First-quarter results reflect continued improvements in the company’s key operating measures, including net revenues and net income.
Net revenues for the first quarter were $1,037 million compared to $968 million for the same quarter in 2006, a 7 percent increase. Net revenues grew in each of the company’s three regions. The increase primarily reflects growth in the Levi’s brand across all regions due to a higher proportion of premium-priced product sales, strong growth in emerging markets and additional brand-dedicated retail stores. Net revenues also benefited from favorable currency exchange rates.
Net income for the first quarter increased 61 percent to $87 million compared to $54 million in the same quarter of 2006. The improvement reflects an 11 percent increase in operating income, mostly driven by a $25 million benefit-plan curtailment gain related to the closure of a U.S. distribution center, lower interest expense and a lower effective tax rate, partially offset by higher restructuring expenses.
“We're off to a good start this year,” said John Anderson, chief executive officer. “Our sales grew for the second consecutive quarter, reflecting a broad-based improvement worldwide. Our premium products are doing well with consumers in many markets. At the same time, some businesses, including Japan and the U.S. Levi Strauss Signature brand, need considerable improvement. Overall, we made very good progress in the quarter.”
First-Quarter 2007 Results
Gross profit increased 7 percent to $498 million compared to $465 million in the first quarter of 2006. Gross margin was stable at 48.0 percent of net revenues for the first quarter of 2007 compared to 48.1 percent of net revenues in the same period last year.
Selling, general and administrative expenses increased 2 percent to $296 million in the first quarter of 2006 from $291 million in same period of 2006. SG&A as a percent of net revenues was lower at 29 percent compared to 30 percent for the same period last year. Higher SG&A expenses in the 2007 period were primarily attributable to increased selling expense related to new company-operated stores, higher distribution and marketing expenses in line with the improved net revenues for the quarter, and higher corporate expense. These increases were partially offset by the benefit-plan curtailment gain, and lower advertising and promotion expenses.
Operating income for the quarter increased 11 percent to $189 million compared to $171 million for the first quarter of 2006. The increase was primarily driven by the benefit-plan curtailment gain, partially offset by restructuring charges related to a planned distribution center closure in Europe.
Interest expense for the first quarter of 2007 decreased 13 percent to $58 million compared to $66 million in the prior year period. The decrease was primarily attributable to lower average debt balances during the 2007 quarter, reflecting debt refinancing and debt reduction actions taken during 2006.
“We continue to build our financial strength,” said Hans Ploos van Amstel, chief financial officer. “Our margins remained strong and our revenues grew. We are delivering more profit to the bottom line as a result of our lower debt, and lower interest and tax rates. In addition, we will continue to focus on ensuring our cost structure is competitive.”
The company’s first-quarter investor conference call will be available through a live audio Webcast at http://www.levistrauss.com/Financials/EarningsWebcasts.aspx today, April 10, 2007, at 1 p.m. PDT/4 p.m. EDT. A replay is available on the Web site the same day and will be archived for one month. A telephone replay also is available through April 17, 2007, at 800-642-1687 in the United States and Canada, or 706-645-9291 internationally; I.D. No. 4529229.