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Thu, Mar 04, 2004 - Page 12 News List

Levi's makes little progress in turning losses into profit


The family owners of Levi Strauss & Co hired outsider Phil Marineau to patch things up 4 1/2 years ago, but the legendary jeans maker has continued to fray during an unpleasant makeover.

The latest sign of Levi's deepening distress emerged late Monday when Marineau hastily arranged a conference call to explain last year's loss of US$349 million -- the largest annual setback during the company's seven-year sales slide.

Almost everything besides the company's losses has been shrinking since Marineau left PepsiCo Inc to join Levi's in late 1999.

Under Marineau's leadership, the company's annual sales have shriveled by an additional US$1.1 billion, 5,000 jobs have been eliminated and Levi's has closed all its US manufacturing plants.

The pain appears to be far from over for Levi's and its 12,300 remaining employees.

Marineau acknowledged that more layoffs may be announced in May, shortly after a recently hired turnaround firm is scheduled to recommend how Levi's can fix what's wrong at the 151-year-old company.

"They have got a lot of work to do," said Clark Orsky, an analyst who follows Levi's for KDP Investment Advisers. "These guys are fighting for survival."

San Francisco-based Levi's has shifted some of the turnaround work from Marineau to Alvarez & Marsal, a New York consulting firm that signed an 18-month contract in December to help repair the jeans maker. Levi's expects two of Alvarez & Marsal's troubleshooters, Jim Fogarty and Antonio Alvarez, to complete the first phase of their work in April.

Meanwhile, Marineau took home less money last year. Levi's didn't pay him a bonus last year, slashing his paycheck to US$1.25 million from US$25 million in 2002.

Reversing the sales slump isn't the only challenge facing Levi's. The company's auditor, KPMG, has identified "material weakness in internal controls" after errors on past tax returns caused the company to restate 10 quarters of previously reported financial results dating back to 2001. The revisions erased US$137 million in profit.

For all its troubles, Levi's still isn't anywhere close to bankruptcy, Orsky said, because it doesn't have large debt payments coming up this year and seems to have enough cash to keep paying its other bills.

Levi's estimates it has about US$366 million available, including a US$269 million credit line.

Marineau also remains confident that things will get slightly better this year, noting the progress the company has already made. Levi's annual sales erosion has shrunk from a 14 percent decline when Marineau first arrived to a decrease of just 1 percent last year.

But Levi's promises of better times are starting to ring hollow, said Kurt Barnard, president of Barnard's Retail Consulting Group.

"The company is being mismanaged," he said. "Things have gone from bad to worse."

In Monday's two-hour conference call, Marineau acknowledged that management missteps have contributed to Levi's woes. But he attributes most of the company's troubles to fierce competition that has forced it to lower prices and declining consumer interest in buying clothes.

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