Q3 2010 Levi Strauss and Co.

Levi Strauss & Co. reported its fiscal third-quarter profit fell 31% as the jeans maker recorded higher overhead and income-tax expenses, which masked sales growth and improved margins.
The company has said it expects its strong cash position to improve and fund ambitious retail growth plans. Levi, which specializes in riveted denim jeans and different lines of casual and street fashion, ended the quarter with cash and cash equivalents of $261.2 million, down 3.5% from a year earlier. Selling and administrative expenses, meanwhile, grew 15%.

Chief Financial Officer Blake Jorgensen told Dow Jones Newswires the company was pleased with the topline growth, which was driven by the U.S. market. He said the company has been investing in its business over the past year, and noted the latest sales growth reflects that investment strategy.

Levi and other jeans makers have also gotten more aggressive about branding -- with some using crude language to describe the backside -- as they seek to stand out in a crowded denim field in a challenging economy. Meanwhile, Levi last month launched an interactive digital fitting feature on its website that helps women buy fitted jeans online.

Jorgensen said the company's interactive feature was doing "very well," with women coming into the store either already knowing their fit or with some knowledge about certain components. He said educating consumers was part of the feature's success.

For the quarter ended Aug. 29, privately held Levi's profit declined to $28.2 million from $40.7 million.
Revenue jumped 6.6% to $1.11 billion. The Americas, where Levi does the bulk of its business, posted a 9.3% increase. Sales in Europe fell 2.6%, reflecting unfavorable currency effects, while it grew 11% in the Asia Pacific region on the company's expanded retail network in China, India and other emerging markets.

Although Europe reported growth on a constant currency basis, it is still a "very difficult market," according to Jorgensen, particularly in southern markets like Spain and Italy. Northern markets, with the exception of the United Kingdom, reported stronger results. Other markets like France and Germany have seen stability, although consumers haven't come racing back to the store, Jorgensen said.

Gross margin widened to 49% from 47.5%, thanks to a higher contribution from company-owned stores, which generate a higher margin than the wholesale business. Meanwhile, income-tax expenses jumped 52% to $20.3 million.

-By John Kell, Dow Jones Newswires; 212-416-2480 begin_of_the_skype_highlighting 212-416-2480 end_of_the_skype_highlighting; john.kell@dowjones.com