SAN FRANCISCO – Continuing a traumatic turnaround effort, struggling jeans maker Levi Strauss & Co (search). reversed a year-ago loss in its latest quarter despite a sharp drop in sales.
The San Francisco-based company said Tuesday that earned $46.6 million during the three months ended Aug. 29. That contrasted with a loss of $4.3 million at the same time last year.
Sales for the period totaled $994.6 million, an 8 percent decline from $1.08 billion last year.
Levi's is privately held but reports its financial results because some of its debt is publicly traded.
Mired in a seven-year sales slump that has tarnished one of the world's best-known brands, Levi's has been trying to regain its stride this year under a reorganization plan drawn up by turnaround specialists Alvarez & Marsal (search).
The overhaul has required painful steps that have included more plant closures, employee layoffs and the planned sale of the Dockers clothing line.
In the latest shift affecting its work force, Levi's disclosed Tuesday that it is phasing out its defined pension program for U.S. employees and increasing its contributions to the company's 401(k) retirement program (search).
Effective Nov. 29, all pension benefits will be frozen at current levels for all U.S. workers except employees at least 50 years old with 10 years of service at the company. That group will continue to accrue pension benefits. Levi's won't offer a defined pension to U.S. workers hired after the plan is frozen. Earlier this year, the company reduced medical benefits for its retirees as part of its cost-cutting efforts.
Like many other major companies, Levi's is phasing out defined employee pensions to minimize its long-term liabilities. With stock market returns sagging in recent years, funding pension programs has become a major financial drain for many companies — propelling a shift to voluntary contribution plans like 401(k)s, which shift most of the financial responsibility to employees.
Levi's unfunded pension obligation totaled $344.9 million as of Aug. 29.
To help compensate for the elimination of its pension plan, Levi's will match all 401(k) contributions up to 7.5 percent of an employee's annual pay. The company currently matches 20 cents on the dollar up to 10 percent of an employee's pay.
The wrenching changes at Levi's appear to be paying off so far this year. The summer period represented the company's second consecutive profitable quarter and the sales decrease wasn't as distressing as the raw numbers suggest.
Most of the sales decline reflected a large shipment that Levi's made during last year's third quarter to introduce its discount jeans brand, Signature, in Wal-Mart Stores. Management also curtailed shipments to warehouse clubs such as Costco Wholesale Corp., another factor that depressed sales in the latest quarter.
Despite the sales losses of the past quarter, Levi's is on pace to boost its revenue for the first time since 1996. Through the first nine months of its current fiscal year, Levi's registered sales of $2.92 billion, slightly above $2.89 billion at the same juncture last year.
The company was in a similar position last year, but its sales faded in the fall to extend its sales slump, resulting in the decision to bring in Alvarez & Marsal to help CEO Phil Marineau bolster Levi's fortunes.
"We're doing what we said we'd do," Marineau said Tuesday. "Our business is healthier and more competitive than when we began the year." Marineau declined to project how Levi's will finish the fiscal year.
The company's Signature brand is becoming an increasingly important factor in Levi's performance. The discount label accounts for about 10.5 percent of its sales in the latest quarter, generating revenue of $104.4 million.
Hoping Signature will play an even bigger role, Levi's is preparing to introduce the brand in 225 Kmart stores. The brand already is sold at Target as well as Wal-Mart.
Meanwhile, the company continues to move closer to shedding its 18-year-old Dockers brand, management said during a Tuesday conference call. Dockers sales totaled $206.2 million during Levi's latest quarter.
Levi's reportedly is nearing an agreement to sell the brand to a New York buyout firm, Vestar Capital Partners, and clothing industry veteran Eric Rothfield for about $800 million. Levi's management declined to provide any details about the Dockers negotiations Tuesday.
When it's completed, the Dockers divestiture will continue a dramatic contraction at Levi's.
The company ended August with 9,500 employees, a 23 percent reduction from 12,300 workers at the end of its last fiscal year.