Levi Strauss & Co. Announces Third-Quarter 2011 Financial Results

SAN FRANCISCO (October 11, 2011) – Levi Strauss & Co. (LS&Co.) today announced financial results for the third quarter ended August 28, 2011, and filed its third-quarter 2011 results on Form 10-Q with the Securities and Exchange Commission.

Highlights include:

Third-quarter net revenues increased 9 percent on a reported basis primarily due to the Levi’s® brand, through the expansion and performance of the company’s retail network.  Excluding the effect of currency, net revenues improved 4 percent.  Net income increased to $32 million, as a decline in operating income was more than offset by a lower tax rate.    

“In the third quarter, we saw continued revenue growth from the Levi’s® brand in markets around the world, but increased cotton costs continued to put pressure on the margins of all our products,”  said Blake Jorgensen, chief financial officer of Levi Strauss & Co.  “Going forward, while dealing with the challenging economic environment and volatile raw material costs, we will focus on controlling our expenses and managing inventory.”  

As the company previously announced, Chip Bergh joined as President and Chief Executive Officer on September 1, 2011.  “I have spent the first month immersed in getting to know our employees, customers and consumers first-hand,”  said Bergh.   “I joined LS&Co. because I believe we have tremendous brands with significant upside potential.  My near-term focus is on navigating a difficult economic environment and cautious consumer spending by concentrating on structural economics, cash management and ensuring our brands are delivering compelling value to consumers around the world.” 

Third-Quarter 2011 Highlights
 

• Gross profit in the third quarter increased to $569 million compared with $544 million for the same period in 2010, reflecting the company’s higher net revenues and a favorable currency impact.  Gross margin for the third quarter decreased to 47 percent of revenues compared with 49 percent of revenues in the same quarter of 2010.  The gross margin decline reflects the impact of higher-priced cotton, which was not fully offset by the company’s product price increases, and an increase in discounted sales at Levi’s® and Dockers® brands.

• Selling, general and administrative (SG&A) expenses for the third quarter increased to $489 million from $457 million in the same period of 2010.  Higher SG&A included the effects of currency and additional selling expenses related to the expansion of the company-operated retail network.

• Operating income for the third quarter declined to $81 million compared with $86 million for the same period of 2010, as the revenue increase was offset by the lower gross margin and higher SG&A.

Regional Overview

Regional net revenues for the quarter were as follows:

• Net revenues grew in the Americas due to the Levi’s® brand, which had higher sales in the company’s retail stores, primarily its outlet stores, and the launch of Denizen™.  Dockers® brand net sales in the region declined.

• The reported net revenues increase in Europe was due to currency; net revenues were down on a constant-currency basis.  Gains from the expansion of the company-operated retail network and the continued success of the Levi’s® Curve ID collection for women were more than offset by declines in the wholesale business.

• Revenue growth in Asia Pacific, primarily driven by the Levi’s® brand and continued expansion of the company’s brand-dedicated retail network in China and India, offset the revenue decline in Japan. 

Cash Flow and Balance Sheet

As of August 28, 2011, cash and cash equivalents were approximately $231 million, and $337 million was available under the company’s revolving credit facility.   Cash provided by operating activities during the nine-month period in 2011 was $17 million, compared with $96 million for the same period in 2010; the decline reflected higher inventories, due primarily to the increased cost of cotton, increased selling, general and administration expenses and increased pension plan contributions.  Net debt was $1.75 billion as compared to $1.6 billion at the end of 2010.

Investor Conference Call

The company’s third-quarter 2011 investor conference call will be available through a live audio Webcast at www.levistrauss.com/Financials/EarningsWebcasts.aspx today, October 11, 2011, at 1 p.m. Pacific/4 p.m. Eastern.  Participants may dial-into the call in listen-only mode as well at 800-891-4735 or 973-200-3066 internationally.A replay is available on the website the same day and will be archived for one month.  A telephone replay also is available through October 18, 2011, at 800-642-1687 in the United States and Canada, or 706-645-9291 internationally; I.D. No.15016647.

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 ended 2010, 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 franchised and company-owned stores.  As of August 28, 2011, the company operated 499 stores within 31 countries.  Levi Strauss & Co.’s reported fiscal 2010 net revenues were $4.4 billion.  For more information, go to http://levistrauss.com.