Weak retail traffic and ramped-up discounts to clear merchandise, once again hit profits at denim jeans marketer - Levi Strauss & Co for the third fiscal quarter ended August 24, 2014.
In the third fiscal quarter, Levis posted profit of $50.6 million, down from $57.1 million in the prior year quarter.
Gross margins also were impacted from the higher discounts, in a bid to manage high inventory from 50.2 percent a year earlier to 48.7 percent.
The retailer also witnessed sales in its biggest home market – US drop 2 percent from a year ago quarter, which it attributed to lower sales in the womenswear wholesale division.
However, driven by special promotions and discounts, revenues climbed 4 percent in Europe and 10 percent in Asia, both year-on-year in the third fiscal quarter of 2014.
Global sales in the quarter under review grew marginally by just 1 percent to $1.15 billion.
“Increased sales from the company's global retail network were partially offset by lower sales at wholesale in the Americas,” the denim jeans retailer said.
Adjusted EBIT declined two percent from the same quarter of 2013 to $119 million reflecting a lower gross margin and increased advertising investment, partially offset by savings realized from the initiative.
Selling, general and administrative expenses (SG&A) for the third quarter of 2104, totaled to $455 million, flat when compared with the same quarter of 2013.
It said, increased advertising investment and consulting fees primarily related to centrally-led cost-savings and procurement projects associated with the company's global productivity initiative were offset by SG&A savings realized from the initiative and a decline in incentive compensation expense
Operating income of $105 million in the third quarter of 2014 was down from $118 million in the same quarter of 2013, primarily due to the lower gross margin.
As of August 24, 2014, cash and cash equivalents of $367 million were complemented by $606 million available under the company's revolving credit facility, resulting in a total liquidity position of approximately $1.0 billion.
Net debt at the end of the third quarter remained less than $1.1 billion. Free cash flow through the third quarter of 2014 was $4 million. The company has revised its estimate of capital expenditures for 2014, which it now projects will be in the range of $80 - $90 million.
According to Levis, actions taken through the first nine months of fiscal 2014 for the global productivity initiative have resulted in charges of $103 million, and are expected to deliver net annualized savings of $100 - $125 million.
The company expects additional savings in future periods to come from streamlining its product development, planning and go-to-market strategies, implementing efficiencies across its supply chain and distribution network.
