Jeans-maker gets its zip back

LOS ANGELES - The fireproof safe on the second floor of Levi Strauss & Co's San Francisco headquarters holds neither financial documents nor valuable records from the company's history, but old, worn jeans.

The jeans, more than 100 years old and spotted with wax from miners' candles or frayed from labour on the ranch, recall an era when denim was synonymous with Levi's. That was before rival brands and designer labels lured consumers away from the American classic, leading to sliding sales, poor financial performance and mounting expenses.

Now, privately held Levi's may be turning the corner after a global restructuring that included cost cuts, layoffs and a rehaul of the company's products aimed at reinvigorating sales, enhancing profitability, and reducing its huge debt burden. The company is due to report results today.

"We've accomplished our objectives," chief executive Phil Marineau said, adding that "at every price point, we offer the best product in the market".

That confidence comes amid multiple challenges facing Levi Strauss, including a heavy debt-load, taxes and restructuring costs and a steady stream of new competitors.

"The competition is diffused and they can't just count on cranking out the 501s any more," said analyst Clark Orsky of KDP Investment Advisors. Still, he said, Levi Strauss had become "more nimble," as the global business has become more complex.

Performance has been improving. Sales declines have slowed - Levi Strauss anticipates flat sales growth for 2005 - and operating income has improved thanks to changes in the company's operations. The company's lower-priced Signature line, sold in mass-market chains, is growing and sales in Asia are booming.

Levi Strauss' credit ratings have also been raised, and analysts feel encouraged that one-off items will stop plaguing the company this year.

Stronger free cash flow in 2006 would also facilitate an initial public offering or leveraged buy-out, said UBS analyst Alexis Gold. The recent death of majority shareholder and former CEO Peter Haas, snr has only fuelled speculation of such a transaction.

Analysts also hope the company spurs growth through expansion of its Signature brand and in its core Levi's line, despite challenging retail conditions in Europe.

Gold said that 2006 may be the year for a clearer assessment of Levi Strauss' performance.

"It's taken people a long time to feel like the company has stabilised. They've come a long way in the last two years."

- REUTERS