Levi's Net Income Plummets 98 Percent in 2nd Quarter
San Francisco–based Levi Strauss & Co. announced dire second-quarter financial results on July 9.
The denim giant cited a variety of reasons, including a challenging United States economy, shipping difficulties related to the shift of its domestic business to a new enterprise resource planning system, retail expansion and the poor performance of its Dockers division, as reasons for its stumble (see related story here about Dockers’ retail expansion). For the quarter ended May 25, 2008, Levi’s saw its net revenues drop 8 percent to $936 million—down from more than $1 billion during the same period in 2007. The big drop was felt in its net income, which rang in at just $1 million for the quarter—down 98 percent from $46 million during the same quarter in 2007.
The company, which sells its goods in Europe and Asia, saw its overseas net revenues grow for the quarter. Compared with the same period last year, net revenues grew 10 percent in Europe and 6 percent in Asia.
Executives at the company are maintaining a stiff upper lip about the news.
“We expected the second quarter to be tough, and it was,” said John Anderson, president and chief executive officer, in a statement. “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.” He added that the company expects the rest of 2008 to be “challenging,” but that Levi’s is “taking decisive actions to position the company well for when market conditions improve.” Hans Ploos van Amstel, Levi’s chief financial officer, said the company continued to reduce its debt and paid a $50 million cash dividend to its stock holders. “Our balance sheet gives us the flexibility to weather the economic cycle and invest in our brands to build our business for the long term.”
Jeffery Van Sinderen, a retail analyst with B. Riley & Co., said the denim business is tough across the board. “The private-label denim business is growing,” he said, and putting pressure on brands such as Levi’s, whose forte is low- and mid-priced denim and casual pants. “The space Levi’s is operating in has become a lot more competitive. A lot of these private-label denim companies are doing a good job, which makes it harder for a brand like Levi’s to compete.” —Erin Barajas
