Levi’s Q2 revenue dropped by 4%Wednesday, 11 July 2012
Levi Strauss second quarter results reflected a decrease in net revenue by 4 percent
on a reported basis and 1 percent on a constant-currency basis. The company’s sales declined in the Asia Pacific and Europe regions.
Second quarter net income attributable to the company was $13 million compared to $21 million in the second quarter of 2011, as a gross margin declined reflecting the higher cost of cotton was only partially offset by lower SG&A expenses.
Net income also reflected a debt extinguishment charge of $8 million ($6 million net of the related tax effects), as the company completed a successful refinancing of $0.4 billion of its debt, taking advantage of lower interest rates and extending its bond maturity profile.
“It is clear that the economic headwinds are getting stronger. While our business grew in the Americas, primarily driven by our own retail stores, Europe continues to be a challenge, and for the first time in two years our business in Asia declined,” said Chip Bergh, president and chief executive officer. “In the face of these tougher economic conditions, we are rationalizing our business, reducing operating costs and focusing our resources on the opportunities that will have the most impact in growing shareholder value.”
Gross profit in the second quarter decreased to $481 million compared with $541 million for the same period in 2011. Gross margin for the second quarter was 46 percent of revenues compared with 49 percent of revenues in the same quarter of 2011. Selling, general and administrative expenses (SG&A) for the second quarter decreased to $435 million from $476 million in the same period of 2011. The decline in SG&A was primarily driven by a reduction in advertising activities in some markets, the favorable effects of currency and lower distribution costs.
Operating income of $46 million declined from $65 million the prior year due to the negative effects of currency and as the decline in SG&A did not sufficiently offset the lower gross margin. Levi’s Regional net revenues increased in the Americas primarily reflecting higher revenues from the company’s Levi’s brand retail stores and increased sales of Denizen and Signature brand products. Levi’s and Dockers brand net revenues declined at wholesale, as the benefit of price increases was offset by volume declines in certain major wholesale customers and a decline in sales to lower-margin channels. Net revenues in Europe decreased primarily due to a lower volume of sales to the traditional wholesale channels and to franchisee stores, reflecting the ongoing depressed retail environment, most notably in southern Europe. Net revenues of the company-operated retail network grew, reflecting improved performance of its stores. Net revenues in Asia Pacific decreased as key markets, such as India and China, faced increased economic challenges. Both Levi’s and Denizen brand revenues declined.
Levi Strauss 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 global footprint of more than 2,300 franchised and company-operated stores.