Levi Strauss & Co. announced financial results for the first quarter ended February 23, 2014.
Net revenues declined one percent on a reported basis and were flat on a constant-currency basis, reflecting lower sales at wholesale in the Americas, partially offset by improved performance in Asia and Europe.
First quarter net income declined 53 percent to $50 million, primarily reflecting restructuring and other charges related to the launch of a global productivity initiative. Excluding the global productivity initiative charges, adjusted EBIT declined nine percent to $159 million due to lower gross margin and higher retail costs.
First-Quarter 2014 Highlights
Gross profit in the first quarter declined to $576 million compared with $592 million for the same quarter of 2013. Gross margin for the first quarter was down slightly to 51.0 percent of revenues compared with 51.6 percent of revenues in the same quarter of 2013. The gross margin decline reflected higher discounted sales and inventory markdowns as well as product investment costs.
Selling, general and administrative expenses (SG&A) for the first quarter increased to $425 million from $410 million in the same quarter of 2013. The increase in SG&A was primarily driven by the retail network and $6 million in charges, primarily consulting fees for a centrally-led procurement project, associated with the first phase of a global productivity initiative.
Restructuring charges of $58 million were recorded in the first quarter of 2014 associated with the first phase of a global productivity initiative, primarily reflecting severance benefit costs associated with anticipated staffing reductions.
Operating income of $94 million in the first quarter was down from $181 million in the same quarter of 2013 due to the restructuring charges, higher SG&A and lower gross margin.
Net revenues in the Americas were down at wholesale, primarily due to lower sales of women’s products. Retail sales grew, primarily due to the timing of the Black Friday sales week, which occurred during the company’s first quarter. Operating income declined due to the region’s lower gross margin and net revenues.
Net revenues in Europe grew on a constant-currency basis due to performance and expansion of the company-operated retail network. Higher operating income reflected lower SG&A.
Net revenues in Asia grew on a constant-currency basis, reflecting improved product availability during the Chinese New Year sales season. Operating income declined, driven by the unfavorable impact of currency.