Cotton Costs Cut Into Levi’s Profit
Levi Strauss & Co., one of the world’s largest blue-jeans makers, saw a 12 percent dip in its 2011 profit due to sky-high cotton prices that more than doubled in a two-year period.
Net income for the fiscal year ending Nov. 27 was $138 million, compared with $157 million in 2010, the company reported on Feb. 7. Revenues were in positive territory, totaling $4.76 billion in 2011, up 8 percent from $4.41 billion in 2010.
“Our fiscal 2011 results reflect the impact of higher cotton prices and the difficult economic environment,” said Blake Jorgensen, the San Francisco–based company’s chief financial officer. “We are focused on operating our business with discipline and improving our cash flow to help us navigate the challenges ahead.”
The company’s fourth-quarter profit slid more dramatically, declining 49 percent to $44 million from $86 million. Part of that was due to a $34 million tax benefit recorded in the fourth quarter of 2010. Net revenues for the fourth quarter were $1.34 billion, compared with $1.3 billion a year earlier.
But wary customers concerned about the economy meant the company resorted to getting rid of excess inventory in the fourth quarter through discount outlets.“We did move a substantial amount of inventory through the discount channels,” Jorgensen said. More merchandise is expected to be flushed through discount channels until the end of the first quarter, the chief financial officer added.
The fourth quarter also included expenses to retire several senior executives in the company. One of those executives was former President and Chief Executive John Anderson. Anderson left the company last fall after working with Levi’s for 32 years. He received a $7.1 million separation agreement. He was replaced with Chip Bergh, who came on board Sept. 1.
In a conference call, Jorgensen said the company expected cotton prices to return to more-manageable levels after the second quarter. After reaching a high of $2.30 a pound in March 2011, it was most recently down to 90 cents a pound. “We are in better shape this year because we know cotton prices are coming down, and it is easier to plan the supply-and-demand match,” he said.
Net revenues in 2011 grew throughout the various global regions where Levi’s sells. One of the more positive territories was the Asia Pacific region, where sales inched up 6 percent. Japanese sales were the exception, with lower revenues in 2011. The Americas region had a 4 percent bump in revenues while Europe saw a 2 percent rise as that region grappled with high sovereign-debt loads.
At the end of fiscal 2011, Levi’s operated 498 stores in 32 countries. Its brands include Levi’s, Dockers, Signature by Levi Strauss & Co. and Denizen, an affordable blue-jeans label.Denizen started selling in Target stores last August after it was introduced in Asia in 2010.—Deborah Belgum
