Levi Strauss & Co.'s first-quarter profit rose 14 percent despite a sales downturn driven by persisting problems in Europe and Wal-Mart Stores Inc.'s recent de-emphasis of the jeans maker's discount brand.
The San Francisco-based company said Tuesday it earned $53.8 million for the three months ended Feb. 26. That compares with net income of $47.3 million at the same time last year. Boosting profit this year was easier because the company suffered a $23 million setback last year to account for an early repayment of debt.
Revenue for the period totaled $960 million, a 6 percent decline from $1.01 billion last year. If not for unfavorable international currency rates, management said sales would have decreased 4 percent.
Levi's is privately held but discloses its financial results because some of its debt is publicly traded.
The sales drop-off wasn't a surprise. The company had warned last month that its first-quarter revenue might fall by as much as 8 percent.
Still, the erosion served as another reminder of the struggles that have plagued the company for the past decade as its brands lost some of their luster among consumers who preferred different fashion styles or less expensive clothing.
With the help of a turnaround firm, Levi's finally ended eight consecutive years of sliding sales in 2005 only to begin the new year in a familiar funk. Now, the company expects its sales to continue to falter through at least the first half of this year.
Despite the rough start, San Francisco fashion industry consultant Harry Bernard believes the worst is over for Levi's. "The bottom has already been reached. What's going on now appears to be some clean-up and reshuffling."
Levi's biggest headaches are in Europe, where first-quarter sales plunged 19 percent to $240.9 million.
Phil Marineau, Levi's chief executive, said he has spent the past six weeks in Europe looking for ways to revive sales there. "To be honest, we took our eye off the ball on some of our product assortment" in Europe, he said during a Tuesday interview.
Levi's also had to cope with a new challenge in the first quarter when Wal-Mart, the nation's largest retailer, decided to devote less floor space to the jeans maker's discount brand, Signature. Introduced in mid-2003, Signature had been a sales catalyst for Levi's until now.
Bentonville, Ark.-based Wal-Mart primarily curtailed its orders of Signature women's clothing so its stores could highlight its own private-label brands, Marineau said. "Wal-Mart is such a huge retailer that when it changes its strategy, it's going to affect your business."
Signature sales in the United State totaled $70.2 million, a 20 percent drop from $87.9 million last year. Wal-Mart's snub didn't account for all the decline. The company also said it shifted some of Signature's first-quarter shipments into the current quarter.
Levi's hopes to soften the Wal-Mart blow by persuading more retailers to sell its Signature line.
"It's hard to tell at this point whether this is going to be a major problem for Levi's or just a blip," Bernard said.
Demand for Levi's namesake brand also sagged in the United States, where sales dipped 2 percent to $277.1 million. Marineau said Levi's is regaining favor with consumers, but fewer merchants are stocking the clothes as both Mervyns and Federated Department Stores Inc. close some of their locations.
The company's Dockers brand, which management considered selling in 2004, emerged as a bright spot in the first quarter, with U.S. sales rising 5 percent to $158.7 million.