Levi Strauss & Co. Announces Second-Quarter 2012 Financial Results

SAN FRANCISCO (July 10, 2012) – Levi Strauss & Co. (LS&Co.) announced financial results today for the second quarter ended May 27, 2012.
Highlights include:

The company’s second quarter results reflected a challenging global economy, the continued impact of higher-priced cotton and the negative effects of currency. Net revenues decreased 4 percent on a reported basis and 1 percent on a constant-currency basis, primarily reflecting a decline in sales in the Asia Pacific and Europe regions. Second quarter net income attributable to the company was $13 million compared with $21 million in the second quarter of 2011, as a gross margin decline reflecting the higher cost of cotton was only partially offset by lower SG&A expenses.   

Net income also reflected a debt extinguishment charge of $8 million ($6 million net of the related tax effects), as the company completed a successful refinancing of $0.4 billion of its debt, taking advantage of lower interest rates and extending its bond maturity profile.

“It is clear that the economic headwinds are getting stronger.  While our business grew in the Americas, primarily driven by our own retail stores, Europe continues to be a challenge, and for the first time in two years our business in Asia declined,” said Chip Bergh, president and chief executive officer.  “In the face of these tougher economic conditions, we are rationalizing our business, reducing operating costs and focusing our resources on the opportunities that will have the most impact in growing shareholder value.”

Second-Quarter 2012 Highlights

-  Gross profit in the second quarter decreased to $481 million compared with $541 million for the same period in 2011, reflecting a decline in gross margin and the negative effects of currency.  Gross margin for the second quarter was 46 percent of revenues compared with 49 percent of revenues in the same quarter of 2011.  The decline in gross margin was primarily due to higher-priced cotton, which price increases did not fully cover; however, margin benefitted from increased revenues from the company’s retail network and a decline in sales to lower-margin channels, reflecting the company’s tighter inventory position.  

 -  Selling, general and administrative expenses (SG&A) for the second quarter decreased to $435 million from $476 million in the same period of 2011.  The decline in SG&A was primarily driven by a reduction in advertising activities in some markets, the favorable effects of currencyand lower distribution costs.

-  Operating income of $46 million declined from $65 million the prior year due to the negative effects of currencyand as the decline in SG&A did not sufficiently offset the lower gross margin.

Regional Overview

Regional net revenues for the second quarter were as follows:

-  Net revenues increased in the Americas primarily reflecting higher revenues from the company’s Levi’s® brand retail stores and increased sales of Denizen® and Signature brand products.  Levi’s® and Dockers® brand net revenues declined at wholesale, as the benefit of price increases was offset by volume declines in certain major wholesale customers and a decline in sales to lower-margin channels.

-  Net revenues in Europe decreased primarily due to a lower volume of sales to the traditional wholesale channelsand to franchisee stores, reflecting the ongoing depressed retail environment, most notably in southern Europe.  Net revenues of the company-operated retail network grew, reflecting improved performance of its stores.

-  Net revenues in Asia Pacific decreased as key markets, such as India and China, faced increased economic challenges.  Both Levi’s® and Denizen® brand revenues declined. 

Cash Flow and Balance Sheet

Cash provided by operating activities was $328 million for the first half of 2012, compared with $85 million for the same period in 2011, reflecting the company’s improved working capital utilization, particularly receivables and inventories.  

During the second quarter of 2012, the company refinanced a portion of its debt, taking advantage of lower interest rates and extending its bond maturity dates.  The company completed an offering of $385 million of 6.875 percent senior notes due in 2022 and used the net proceeds to complete a tender offer for its outstanding 8.875 percent notes and to repurchase a portion of its 4.25 percent Yen-denominated Eurobonds, both due in 2016.  

The company paid a $20 million dividend during the second quarter of 2012.  Net debt at the end of the second quarter of 2012 was $1.5 billion, compared to $1.8 billion at the end of 2011, and the company’s total liquidity position was $864 million.

“In the face of challenging economic conditions, we continued to improve our liquidity position and manage our working capital closely.  Across the company, we are focused on improving our operations and business performance to navigate through these difficult times,” said Blake Jorgensen, chief financial officer of Levi Strauss & Co.  

Investor Conference Call
The company’s second-quarter 2012 investor conference call will be available through a live audio webcast  today, July 10, 2012, at 1 p.m. Pacific / 4 p.m. Eastern.  To access the webcast, please visit http://www.levistrauss.com/investors/earnings-webcastor dial-in to listen to call at: 800-891-4735 or 973-200-3066; I.D. No. 95091283.  A replay is available on the website for one month.    In addition, a telephone replay is available through July 16, 2012, at 800-585-8367; I.D. No. 95091283.

 Forward Looking Statement
This news release contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  We have based these forward-looking statements on our current assumptions, expectations and projections about future events.  We use words like “believe,” “will,” “so we can,” “when,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words.  These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.  Investors should consider the information contained in our filings with the U.S.  Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year 2011, especially in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections.  Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements.  In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this news release may not occur.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this news release.  We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this news release to reflect circumstances existing after the date of this news release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

About Levi Strauss & Co.
Levi Strauss & Co. is one of the world’s largest brand-name apparel companies and a global leader in jeanswear.  The company designs and markets jeans, casual wear and related accessories for men, women and children under the Levi’s®, Dockers®, Signature by Levi Strauss & Co.™, and Denizen® brands.  Its products are sold in more than 110 countries worldwide through a combination of chain retailers, department stores, online sites, and a global footprint of more than 2,300 franchised and company-operated stores.  Levi Strauss & Co.’s reported fiscal 2011 net revenues were $4.8 billion.  For more information, go to http://levistrauss.com.

Investor Contact:
Chris Ogle
Levi Strauss & Co.
(800) 438-0349
Investor-relations@levi.com

Media Contact:
Kris Marubio
Levi Strauss & Co.
(415) 501-6709
kmarubio@levi.com

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