Levi Strauss & Co. (LS&Co.), one of the world’s largest brand-name apparel companies and a global leader in jeanswear, announced first quarter financial results Tuesday.
Revenues for the three months ended March 1 declined by seven percent on a reported basis and one percent on a constant-currency basis, to just over $1 billion. Lower wholesale and retail sales in the Americas were partially offset by increased retail sales in Europe and Asia.
Net revenues in the Americas declined by eight percent to $574 million primarily due to a shift in the company’s fiscal calendar as compared to prior year, and the loss of women’s Dockers products at wholesale as that business transitions to a license model. In Europe, currency translation unfavorably impacted net revenues by $46 million. On a reported basis, revenues fell by eight percent to $277 million. Excluding the currency effects, net revenues grew by nine percent. In Asia, net revenues were flat on a reported basis, at $204 million. Excluding unfavorable currency translation effects, net revenues grew five percent, reflecting growth in the company-operated retail network amidst a promotional environment.
On a reported basis, gross profit in the first quarter declined to $537 million compared with $576 million for the same quarter of 2014, and gross margin for the first quarter declined to 50.9% of revenues compared with 51 percent of revenues in the same quarter of 2014. Excluding $35 million in unfavorable currency translation effects, gross margin improved 30 basis points, primarily due to lower negotiated product costs and a streamlined supply chain.
SG&A expenses for the first quarter of $425 million were flat compared with the same quarter of 2014, as currency favorably impacted SG&A by $22 million. Excluding currency, earlier timing of advertising investment and higher costs associated with the expansion of the company’s retail network and e-commerce business were partially offset by savings realized from the company’s global productivity initiative.
Operating income of $107 million in the first quarter was up from $94 million in the same quarter of 2014 primarily due to lower restructuring charges associated with the company’s global productivity initiative. Operating income in the Americas declined by eight percent to $102 million due to increased advertising investment and lower net revenues, partially offset by a higher gross margin. Currency unfavorably impacted operating income by approximately 100 basis points. In Europe, operating income was down by 19 percent on a reported basis and two percent excluding the currency effects, reflecting growth from performance and expansion of the company-operated retail network and increased advertising investment. In Asia, operating income was flat on a reported basis and up four percent excluding unfavorable currency translation effects.
Adjusted EBIT, which excludes the charges associated with the company’s global productivity initiative, was $120 million, down from $159 million in the same quarter of 2014, reflecting $13 million in unfavorable currency translation effects and the higher SG&A from increased advertising spend and investment in the company’s direct-to-consumer channels, partially offset by savings realized from the global productivity initiative launched in 2014.
“As anticipated, unfavorable currency effects significantly impacted our revenues and adjusted EBIT in the first quarter, and the currency-neutral decline reflected the shift in our fiscal calendar, which last year included the Black Friday week,” said Chip Bergh, president and CEO.
“The underlying health of our business remains strong, as we continue to focus on what we can control; and the savings generated from our improving structural economics helped to fuel our direct-to-consumer growth initiatives and investments to generate consumer demand,” Bergh said. While the second quarter will again be a difficult comparison to the prior year, we remain confident in our ability to grow full-year sales and adjusted EBIT on a currency-neutral basis, as we continue to focus on driving retail conversion, engaging with consumers globally with our Live in Levi’s campaign, and look forward to the full global reset of our Levi’s women’s product line in the second half of the year.”
Actions taken in 2014 for the global productivity initiative are expected to ultimately deliver net annualized savings of $175-$200 million through various cost-savings and restructuring initiatives. The company expects additional savings in future periods to come from streamlining its planning and go-to-market strategies, implementing efficiencies across its retail, supply chain and distribution network, and pursuing improved procurement practices.
The company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi’s, Dockers, Signature by Levi Strauss & Co., and Denizen brands. Its products are sold in more than 110 countries worldwide through a combination of chain retailers, department stores, online sites, and a network of approximately 2,700 retail stores and shop-in-shops.