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3rd Time’s No Charm: Drop in 1st Qtr. Sales Dims Levi’s Recovery

Levi’s trip on the road to recovery hit a nasty pothole in the first quarter, but the Wal-Mart steamroller is coming soon to smooth the way.

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Levi’s print campaign for its new Type One jeans will continue though the company wasn’t satisfied with its TV ad

Levi’s print campaign for its new Type One jeans will continue, though the company wasn’t satisfied with its TV ad.

Photo By WWD Staff

NEW YORK — Levi’s trip on the road to recovery hit a nasty pothole in the first quarter, but the Wal-Mart steamroller is coming soon to smooth the way.

The jeans giant reported a 6.4 percent decline in sales, following a two-quarter run of revenue increases. Rising interest expenses and other charges related to its debt also pulled the San Francisco-based company into the red for the quarter, with a $24.5 million net loss compared with $42.5 million in net income in the first quarter last year.

Sales for the three months ended Feb. 23 were down 6.4 percent to $875.1 million. Factoring out the effect of currency fluctuations, the dip would have been a sharper 11.2 percent.

Phil Marineau, president and chief executive officer of Levi Strauss & Co., blamed much of the decline on retailer efforts to recover from a holiday inventory hangover.

"We knew quarter one and the first half of the fiscal year was going to be a struggle," he said. "But quarter one was certainly more difficult than we planned. We didn’t expect sales to be as low as they came in."

Still, he said that Levi’s remains committed to breaking its six-year streak of sales declines this year, with overall revenue growth of 2 to 5 percent. That forecast factors out the effect of currency fluctuations.

Marineau contended the revenue shortfall was a result of retailers’ cutting back on ordering through January and February, as they tried to work off holiday backlog. But he emphasized that inventories of Levi’s merchandise are down at retail and cited market research that showed the company’s unit sales of women’s jeans in the U.S. were up 5 percent in December and January, at a time when overall sales in the women’s jeans category dropped 14 percent.

"Our retail trends are better than our wholesale trends, and sooner or later wholesale trends catch up with retail," he said in a phone interview.

He added that Levi’s expects a tough second quarter, but foresees a return to growth in the second half of the year.

One key reason the company expects its sales to grow in the second half is that’s when it will begin shipping the new mass market Levi Strauss Signature line to Wal-Mart Stores.
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