Upscale Jeanswear Lifts Levi’s in Q2

NEW YORK – Levi Strauss & Co Tuesday reported higher second quarter earnings as the success of its higher-end products and North American and European businesses offset softness with its US Signature brand and its results in Japan and Korea.

In the three months ended May 27, net income rose 13.7% to $45.7 million from $40.2 million in the year-ago period. Excluding the effect of income taxes, including a $16.7 million benefit in the year-ago quarter, income more than doubled to $52.5 million from $23.5 million.

Net revenues rose 5.8% to $1.02 billion from $960.8 milliom while sales were up 5.6% to $997.3 million from $944.5 million.

Gross margin dropped to 45.6% of revenues from 46.4% in last year’s quarter due to higher markdowns and allowances and a shift towards lower-margin products, the company said.

“Our premium products are resonating with consumers,” said John Anderson, chief executive officer. “North America – our largest region – is delivering good revenue performance, and I’m particularly pleased with Europe’s progress.

“We have more work to do in Japan, Korea and the US Levi Strauss Signature brand, but our solid first half puts us on track for a good year.”

Bottom-line results benefited from lower restructuring charges — $66,000 versus $7.3 million in the 2006 quarter – and a reduction in losses due to early extinguishment of debt ($14.3 million versus $33 million last year).

In the first half of the year, net income was up 40.8%, to $132.4 million from $94 million, while net revenues advanced 6.5%, to $2.05 billion from $1.93 billion.

“Our strong cash flow allowed us to further reduce debt while we continue to invest in the business,” said Hans Ploos van Amstel, chief financial officer. “Given our first half performance, we expect modest revenue and net income growth for the fiscal year.”

Levi’s, based in San Francisco, is privately held but discloses quarterly financial results due to public debt.