for the same period in 2012. Gross margin for the first quarter was 52 percent of revenues compared with 47 percent of revenues in the same quarter of 2012. The gross margin improvement reflected the lower cost of cotton, increased sales from the company’s retail stores and a favorable currency impact.
- Selling, general and administrative expenses (SG&A) for the first quarter decreased to $410 million from $439 million in the same period of 2012. The decline in SG&A was primarily driven by lower advertising reflecting shifts in the timing of the company’s campaigns to a later part of the year and lower severance expenses.
- Operating income of $181 million grew from $110 million the prior year due to the higher gross margin and lower SG&A.
Net revenues in the Americas were flat, as increased sales from company-operated Levi’s retail stores were offset by lower wholesale revenues reflecting the company’s 2012 decision to license the Levi’s brand boys business. Higher operating income primarily reflected the region's higher gross margin.
Net revenues in Europe increased, reflecting continued growth from the company-operated retail network; this was partially offset by a decline in traditional wholesale channels, most notably in Southern Europe. Higher operating income primarily reflected the region's lower SG&A and improved gross margin.
Net revenues in Asia Pacific declined, reflecting lower sales at both company-operated retail network and wholesale channels, due to challenging conditions in most markets in the region, most notably China. Operating income increased, primarily reflecting lower SG&A and the decision to phase out the Denizen brand in the region.
Cash Flow and Balance Sheet
At February 24, 2013, cash and cash equivalents of $450 million were complemented by $574 million available under the company’s revolving credit facility, resulting in a total liquidity position of $1.0 billion. Cash provided by operating activities of $143 million represented a $38 million increase compared with the same period in 2012, reflecting a tax refund and lower pension plan funding.
During the quarter, the company prepaid $50.0 million of its senior term loan due 2014 and paid a $25 million dividend. Net debt declined to $1.2 billion at the end of the first quarter of 2013, compared to $1.3 billion at the end of 2012.
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