What does the recent report of losses mean?

Levi Strauss & Co. said its fiscal second-quarter widened as the jeans maker recorded financing costs and write-downs on deferred tax assets, masking higher revenue and gross-margin improvement. They certainly took a hit in this environment and financial meltdown but the company is very healthy.


The company has said it expects its strong cash position to improve and fund ambitious retail growth plans over the next two years. Levi, which specializes in riveted denim jeans and different lines of casual and street fashion, ended the quarter with cash and cash equivalents of $353.1 million, up 31% from a year earlier.

On Tuesday, John Anderson , president and chief executive said the latest results proved Levi was benefiting from the company's investments in its business in recent years. "We are seeing the benefit of our investments in the business over recent years," Mr. Anderson said. "The Levi's brand is performing well, and consumers are responding to our more innovative products."

In April, Fitch Ratings touted the company's considerable liquidity and minimal debt maturities, as well as its well-known brand names and wide geographic diversity. The ratings agency warned margins would be pressured this year as the company expands globally, but should improve in 2011 and beyond. Still, gross margin managed to grow in the latest quarter, widening to 51.1% from 45.9% due to the increased contribution from company-operated retail stores, which Levi says typically generate a higher margin than the wholesale business. For the quarter ended May 30, Levi's loss widened to $14.4 million from $4.1 million. I think this reflects the updating and investment in its own brands.

Net sales jumped 8% to $976.5 million. Sales rose 8% in the Americas, where Levi does the bulk of its business. I think this is in direct response to new advertising initiatives that are catching the public's attention. The new marketing approaches are working. Asia Pacific sales were up by the same amount, while Europe's sales grew 9%.

The company said operating income for the second quarter increased to $69 million from $56 million in the year-earlier quarter, but the 23% gain was stemmed mainly from the favorable impact of foreign-currency translations. Selling, general and administrative expenses for the second quarter increased to $430 million from $359 million in the same period of 2009.