Press Release:
SAN FRANCISCO, Oct 12, 2010 (BUSINESS WIRE) — Levi Strauss & Co. (LS&Co.) today announced financial results for the third quarter ended August 29, 2010, and filed its third-quarter 2010 results on Form 10-Q with the Securities and Exchange Commission.
Highlights include:
Three Months Ended
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($ millions) August 29, 2010 August 30, 2009
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Net revenues $ 1,109 $ 1,040
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Net income $ 28 $ 41
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Third-quarter net revenues grew 7 percent year-over-year on a reported basis. Excluding the effects of currency, revenues grew 8 percent and were up in all three regions. Growth was driven by the strength of the Levi’s(R) brand in the Americas, the company’s acquisitions in 2009, and the expansion of the company’s dedicated store network worldwide. Revenue declines in the wholesale channel in certain markets partially offset this growth.
In comparison to the third quarter of 2009, operating income declined from $98 million to $86 million as the benefits from the increase in net revenues and higher gross margin were offset by continued investment in the company’s retail network and increased advertising and promotion activities. Below operating income, interest expense at $32 million was $6 million lower than the same quarter last year. Other expense was slightly higher at $8 million.
Third-quarter net income attributable to the company was $28 million, a decline of $13 million compared with last year.
The company maintained a strong liquidity position during the third quarter. At August 29, 2010, cash and cash equivalents were $261 million, complemented by $283 million available under the company’s revolving credit facility.
“Net revenue growth in the third quarter reflects the strength of the Levi’s(R) brand around the globe in spite of a challenging retail environment,” said John Anderson, president and chief executive officer. “In the face of tough economic conditions, we achieved several key milestones in our overarching strategy to grow our business around the world. We realigned our management structure around our global brands, launched the Levi’s(R) Curve ID fit system for women and began the roll-out of the new Denizen(TM) brand in Asia. We’re investing in these global product initiatives to help us capitalize on growth opportunities when the global economy truly recovers.”
Third-Quarter 2010 Highlights
Gross profit in the third quarter increased to $544 million compared with $494 million for the same period in 2009. Higher revenue and strong gross margins contributed to the increase in gross profit.
Gross margin for the third quarter increased to 49 percent of revenues compared with 48 percent of revenues in the same quarter of 2009, reflecting increased contribution from company-operated retail stores, which generally have a higher gross margin than the wholesale business.
Selling, general and administrative (SG&A) expenses for the third quarter increased to $457 million from $396 million in the same period of 2009. Higher SG&A was primarily due to additional selling expenses related to the expansion of the company-operated retail network and higher advertising and promotion expenses in the Americas region as the company increased support for its Levi’s(R) and Dockers(R) brands.
Operating income for the third quarter was $86 million compared with $98 million for the same period in 2009. The 12 percent decrease primarily resulted from a planned increase in advertising and promotion expense.
Net income was $28 million in the quarter, negatively impacted by a higher effective tax rate. The higher tax rate is driven by the company’s likely inability to receive future tax benefits from net losses in Japan.
Regional Overview
Regional net revenues for the quarter were as follows:
% Increase (Decrease)
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Net Revenues August 29, August 30, As Reported Constant
($ millions) 2010 2009 Currency
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Americas $ 673 $ 616 9 % 9 %
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Europe $ 259 $ 266 (3)% 6 %
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Asia Pacific $ 177 $ 159 11 % 5 %
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Higher net revenues in the Americas were primarily due to solid results in the wholesale channel, complementing the strong incremental contribution from the outlet stores acquired last year.
These improvements were partially offset by lower U.S. Dockers(R) brand sales.
Net revenues in Europe decreased on a reported basis for the three-month period, reflecting unfavorable currency effects. The region’s net revenues benefited from the 2009 acquisition of the footwear and accessories business and expansion of the company-operated retail network across the region. Revenue gains were partially offset by sales declines in the wholesale channels, reflecting the continued difficult economic environment.
Net revenues in Asia Pacific increased during the quarter on a reported basis and constant currency basis reflecting the continued expansion of the company’s brand-dedicated retail network in China and India as well as in other emerging markets, partially offset by continued declines in Japan during the quarter.
Cash Flow and Balance Sheet
The company ended the third quarter with cash and cash equivalents of $261 million, a decrease of $10 million from November 30, 2009. Cash provided by operating activities during the nine-month period was $96 million, compared with $174 million for the same period in 2009.
In 2010, cash collections from customers increased on higher net revenues, offset by the investment in strategic initiatives and inventory build. Net debt of $1.6 billion at the end of the quarter was comparable to net debt at the end of 2009.
“The third quarter results demonstrate our ability to deliver strong operating performance in the face of a challenging business environment around the world,” said Blake Jorgensen, chief financial officer. “We are committed to investing in our strategic initiatives, while diligently controlling costs and managing inventories.”
Investor Conference Call
The company’s third-quarter 2010 investor conference call will be available through a live audio Webcast at https://www.levistrauss.com/investors/earnings-webcast today, October 12, 2010, at 1 p.m. PDT/4 p.m. EDT. A replay is available on the website the same day and will be archived for one month. A telephone replay also is available through midnight EDT, October 18, 2010 at 800-642-1687 in the United States and Canada, or 706-645-9291 internationally; I.D. No. 13879010.
