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Levi's 2009 outlook remains uncertain
11
Feb '09
Levi Strauss & Co. (LS&CO.) announced financial results for the fourth quarter and fiscal year ended November 30, 2008.

Fourth-quarter net revenues improved slightly on a reported basis. Excluding currency effects, net revenues increased by 4 percent in the quarter compared with the same period in 2007, reflecting Levi's brand sales growth in the company's Asia-Pacific emerging markets, Japan and the Americas.

The increase in reported net revenues for fiscal 2008 reflected the benefit of currency. Fiscal-year net revenues were down 1 percent on a constant currency basis. Increased sales from new and existing company-operated retail stores were more than offset by the adverse impact of a weak retail environment in the United States and certain markets in Europe and Asia Pacific, lower performance of the Dockers brand and second quarter shipping issues related to our U.S. ERP implementation. Improvements in sales mix and company-operated retail store sales, combined with lower sourcing costs, benefited gross margin for the year.

Net income was $62 million in the fourth quarter and $229 million for the year. The decrease for the quarter and fiscal year was primarily the result of an approximately $215 million income tax benefit relating to a non-recurring, non-cash reversal of deferred tax asset valuation allowance in the fourth quarter of 2007. Compared to the prior year, earnings before tax were up 10 percent for the quarter and down 2 percent for the year.

"In the context of an extraordinarily difficult economic environment, Levi Strauss & Co. delivered solid financial performance for 2008,” said John Anderson, president and chief executive officer. “Levi's brand revenues grew in each of our regions, demonstrating its ability to perform even in tough economic times. The global Levi's 501 marketing campaign contributed to a substantial worldwide sales increase for 501 jeans in 2008. And the continued growth of our retail network helped offset a slowdown in our wholesale channels.

“Looking ahead, we expect the year to be difficult. The outlook remains uncertain and we face stiff headwinds. With this in mind, we will focus on maintaining strong liquidity, containing costs and investing strategically in our brands to build market share so we are well-positioned when market conditions improve.”

Fourth Quarter 2008 Highlights:
• Gross profit in the fourth quarter increased to $625 million compared with $595 million for the same period in 2007. Gross margin for the fourth quarter increased to 49.2 percent of revenues compared with 47.4 percent of revenues in the fourth quarter of 2007.

• Selling, general and administrative (SG&A) expenses for the fourth quarter increased to $479 million from $403 million in the same period of 2007. The increase was due to higher advertising and promotion expense to support the 501 campaign; increased selling costs related to additional company-operated retail stores, including asset impairment charges; and, in the fourth quarter of 2007, lower incentive compensation. SG&A in the 2007 period also was positively impacted by a larger postretirement benefit plan curtailment gain compared to 2008. These increases were partially offset by a $17 million effect of currency exchange.


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