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Levi’s Scores Revenue Gains But Currency Woes Put a Drag on Profits

Levi Strauss scored revenue gains around the globe, but a weak dollar hit the bottom line in the third quarter.

In the Americas, excluding favorable currency effects of $3 million, net revenues grew 2 percent, primarily reflecting strong performance in the Levi’s Signature and Denizen brands, as well as performance and expansion of the company-operated retail network, including e-commerce.

In Europe, revenues grew 20 percent, reflecting broad-based growth across all markets and channels, while in Asia, revenues rose 2 percent, reflecting direct-to-consumer expansion, partially offset by lower franchise revenue due to continued pressures in the China franchise channel.

Sales: Net revenues grew 7 percent to $1.27 billion compared in the third quarter ended August 27 compared to $1.19 billion in the year ago quarter. Direct-to-consumer revenues increased 16 percent on performance and expansion of the retail network, as well as e-commerce growth. Wholesale revenues rose 4 percent, primarily reflecting growth in Europe.

Earnings: Net income in the quarter declined 10 percent to $88 million from $98 million in the year-ago period, reflecting foreign exchange losses on hedging contracts of $19 million, primarily driven by the weakening of the dollar against most foreign currencies, Levi’s reported. Adjusted earnings before interest and taxes grew 1 percent, as higher revenue and gross margins were offset by an $11 million non-cash stock-based compensation expense recorded during the third quarter and the recognition of a $7 million benefit from the resolution of a vendor dispute settled in the prior-year period.

CEO’s Take: Chip Bergh, president and CEO, said: “We are pleased with our progress this quarter and year-to-date. Our strategies are working and, despite the challenging retail environment, we are achieving profitable growth. Based on the strength of our increasingly diversified business and confidence in our brands, we are investing in incremental advertising and media across both the Levi’s and Dockers brands in the fourth quarter.”