Weighed down by the negative impact of a strong dollar as well as a consumer shopping environment that is lackluster, Levi Strauss & Co. delivered lower quarterly and year-end sales — but profits jumped as the year-over-year comparison was more favorable.
Net revenues fell 7 percent in the fourth quarter to $1.28 billion from $1.38 billion while net income came in at $101 million versus a $6 million loss in the same period last year. Adjusted pre-tax earnings rose 25 percent to $168 million from $134 million. For the year-end period, net revenues fell 5 percent to $4.49 billion from $4.75 billion in the prior year while net income nearly doubled to $209 million from $106 million. Adjusted earnings for the year rose 5 percent to $479 million from $504 million.
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The company said in its report that “currency translation unfavorably impacted net revenues by $85 million in the fourth quarter and by $312 million for the full year.”
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“Despite the currency impact we managed to put up strong numbers,” Chip Bergh, president and chief executive officer, told WWD. Bergh said the company experienced broad-based growth. And it was “across men’s, women’s, kids, tops, bottoms and accessories,” the ceo said. “All of it grew — at wholesale and retail.”
In the quarterly report, the company said the net income growth “primarily reflected lower restructuring charges associated with the company’s global productivity initiative, lower interest expense, and a pension settlement loss recorded in the fourth quarter of the prior year.”
With the women’s collection, which was relaunched last year, Bergh told WWD that “it’s gotten off to a great start globally, but there is still work to be done.” Bergh noted that the women’s business experienced a 12 percent sales gain in the second half of 2015, and had a “high single digits [performance] for the fiscal year.”
Regarding the men’s business, Bergh said the 511 Slim Fit “continues to drive growth in men’s.” He noted the various finishes offered are resonating with consumers and the style continues to be popular across market segments and regions. Also seeing strength are the 541 Athletic Fit jeans, which appeal to men looking for a more comfortable and active fit. “And it has a tapered look,” Bergh added.
The company said the gross margin rate for the fourth quarter rose to 51.2 percent, which compares to 49 percent in the same period last year, and it was “primarily due to lower negotiated product costs and streamlined supply-chain operations,” the company said.
By region, net revenues for the quarter declined 9 percent in the Americas and 13 percent in Europe while Asia experienced a 6 percent gain. In the Americas, the company said the drop in net revenues was “primarily due to the fourth quarter consisting of one fewer week as compared to the prior year. Beyond the timing impact, domestic wholesale revenues declined slightly due to soft retail conditions, while direct-to-consumer revenues were in line with prior-year as improved conversion offset the impact of traffic declines.”
“We continued to grow our direct-to-consumer business, and saw a very positive consumer response to the products we introduced in the fall,” Bergh said in the sales and earnings report. “In 2016 we will continue to invest in our retail network, e-commerce and our brands to support our long-term profitable growth objective.”
Bergh told WWD that he doesn’t expect the currency issues to dissipate. “It will be a tough year, and I don’t see it getting better,” he said.
But internationally, despite challenges in emerging markets, Bergh said “there is lots of upside opportunity — and it’s a higher margin business.” For example, even as the company struggled against currency issues and a globally lackluster retail environment, it was able to pull off a 6 percent sales gain in Asia for the fourth quarter.