We Are the Embodiment of the Energy and Events of Our Times, Inspiring People with a Pioneering Spirit
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2009 AnnuAl RepoRt Insp IrIng people wIth a pIoneerIng spIrIt we are the embodIment of the energy and events of our tImes, InspIrIng people wIth a pIoneerIng spIrIt. Levi Strauss & Co. // 2009 AnnuAl RepoRt ©Charles Gatewod / The Image Works Dear FelloW STakeholDerS: levI STrauss & Co. haS alWayS embodieD The enerGy anD events oF our timeS. PeoPle have Worn our ProDucts DurInG The SemInal moments oF Social ChanGe over The Past 150 yearS. noW We are InspirInG a neW Generation with our pioneerInG spirit. We are at a pivotal point in the company’s transformation. As the global leader in jeanswear and khakiwear, we are deeply proud of our history and heritage as apparel innovators. But we are not standing still. We have embarked on an ambitious growth strategy that aspires to create the most innovative and relevant products in the marketplace. 2009 PerformanCe Despite the tough economic environment, 2009 was a productive year for Levi Strauss & Co. Our Levi’s® brand grew on a global basis. We also took advantage of the global downturn to make business investments that strengthen the company and position it for growth. Here are our 2009 financial highlights: • Net revenue for 2009 was $4.1 billion, a 7 percent decrease versus the prior year. • Gross margin was 48.1 percent compared with 48.6 percent in 2008. • Operating income was $378 million compared with $525 million in 2008. Nearly half of the change was due to the adverse impact of currency fluctuation, and the balance was due to the net revenue decline and a lower operating margin. • net income was $152 million, down from $229 million the previous year, primarily reflect- ing the operating income results. • Cash flow from operations improved and we invested in the business, paid a stockholder dividend and paid down debt. • Debt, less cash at year-end, was $1.58 billion, our lowest year-end net debt level in 13 years. This compares with $1.64 billion at the end of 2008. regionaL overview americas The Levi’s® brand returned to growth in the Americas with innovative new prod- ucts and trend-leading fits that helped position the brand as a marketplace leader. The U.S. women’s Levi’s® business, in particular, was a strong performer in the second half of the year as several key retailers, such as Macy’s, rolled out our new juniors products. The U.S. “Go Forth” Levi’s® marketing campaign, launched in July, inspired consumers to rediscover the brand and our products. We completely overhauled our Dockers® business during 2009, shifting to a global operat- ing model and revamping the entire men’s product range with new fits, styles and finishes. We also upgraded the in-store presentation and shopping experience. The new products enabled the brand to expand retail distribution and add several new retail customers, including a return to Dillard’s department store after a three-year absence. Dockers® products were supported with a major new marketing campaign called “Wear the Pants,” 2 Levi Strauss & Co. // 2009 AnnuAl RepoRt John anderson President and Chief Executive Officer including a TV spot that debuted during the Super Bowl. This bold campaign, with its “call to manhood,” is at the heart of the brand strategy to reinvigorate the entire khaki category and create a modern definition of masculinity. It has sparked a vigorous online dialogue about the state of manhood and reengaged consumers with the brand. europe, middle east and north africa 2009 was a challenging year for our business in Europe. Economic conditions across key markets eroded throughout the year. However, our growing company-operated store network in the region helped recapture much of the sales that were lost due to the shrinking wholesale channel. We also made several strategic investments that will help drive future growth in the region. During the year, we launched a new Levi’s® global premium division based in Amsterdam. This new division, named Levi’s® XX after a 19th-century apparel industry term for products of the highest quality, quickly created a new global premium jeanswear line—Levi’s® Made & Crafted™. This new range will represent the finest in hand-crafted, heritage-inspired jeans- wear. Combined with the Levi’s® Vintage Clothing line, our premium properties will create a halo effect for the entire Levi’s® brand and are being sold at select high-end retailers around the world, such as Barney’s, Selfridges (United Kingdom) and United Arrows (Japan). asia Pacific The Levi’s® brand also made solid gains in most countries across Asia Pacific. Outside Japan, which is facing an extremely weak economy and a consumer shift to down- channel retailers, the Levi’s® brand delivered double-digit revenue growth. India and China continue to be our growth engines in Asia Pacific, and we will continue to invest in growth