Leap­ing Levi’s

Ceo Chip Bergh told WWD he’s more wor­ried about the im­pact trade wars could have on the econ­omy than on pro­duc­tion.

WWD Digital Daily - - Front Page - BY EVAN CLARK

Levi Strauss & Co. saw rev­enues jump 17 per­cent in the sec­ond quar­ter – although it’s wor­ried about im­pend­ing trade wars.

Al­most ev­ery­thing is go­ing right for Levi Strauss & Co. — ex­cept the trade war.

The San Fran­cisco-based com­pany con­tin­ued to roar ahead in the sec­ond quar­ter, with rev­enues grow­ing 17 per­cent as as­cen­dant cat­e­gories like tops and re­tail aided its global ex­pan­sion — and it’s on track to post more than $5 bil­lion in sales for the first time since 1999. Even the U.S. whole­sale chan­nel con­trib­uted and the Dock­ers re­vamp, still a work in progress, showed what chief ex­ec­u­tive of­fi­cer Chip Bergh de­scribed as “glim­mers of hope.”

In all, the U.S. econ­omy is stronger than it’s been in decades, grow­ing near 4 per­cent with very low un­em­ploy­ment

— a si­t­u­a­tion Bergh, in an in­ter­view with WWD, at­trib­uted to the global sys­tem of free trade.

That sta­tus quo has been dis­rupted by Donald Trump’s ag­gres­sive pur­suit of a trade war that last week saw tar­iffs ratch­eted up on $34 bil­lion on Chi­nese-made goods. Trump has also gone after Europe with steel and alu­minum du­ties and has been rene­go­ti­at­ing, and threat­en­ing to ditch, the North Amer­i­can Free Trade Agree­ment.

“Per­son­ally and as a com­pany, we are big be­liev­ers in free trade,” Bergh said. “The world…has ben­e­fited from free trade. My con­cern is that an es­ca­la­tion of tar­iffs and trade wars could have a sig­nif­i­cant neg­a­tive ef­fect on the global econ­omy, on U.S. work­ers, on U.S. jobs and the U.S. con­sumers.”

If the trade war with China ex­pands to ap­parel, many fash­ion com­pa­nies will be hit with higher costs.

But Bergh said he’s less wor­ried about how Levi’s would re­spond to the sup­ply chain chal­lenge — no sin­gle coun­try ac­counts for more than 20 per­cent of the com­pany’s pro­duc­tion. He’s more con­cerned about how con­sumers and the broader econ­omy re­spond.

“We be­lieve we can weather a storm, but my big­ger worry is what kind of im­pact this will have on the global econ­omy…as costs rise as a re­sult of th­ese tar­iffs,” the ceo said. “It’s go­ing to have a neg­a­tive im­pact on the U.S. con­sumer and it’s go­ing to have a neg­a­tive im­pact on U.S. jobs — look at Har­ley David­son, they’ve shifted pro­duc­tion out of the U.S.

“This is not go­ing to be good,” he said. “I don’t like the di­rec­tion it’s headed.”

But Bergh likes al­most ev­ery­thing else about the di­rec­tion of the busi­ness he’s run for nearly seven years.

Levi’s sec­ond-quar­ter prof­its were boosted by gains in con­tacts to hedge against cur­rency fluc­tu­a­tions. The bot­tom line quadru­pled to $75 mil­lion from $18 mil­lion a year ear­lier, when a re­fi­nanc­ing charge held down re­sults.

Ad­justed earn­ings be­fore in­ter­est and taxes in­creased 15 per­cent to $77 mil­lion from $67 mil­lion.

Rev­enues for the three months ended May 27 in­creased to $1.25 bil­lion from $1.07 bil­lion. Rev­enues in the Amer­i­cas rose 11 per­cent to $670 mil­lion, as Europe gained 31 per­cent to $367 mil­lion and Asia in­creased 13 per­cent to $209 mil­lion.

The growth has co­in­cided with an in­crease in the com­pany’s mar­ket­ing spend­ing, as well as broader im­prove­ment in the larger fash­ion world.

“There seems to be some sta­bi­liza­tion in U.S. whole­sale and that has helped ev­ery­one to some ex­tent,” Bergh said, adding, “I don’t think U.S. whole­sale is com­pletely out of the woods at this stage. U.S. whole­sale is a lit­tle bit of a melt­ing ice­berg.

“Prob­a­bly the most im­por­tant thing is that that growth is broad-based and ex­tremely bal­anced,” he said.

The ceo pointed to mo­men­tum in tops, now 38 per­cent of the com­pany’s busi­ness, as well as in women’s and its own re­tail, which added 53 stores com­pared with a year ear­lier.

“Europe just keeps putting points on the board, it’s in­cred­i­ble with all that’s go­ing on in Europe,” Bergh said, al­lud­ing to po­lit­i­cal dis­rup­tion in the U.K., Ger­many and Italy. “We’re build­ing share on a global ba­sis, our cat­e­gories are not grow­ing dou­ble dig­its, most of this is us and we’re win­ning in the mar­ket­place.”

Romee Strijd and Kar­lie Kloss at Levi’s Haus of Strauss

in Los An­ge­les.

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