Levi's pockets higher Q1 profit

Levi Strauss & Co began its new fiscal year with a 10th straight quarter of higher profits, but the jeans maker's momentum appears to be tapering off as the US economy frays.

The San Francisco-based company said that it earned $97.1 million during the three months ended Feb 24, a 12 percent improvement from net income of $86.6 million in the same period a year ago.

Revenue rose 4 percent to $1.08 billion, primarily because of the weaker dollar and management's decision to ship some clothing to retailers ahead of schedule.

Although it is privately owned by the descendants of its founder, Levi Strauss releases its financial results because some of its debt is publicly traded.

Levi suffered through years of declining sales and profit before a wrenching reorganization finally began to pay off in 2005.

The turnaround enabled Levi's to produce its most profitable year in more than a decade during 2007, but that performance increasingly is looking like it will be a tough to beat as skittish consumers become more frugal.

"Looking ahead, we expect the operating environment to be tough," John Anderson, Levi's chief executive, said during a conference call on Tuesday.

Besides facing challenges in the US economy, Anderson cited Japan as another troublesome market for the company.

But in a sign of the company's confidence in its ability to withstand the economic turbulence, Levi approved a $50 million dividend that will be paid to its shareholders later this month. It's the company's first dividend since 1995.

Levi's gains during the first quarter had little to do with increased demand for its clothing.

Lower tax and debt payments accounted for most of the earnings increase. And, if not for the weak dollar, Levi's revenue would have been unchanged.

Sales boost

The company's first-quarter sales also received a lift from about $18 million in shipments that were sent to US retailers in February instead of March.

Management accelerated the deliveries to minimize trouble as the company switched over to new software made by SAP AG.

But the new software still prevented the company from making some US shipments a few weeks ago, and Levi is now scrambling to get back on schedule.

Management warned the software glitches may hurt its second-quarter results, but predicted the technology will help boost its profits in the long term.

Levi's first-quarter sales in North America and Latin America sagged by $11 million, or 2 percent, largely because of lackluster demand for the company's discount Signature brand.

Levi's more than offset that decline in Europe, where sales climbed $43 million, or 15 percent.

Agencies

(China Daily 04/10/2008 page16)