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Silver Lining, Gray Clouds: Levi’s Improves but Outlook Gloomy

Levi’s is reporting a 9.7 percent first-quarter sales gain and a narrowed loss, but ceo Phil Marineau said he’s swimming against the economic tide.

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The company’s other growth area was the Asia-Pacific region, where sales were up 31.2 percent to $131.8 million. Factoring out exchange rates, sales for that region would have been up 19.5 percent.

John Anderson, president of the company’s Asia-Pacific operations, said, “It’s not a one-product concept driving our growth, but a variety of products backed by good investment in advertising.”

Levi’s core brand in America remained an area of weakness, with sales dropping 5.2 percent to $295.9 million.

Robert Hanson, president of the Levi’s brand in the U.S., said despite weakness in the men’s business — representing about 70 percent of sales — in women’s he has seen “double-digit sell-through increases for our low-rise, stretch, boot-cut and flare programs. Levi’s has been outpacing the category in our core channels, particularly in the junior segment.”

He also noted that this month the company is breaking a new consumer ad campaign, called “A Style for Every Story,” which he expects will help improve sales performance.

In the face of continued sales declines and recent losses, Levi’s officials acknowledged the company’s debt had risen slightly, to $2.16 billion at the end of the quarter, up from $2.11 billion when the company’s fiscal year ended in November. The privately held company releases its financial results because of publicly traded bonds.

However, chief financial officer Jim Fogarty noted that overall inventories stood at $611.9 million — down 10 percent from yearend — and that inventory turns in the quarter rose to an annualized level of 3.5 times, up from 3.3 times at the end of the year.

Fogarty took on cfo duties on an interim basis when Levi’s hired his firm, turnaround specialists Alvarez & Marsal. On Tuesday, he disclosed the first restructuring steps Levi’s will take since bringing him on board in December: The company will lay off about 200 staffers in May and will leave another 75 open positions unfilled. At the end of the quarter, Levi’s employed 10,885 people worldwide.

He added that additional cuts may be on the way this year and said, “We are continuing to explore additional ways to reduce our costs, increase cash flow and improve our structure.”
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