Levi Strauss & Co. (LS&CO.) announced financial results for the third quarter ended August 26, 2007, and filed its third-quarter 2007 Form 10-Q with the Securities and Exchange Commission.
Net revenues for the third quarter were $1,051 million compared to $1,028 million for the same period last year, a 2 percent increase. Net revenues would have been stable before the benefit of favorable currency exchange rates.
The net revenue performance reflects stronger sales in Europe and Asia, partially offset by a decline in North America driven by lower U.S. Levi Strauss Signature and Dockers sales.
The Levi’s brand grew in each region as the brand’s improved product offerings performed well around the world. Net revenues also benefited from additional brand-dedicated retail stores worldwide.
Net income for the third quarter increased 24 percent to $61 million compared to $49 million in the prior year. Net income benefited primarily from lower tax and interest expense.
“The Levi’s brand is growing around the world and our European business is performing very well,” said John Anderson, chief executive officer.
“Asia Pacific continued to grow with strong performance again in the emerging markets. North America’s lower revenue this quarter was disappointing, but I am optimistic about the region’s results for the year. Our year-to-date results put us on track to deliver modest revenue growth, solid net income improvement and reduced debt for the year.”
Third-Quarter 2007 Results:
• Gross profit increased 3 percent to $486 million for the quarter compared to $473 million in the prior year period. Gross margin increased slightly to 46.3 percent of net revenues compared to 46.0 percent of net revenues in the same period last year.
• Selling, general and administrative expenses for the quarter increased 10 percent to $343 million from $312 million in the 2006 period. Higher SG&A expenses in the 2007 period were primarily attributable to increased selling expense related to new company-operated stores, a lower benefit-plan curtailment gain compared to the 2006 period and changes in currency exchange rates. These were partially offset by lower administrative costs in the 2007 period.
• Operating income decreased 9 percent to $143 million compared to $158 million for the third quarter of 2006. The lower operating income reflects the lower net revenue in North America and a lower benefit-plan curtailment gain in the 2007 period, partially offset by lower corporate staff costs and expenses.
• Interest expense decreased 12 percent to $53 million compared to $60 million for the prior year period. The decrease is the result of our debt refinancing and debt reduction actions taken during 2006 and 2007, which resulted in lower debt levels and lower average borrowing rates.
“Our margins remain healthy and our strong cash flow enables us to reduce debt while continuing to invest in the future of the business,” said Hans Ploos van Amstel, chief financial officer. “Overall, I’m pleased with our results. While we have some challenges ahead, we expect to deliver another solid fiscal year.”
Levi Strauss & Co.