opportunities across the region. StrategieS to generate SuStained, ProfitabLe growth I will not be satisfied until Levi Strauss & Co. is growing profitably again. To that end, we are pursuing a number of focused, long-term growth initiatives tied to our business strategies. We invested in these growth platforms during 2009 and plan to invest even more aggres- sively in 2010 to strengthen our performance. Capitalizing on our global presence Our broad global footprint—spanning more than 110 countries—gives us a distinct competitive advantage and the deep resources, talent and scale to drive growth. We will focus our efforts and resources on initiatives and mar- kets that offer us the strongest opportunities for profitable growth. During 2009, we bought our licensed Levi’s® business in Russia, giving us full control of our brand in this important growth market and strengthening our future revenue performance in Europe. 3 Levi Strauss & Co. // 2009 AnnuAl RepoRt building on our brand leadership in jeans and khakis We have two of the largest and most powerful apparel brands in the world. Our goal is to expand the reach and appeal of our brands globally. In 2009, our investments in enhanced fits, higher-quality fabrics and more innovative finishes around the world contributed to the improved Levi’s® brand performance. In 2010, we’ll launch a new global women’s fit range, a second global men’s fit similar to the global 501® fit we introduced in 2008 and new premium offerings. We’ll also continue to support our products with innovative marketing programs that cut through the information clutter that confronts consumers every day. The Dockers® brand is the category leader for khakis. That’s why we’re working to reenergize the category, including investments in the on-floor experience at key retailers across the United States. Our goal is to reignite the brand in the United States, creating a foundation for growth around the world. We continue to sell our Signature brand of value-priced jeanswear in select countries in Asia and in North America. The brand performed well in Asia and, despite lower revenues in the United States, remains a profitable business for the company. In 2010, we will begin to roll out a new brand in select markets in Asia to meet the growing demand for quality branded jeanswear among emerging middle-class consumers. Our new Global Product Development and Finishing Center in Corlu, Turkey, is another way we are extending our leadership and creating a competitive advantage. This state-of-the- art R&D and product innovation center brings together designers from around the world to develop innovative new jean styles and proprietary finishes. It will become the center of a new network of contractor and company-operated finishing centers that will increase our speed to market and efficiency. Diversifying and transforming the wholesale business Our wholesale business remains the core of our revenues worldwide. We are working together with our wholesale custom- ers to upgrade the shopping experience in their stores—for example, by investing more in fixtures and marketing to support our brands and showcase new products. We are also making great progress in expanding our presence at top retailers as well as establishing relationships with new retailers to make it easier for consumers to find and buy our prod- ucts. In 2009, we expanded or established new relationships with many important whole- sale customers, including Dillard’s, J. Crew and Urban Outfitters. enhancing the consumer retail experience Expanding our dedicated retail store network and giving consumers a compelling brand experience is a key growth strategy for Levi Strauss & Co. For example, in the United States, we purchased 73 Levi’s® and Dockers® outlet stores in July 2009. The outlet channel is a strong, growing and profitable channel, and the new stores complement our existing U.S. retail store portfolio. We also acquired the DC Company, our longtime footwear and accessories licensee, which produces Levi’s® branded footwear and accessories for Europe and parts of Asia. Bringing this business in-house enables us to better integrate branded accessories into our head-to- toe Levi’s® offerings for our own retail stores as well as our wholesale customers’ stores. We took advantage of the economic downturn to secure prime retail locations at favorable lease rates, adding a net total of 154 company-operated stores globally last year, including the outlets we bought. This included high-profile new flagship stores in major cities such as Rome, Beijing and Singapore. The Beijing flagship store marked our 501st Levi’s® store in China. We will continue to be opportunistic and lock in prime retail sites. In February 2010, 4 Levi Strauss & Co. // 2009 AnnuAl RepoRt we signed a lease for a new Levi’s® store in New York’s Meatpacking District, a fast-growing retail zone that has become home to some of the world’s most upscale brands.