Levi Strauss: Currency headwinds temper Q4 and FY15 revenues

Levi Strauss & Co in its financial results announcement said that on a reported basis, net revenues declined seven percent in the fourth quarter and five percent for the full year. The company attributed this decline to currency translation unfavourably impacting net revenues by 85 million dollars in the fourth quarter and by 312 million dollars for the full year. On a constant-currency basis, net revenues declined one percent in the fourth quarter but grew one percent for the full year, driven by growth in Europe and Asia.

“Fiscal 2015 was a very challenging year with currency headwinds, the associated negative impact on tourism, and challenging retail dynamics globally. Despite these, we grew the top-line on a constant-currency basis, improved our structural economics, and further strengthened the balance sheet through refinancing our debt," said Chip Bergh, President and CEO.

Major financial highlights

Constant-currency direct-to-consumer sales grew mid-single digits for the fourth quarter and the full year, reflecting expansion of the retail network as well as ecommerce growth. Constant-currency wholesale revenues declined for both periods due to the company's fourth fiscal quarter having one fewer week compared to the prior year.

Fourth-quarter and full-year 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. On a reported basis, Adjusted EBIT grew 25 percent in the fourth quarter but declined five percent for the full year. On a constant-currency basis, Adjusted EBIT grew 36 percent in the fourth quarter and six percent for the full year.

Fourth quarter highlights

On a reported basis, gross profit in the fourth quarter decreased to 658 million dollars compared with 680 million dollars for the same quarter of 2014 due to unfavourable currency translation effects of approximately 43 million dollars. Gross margin grew to 51.2 percent of revenues compared with 49 percent of revenues in the same quarter of 2014. Adjusted EBIT, which excludes the charges associated with the company’s global productivity initiative and the pension charge, was 168 million dollars, up from 134 million dollars in the same quarter of 2014, primarily reflecting the higher gross margin.

In the Americas, currency translation unfavourably impacted net revenues by 24 million dollars and operating income by 5 million dollars. Excluding currency effects, net revenues declined six percent. Domestic wholesale revenues declined slightly due to soft retail conditions, while direct-to-consumer revenues were in-line with prior year. In Europe, again currency translation unfavourably impacted net revenues by 44 million dollars and operating income by 5 million dollars. Excluding currency effects, net revenues grew three percent, reflecting strong performance and expansion of the company-operated retail network. Constant-currency operating income grew 145 percent due to the region's higher gross margin.

In Asia, currency translation unfavourably impacted net revenues by 17 million dollars and operating income by 2 million dollars. Excluding currency effects, net revenues grew 15 percent reflecting strong performance and expansion of the company-operated retail network. Constant-currency operating income grew 92 percent due to the region's higher gross margin.

Review of fiscal year 2015

On a reported basis, gross profit for the fiscal year decreased to 2,269 million dollars compared with 2,348 million dollars in 2014 due to unfavourable currency translation effects of approximately 166 million dollars. Gross margin grew to 50.5 percent of revenues compared with 49.4 percent of revenues in 2014, primarily due to lower negotiated product costs and streamlined supply chain operations. Price increases and direct-to-consumer sales growth, especially in Europe and Asia, also benefited gross margin. Adjusted EBIT for 2015 was 479 million dollars compared to 504 million dollars in the prior year. Excluding unfavourable currency translation effects of 54 million dollars, Adjusted EBIT grew six percent, primarily reflecting the higher gross margin.