Levi’s Profits Slip, Department Stores Weigh on First Quarter

Chip Bergh, Levi Strauss & Co.’s president and chief executive officer, is still working to crack the department store code in the U.S., but is moving the rest of the business forward.

But growth at both Wal-Mart Stores Inc. and Amazon, through the company’s own stores and in Europe wasn’t quite enough to push the company’s bottom line up in the first quarter.

Levi’s net income slipped 9.3 percent in the first quarter to $60.1 million from $66.3 million.

Revenues for the three months ended Feb. 26 rose 4.3 percent to $1.1 billion from $1.06 billion. And gross margins fell to 51.2 percent of revenues, from 53 percent a year earlier.

Bergh told WWD: “Focusing on international, building out the portfolio of the Levi’s business and driving [the direct-to-consumer channel] is what’s carried us through a very, very difficult environment here in U.S. wholesale, which remains very, very challenged for us. Our business is growing in the U.S. Our [own] stores are busy….Where we control our own destiny, our business is doing well. Consumers are shopping, they’re going out into stores, they’re looking for the brands that they love and the right kind of experiences. The real fundamental issue is the wholesale channel, the big department stores, and malls to an extent as well. Fundamentally, it’s just a consumer relevancy question. Are those retailers giving consumers what they’re looking for?”

The attention in the battle for market share has shifted over to Amazon, which is moving further into fashion, and Wal-Mart, which is ramping up e-commerce.

“They’re both massive retailers, not just for us, for a lot of companies,” Bergh said. “I like to say we love all of our customers.

“Competition is a good thing,” he said. “We’re growing with both of those customers today and I think that’s something worth noting, it’s not like one is winning on Levi’s and one is losing. We’re growing with both of those customers in an environment were a lot of our big wholesale customers are challenged.”

The company’s largest market, the America’s, saw revenues rise just 1.2 percent to $578 million, while Europe rose 12.3 percent to $310 million and Asia gained 2.4 percent to $214 million.

Levi Strauss’ direct-to-consumer business grew 10 percent as the company’s own retail and e-commerce businesses expanded. Wholesale sales increased 2 percent with strength in Europe offsetting declines in the wholesale business, particularly the department store channel.

Bergh said the company saw double-digit gains in its women’s and tops businesses during the quarter.

But Dockers remains a trouble spot.

“My single-biggest frustration in the five years I’ve been here is that we’ve not been able to turn the corner on Dockers,” the ceo said. “I continue to be very long on this brand, we’re not giving up.”

Eighty-five percent of the Dockers business is conducted through U.S. wholesale accounts.

“We’ve just kind of missed the mark,” Bergh said. “We’re very committed this business turned around and it starts by getting the product right and getting the marketing right. My expectation is that we will end the year in the stronger position than we started it.”

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