LEVI STRAUSS & CO.

Pioneering American apparel maker Levi Strauss & Co. (LS&CO.) has jeans in its genes. A global manufacturer of brand-name clothing, LS&CO. sells jeans and sportswear under the Levi's, Dockers, Signature by Levi Strauss, and Denizen labels in more than 110 countries. It also markets men's and women's underwear and loungewear. Levi's Red Tag jeans, department store staples and once the uniform of America's youth, have expanded outside to markets beyond the US. LS&CO. has further transformed its products portfolio to include wrinkle-free and stain-resistant fabrics used in making some of its Levi's and Dockers slacks. The Haas family (descendants of founder Levi Strauss) controls LS&CO.

Geographic Reach

Iconic LS&CO. sells its products in more than 110 countries. It operates manufacturing, distribution, and finishing facilities in the Americas, Europe, and Asia/Pacific regions.

Operations

Directly or through third parties, LS&CO. designs, markets, and sells jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear, and related accessories for men, women, and children. Its global brands portfolio includes Levi’s, Dockers, Signature by Levi Strauss & Co., and Denizen. The company distributes its items through chain and department stores, brand-dedicated franchise stores, its own company-operated retail network, multi-brand specialty stores, mass channel retailers, and both company-operated and retailer websites.

LS&CO.'s operations are divided among three geographic regions: the Americas, Europe, and Asia/Pacific. The Americas contribute about 60% of its revenue. LS&CO. distributes its Levi’s and Dockers products through more than 530 company-operated stores located in 33 countries, including the US, and through the online stores it operates. The company distributes its Levi’s and Dockers products nationwide through chain retailers and department stores; outside the US, it distributes products primarily to department stores, specialty retailers, and nearly 2,800 franchised and other brand-dedicated stores. Company-operated and online stores generated about 22% of fiscal 2013 (ended November) revenues as compared to 21% during the prior year. In addition, company distributes Levi’s and Dockers products through online stores operated by key wholesale customers and other third parties.

Sales and Marketing

A multi-channel marketer, LS&CO. sells its products in more than 50,000 retail locations in 110-plus countries. Its brands lend themselves to a variety of retail formats, including chain retailers (JCPenney, Kohl's, Wal-Mart, and Target), department stores (Macy's, Nordstrom, and Barney's), and company-operated e-commerce sites and online stores of other retailers.

Sales to its top 10 wholesale customers have accounted for approximately 31%, 32%, and 30% of revenues in fiscal 2013 (ended November), 2012, and 2011, respectively.

In fiscal 2013, LS&CO. reported $274 million in advertising and promotion expenses, up from about $260 million in 2012.

Financial Performance

Despite challenging retail environments in Europe and Asia, LS&CO's sales increased 2% in fiscal 2013 (ended November) versus the prior year, to $4.7 billion, driven by higher sales in the Americas in company-owned retail stores and to certain wholesale customers. Compared to the prior year, the company's operating margin rose to nearly 10% in fiscal 2013, primarily due to a higher gross margin, reflecting the benefit from the lower cost of cotton. Net income grew 59% year over year, to $229.2 million, on higher sales together with decreased loss on early extinguishment of debt and decreased interest expenses. The company's Europe and Asia/Pacific businesses collectively contributed about 40% of revenues. Sales of Levi’s brand products generated about 85% of fiscal 2013 sales. Pants represented about 85% of units sold and men's products generated 78% of sales.

Cash and cash equivalents increased $83 million to $489 million, while long-term debt decreased $165 million to $1.5 billion.

Strategy

In March 2014, the company announced a global productivity initiative -- to be phased executed in phases over the next 12 to 18 months -- that when completed is designed to save it $175 million to $200 million annually. Actions include streamlining the company's product development, planning, and go to market strategies, as well as implementing supply chain and distribution efficiencies, among other cost saving measures.

Like many other apparel makers, which have traditionally relied on chain retailers and department stores to distribute their products in the US, LS&CO. is developing its own retail network to increase the global availability and visibility of the Levi's brand. In addition to opening company-owned stores, the jeans maker created the Signature by Levi Strauss and Denizen brands, sold through the mass market. In 2011 the Denizen entered more than 1,700 Target stores in the US. Abroad, the brand has developed a following in China, and India. In 2013 it's also aiming to increase its profitability by focusing on its core products, including the 501 jean and Dockers khaki pant.

LS&CO. simultaneously is aiming to take advantage of its category and brand strength. In its first-ever global product launch, it introduced Levi's Curve ID jeans for women, which is reportedly selling ahead of the brand's overall growth. It also developed the Water<Less jeans; targeting eco-conscious consumers, the jeans use up to 96% less water in the washer's finishing process than traditional jeans.

The company is also looking for a boost from developing markets, including Africa, where its jeans are a status symbol among the middle class there.  Licensing deals have opened the door. LS&CO. has entered into regional licensing agreements with a number of manufacturers to produce, market, and distribute its products in Latin America, the Middle East, and the Asia/Pacific region. It considers key wholesale accounts in the US and Europe to be vital elements of long-term growth strategies.

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