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.

"I wouldn’t say I’m that happy with the Type One in the U.S., but I’m not discouraged either," Marineau said. He added the women’s jeans have been selling better than men’s, and said that at the company’s recently opened store in Manhattan’s SoHo district they now represent 15 percent of sales.

He said the company’s plan is for Type One jeans sales to represent no more than 6 percent of revenue this year. The company had initially planned for Engineered Jeans to represent more than 10 percent of sales, a target it met overseas but didn’t come close to in the U.S.

He added that the firm plans to start encouraging consumers to try on the Type One jeans and to roll out more moderate washes to help shoppers "overcome whatever lack of courage they might have to try on something that looks as different as this."

Levi’s overseas operations continued to outperform its Americas unit in the quarter. Sales in the Americas fell 14.5 percent to $514.2 million. Sales in Europe rose 5.3 percent to $274.4 million and revenues in Asia climbed 18 percent to $86.5 million.

Levi’s balance sheet showed a buildup of cash, with cash and equivalents rising to $381.4 million from $96.5 million at the start of its fiscal year. The company has also put aside $244.3 million in restricted cash in anticipation of a debt payment due in November.

Marineau acknowledged that Levi’s, along with the rest of the fashion universe, faces a major question in planning for the year: what effect the war in Iraq will have on consumer spending.

"We’re encouraged that since the war began, the reports that we’ve gotten from our retailers is that retail traffic has not been affected," he said. "Most of our retailers have seen uptick after a bad February and [early] March. I hope that’s going to continue."

Another issue Levi’s faces is trying to get traction under its wheels at a time when consumer demand for denim is starting to erode after several strong years.

"Our plans for growth don’t presume strong category growth," said Marineau, adding that Levi’s might stand to benefit if retailers begin to trim back their denim assortments.
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