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Third quarter 2012 net revenues declined 9 percent on a reported basis and 4 percent on a constant currency basis. These results reflect the ongoing global economic challenges and actions the company took to drive improvements in its future performance, including the decisions to license the Levi’s brand boys business in the Americas and phase out the Denizen brand in Asia. Despite the notable revenue decline, net income dropped only $4 million, reflecting an improved operating margin.
“While the third quarter was impacted by the continuing difficult global macro-economic environment, we are very focused on what we can control: our product innovation and marketing programs, the key strategic choices we make and addressing our underlying cost structure,” said Chip Bergh, president and chief executive officer of Levi Strauss & Co.
“Our goal is to prioritize efforts behind our core business to drive sustainable, profitable growth and drive shareholder value. During the third quarter, we began to execute several initiatives against our goals, including exiting the Denizen brand from Asia and licensing the U.S. Levi’s boys business.”
Third Quarter 2012 Financial Highlights
- Gross profit in the third quarter declined to $521 million compared with $569 million for the same period in 2011, reflecting unfavorable impacts of $45 million of currency effects and $25 million associated with the company’s decision to phase out its Denizen brand in Asia. Third quarter gross margin of 47.3 percent was flat to prior year. Excluding the currency and Denizen impacts, gross margin improved, reflecting increased sales from the company’s retail stores, a decline in sales to lower-margin channels and lower cotton costs.
- Selling, general and administrative (SG&A) expenses for the third quarter declined to $434 million from $489 million in the same period of 2011, inclusive of favorable currency effects of $22 million.
The decline in SG&A was primarily driven by a reduction in advertising activities in some markets and a difference in timing of campaigns; organization and distribution expenses also declined during the quarter. Partially offsetting these declines, the company recorded a $19 million impairment charge on its owned distribution center in Japan due to a decision to outsource to a third-party in that market.
- Operating income for the third quarter was $87 million compared with $81 million for the same period of 2011, reflecting the lower SG&A.
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