Levi Strauss Growth Charges On Despite Trade Worries
Ceo Chip Bergh told WWD he’s more worried about the impact trade wars could have on the economy than on production.
Almost everything is going right for Levi Strauss & Co. — except the trade war.
The San Francisco-based company continued to roar ahead in the second quarter, with revenues growing 17 percent as ascendant categories like tops and retail aided its global expansion — and it’s on track to post more than $5 billion in sales for the first time since 1999. Even the U.S. wholesale channel contributed and the Dockers revamp, still a work in progress, showed what chief executive officer Chip Bergh described as “glimmers of hope.”
In all, the U.S. economy is stronger than it’s been in decades, growing near 4 percent with very low unemployment — a situation Bergh, in an interview with WWD, attributed to the global system of free trade.
That status quo has been disrupted by Donald Trump’s aggressive pursuit of a trade war that last week saw tariffs ratcheted up on $34 billion on Chinese-made goods. Trump has also gone after Europe with steel and aluminum duties and has been renegotiating, and threatening to ditch, the North American Free Trade Agreement.
“Personally and as a company, we are big believers in free trade,” Bergh said. “The world…has benefited from free trade. My concern is that an escalation of tariffs and trade wars could have a significant negative effect on the global economy, on U.S. workers, on U.S. jobs and the U.S. consumers.”
If the trade war with China expands to apparel, many fashion companies will be hit with higher costs.
But Bergh said he’s less worried about how Levi’s would respond to the supply chain challenge — no single country accounts for more than 20 percent of the company’s production. He’s more concerned about how consumers and the broader economy respond.
“We believe we can weather a storm, but my bigger worry is what kind of impact this will have on the global economy…as costs rise as a result of these tariffs,” the ceo said. “It’s going to have a negative impact on the U.S. consumer and it’s going to have a negative impact on U.S. jobs — look at Harley Davidson, they’ve shifted production out of the U.S.
“This is not going to be good,” he said. “I don’t like the direction it’s headed.”
But Bergh likes almost everything else about the direction of the business he’s run for nearly seven years.
Levi’s second-quarter profits were boosted by gains in contacts to hedge against currency fluctuations. The bottom line quadrupled to $75 million from $18 million a year earlier, when a refinancing charge held down results.
Adjusted earnings before interest and taxes increased 15 percent to $77 million from $67 million.
Revenues for the three months ended May 27 increased to $1.25 billion from $1.07 billion. Revenues in the Americas rose 11 percent to $670 million, as Europe gained 31 percent to $367 million and Asia increased 13 percent to $209 million.
The growth has coincided with an increase in the company’s marketing spending, as well as broader improvement in the larger fashion world.
“There seems to be some stabilization in U.S. wholesale and that has helped everyone to some extent,” Bergh said, adding, “I don’t think U.S. wholesale is completely out of the woods at this stage. U.S. wholesale is a little bit of a melting iceberg.
“Probably the most important thing is that that growth is broad-based and extremely balanced,” he said.
The ceo pointed to momentum in tops, now 38 percent of the company’s business, as well as in women’s and its own retail, which added 53 stores compared with a year earlier.
“Europe just keeps putting points on the board, it’s incredible with all that’s going on in Europe,” Bergh said, alluding to political disruption in the U.K., Germany and Italy. “We’re building share on a global basis, our categories are not growing double digits, most of this is us and we’re winning in the marketplace.”