Levi Strauss net profit falls sharply in Q2

09 Jul '08

5 min read

Levi Strauss & Co. (LS&CO.) announced financial results for the second quarter ended May 25, 2008 and filed its second quarter 2008 results on Form 10-Q with the Securities and Exchange Commission.

Highlights include:
Lower net revenues reflected reduced sales in the Americas' region, partly offset by reported net revenue increases in Europe and Asia Pacific. Net revenues in Europe and Asia Pacific were down slightly on a constant currency basis. The revenue decline in the Americas is largely attributable to the impact of the difficult U.S. economic environment, shipping issues related to the transition of the U.S. business to a new enterprise resource planning system (ERP), lower performance in the U.S. Dockers business and early shipments executed in the first quarter in anticipation of the second-quarter U.S. ERP implementation.

The company recorded $1 million in net income in the second quarter compared to $46 million in net income for the same period in 2007, primarily reflecting lower net sales, and higher costs related to ERP stabilization efforts and retail expansion. Lower operating income was partially offset by reduced interest expense and other financing costs in the period.

"We expected the second quarter to be tough, and it was,” said John Anderson, president and chief executive officer. “The retail environment in the United States remained challenging. In addition, our transition to a new enterprise resource planning system in the United States negatively affected our results. Increasingly difficult economic conditions in many markets worldwide are impacting consumer spending, but our brands remain strong. We are pleased with the continued strong growth of our emerging markets and our retail network around the world.

“Given the slowing macroeconomic indicators we are seeing globally and our continued investment to stabilize our ERP system, we expect the rest of the year to be challenging. Nonetheless, we are taking decisive actions to position the company well for when market conditions improve,” added Mr. Anderson.

Second Quarter 2008 Highlights
• Gross profit in the second quarter decreased to $437 million compared with $463 million for the same period in 2007. Gross margin increased to 46.7 percent of revenues for the quarter compared with 45.6 percent of revenues in the second quarter of 2007. Gross margin benefited from a higher-margin product mix, lower sourcing costs and increased company-operated store sales.

• Selling, general and administrative expenses for the second quarter increased to $385 million from $345 million in the same period of 2007. Approximately half of the increase reflects the effect of currency; the remainder of the increase reflects the substantial costs related to the ERP stabilization efforts in the United States and the company's global retail expansion compared to the prior year.

• Operating income for the second quarterwas $52 million compared with $118 million for the same period of 2007, reflecting lower net revenues, and higher selling, general and administrative expenses.

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