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Financial Roundup: Levi’s Scores in the Second, as Burberry and M&S Lead Off With Sales Gains

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Levi Strauss rode its women’s and direct-to-consumer business to a solid second quarter, while U.K. mainstays Burberry and Marks & Spencer saw revenue gains in their first quarters.

Levi Strauss & Co.

In a nutshell: Benefiting from revenue growth in the direct-to-consumer channel, particularly in the U.S., and strong international business, the denim giant saw its gross margin for the second quarter ended May 28 increase to 52.3% of revenues compared with 51.1% in the same quarter in fiscal 2016. In U.S. wholesale business, lower Dockers revenue offset growth in Levi’s, Signature and Denizen brands. In Europe, net revenues grew 20 percent, reflecting growth across all markets and channels, including exceptional growth in the women’s and tops business, while in Asia, net revenues grew 3 percent on strong direct-to-consumer expansion and brand performance.

Earnings: Net income fell 43 percent to $18 million primarily due to a $23 million loss on early extinguishment of debt related to debt refinancing activities in the quarter, which will result in a substantial reduction in cost of debt and interest. Adjusted earnings before interest and taxes (EBIT) grew 7 percent to $67 million from $63 million in the year-ago period.

Sales: Net revenues rose 6 percent to $1.07 billion from $1.01 billion in the year-ago period. Direct-to-consumer revenues rose 13 percent on performance and expansion of the retail network, as well as e-commerce growth. Wholesale revenues were up 2 percent, primarily reflecting growth in Europe. Levi’s raised its full year 2017 revenue growth guidance to the 2 percent to 4 percent range.

CEO’s Take: Chip Bergh, president and chief executive officer, said: “Our business is more diversified than ever before, driven by disciplined execution of our long-term growth strategies, and investments in product innovation and the consumer shopping experience. Our strong year-to-date revenue growth reinforces the benefits of a more balanced portfolio as our women’s, tops, direct-to-consumer and international businesses delivered solid results, despite a slight decline in the U.S. wholesale business.”

[Read more on E-commerce growth: E-commerce Update: YNAP Eyes Mobile Future, Eloquii Puts Down Roots & More]

Burberry

In a Nutshell: Regional variances reflected the challenges of a global luxury brand in the first quarter ended June 30. Burberry said it saw mid-single-digit percentage growth in Asia Pacific, led by mid-teens percentage growth in China and improvement in Hong Kong, but South Korea remained challenging. The Europe, Middle East and Africa region posted a high-single-digit percentage gain, as the U.K. showed resilience; Continental Europe, notably Italy, exhibited weakness, and the Middle East remained challenging. A low-single-digit percentage decline was recorded in the Americas.

Revenue: Retail revenue in the three months grew 13 percent to 478 million pounds ($612 million). Comparable-store sales were up 4 percent. The timing of store footprint changes in the quarter resulted in lower average space year-on-year, reducing revenue 1 percent.

Outlook: For the full year, Burberry said it will focus on productivity from its current store footprint with no material contribution from net new space expected. Total wholesale revenue in the first half is expected to be flat. Burberry added that the expected negative impact of year-on-year exchange rate movements on adjusted pre-tax profit for the full 2017-18 year is around 25 million pounds, or $32.2 million, slightly less than it forecast in April.

CEO’s Take: Newly minted CEO Marco Gobbetti said, “We are pleased with our performance in the first quarter, while mindful of the work still to do. This is a time of great change for Burberry and the wider luxury industry. I look forward to building on the foundations Christopher (Bailey) and the team have put in place and creating new energy to drive growth.”

Marks & Spencer

In a Nutshell: The entrenchment of M&S continued in the first quarter, as the company, in keeping with plans set out last year, has now closed 28 of 53 stores outside the U.K. and goes forward with its strategy of focusing increasingly on its home market and food division.

Revenue: The company said international sales and the timing of the Easter holiday lifted first-quarter revenue 2.7% to 2.53 billion pounds ($3.26 billion). Sales in the struggling Clothing & Home division dropped 0.5% to 852.1 million pounds ($1.1 billion), as the company reduced the number of promotions and held no clearance sale in the quarter compared with one last year. International revenue rose 3.8%, with retained, owned and franchise revenue increasing 9.4%.

CEO’s Take: CEO Steve Rowe said, “Trading in the first quarter was in line with our expectations and we are on track with delivery of the plan we announced last year. I am pleased that we continue to grow full price sales in Clothing & Home, with reduced discounting and no clearance sale in the quarter.”

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