Levi Strauss & Co (LEVI) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Levi Strauss & Co. first quarter 2009 conference call. All parties will be in a listen-only mode until the question-and-answer session at which time instructions will follow. This conference is being recorded and may not be reproduced in whole or in part without written permission from the Company. A telephone replay will be available through April 21, 2009 by calling 800-642-1687 in the United States or Canada. From outside these countries call 706-645-9291. For even numbers, please input the ID code of 93840507 followed by the pound key. This conference call is also being broadcast over the internet and a replay of the webcast will be accessible for one month on the Company's website at www.levistrauss.com.

I would now like to turn the call over to Roger Fleischmann, Vice President and Treasurer of Levi Strauss & Co. Sir, you may begin.

Thank you. Good afternoon. And welcome to our conference call. I am pleased to introduce members of the Levi Strauss & Co. management team. With us here today are John Anderson, our President and Chief Executive Officer, Heidi Manes, our Interim Chief Financial Officer, and Robert Hanson, President of the Americas.

Before we begin let me briefly remind you of a few items. Our discussion today may include forward-looking statements based on our current assumption, expectations and projections about future events. Although these statements reflect the best judgment of our senior management they involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the statements as more fully described in our annual report on Form 10-K, our registration statements, and other filings with the Securities and Exchange Commission. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements.

We provide information on our Web site about how we compile various measures used to describe our business performance. Today we filed our quarterly report on Form 10-Q with the SEC. You can link to the SEC filings from our Web site.

Now I'd like to turn the call over to John Anderson.

Good afternoon, everybody, and thank you for joining us today. We knew that 2009 would be tough and our first quarter results reflect those expectations. The economic environment remains challenging around the world, our net revenues grew in Asia Pacific but declined in the Americas and Europe. Our consolidated results also reflect the substantial negative impact of the stronger US dollar on our Q1 revenues compared to last year. Currency accounted for nearly half of our revenue decline in the first quarter. In the Americas, our performance largely reflects the loss of sales to customers who went out of business in 2008 and the weak performance of the US Dockers business. In addition, last year we had some early product shipments in preparation for our new ERP system which also contributed to the decline in net revenues in the Americas this quarter. In Europe, both our wholesale and branded retail channels were down reflecting the weak economy. Though our retail expansion helped offset revenue declines in the region. Asia Pacific had a good quarter with new brand dedicated stores and developing markets contributing incremental revenues. The regions grew overall in the quarter despite declining consumer confidence. But our retail performance weakened at the end of the quarter.

Our Levi brand supported by the global 501 campaign continues to perform relatively well even in this tough retail climate. The brand revenues grew in Asia Pacific but in Europe we saw weaker performance from our women's business this quarter. In the United States, outside of the volume impact of customer bankruptcies and the early shipments related to the ERP system last year, Levi's sales performance improved.

We continue to keep a close eye on costs. For example, we recently made the difficult decision to close our manufacturing facility in Hungary. Our ongoing financial discipline has allowed us to control expenses. We're managing our inventories, as our customer address the impact of the retail environment. In addition to focusing on costs, we will continue to invest in retail expansion, and in supporting our brands.

To summarize, we finished the first quarter right where we expected to be, given the tough operating conditions, which we anticipated. The retail environment remains difficult globally. Europe in particular has become very challenging, and Asia is beginning to soften as well. We are seeing weaker competitive struggle in this environment and we are ready to step in and take share whenever the opportunities arise. It will be a tough year, but we are taking the challenge head on.

Robert will provide more details about the first quarter results for the Americas.

Thanks, John. Good afternoon, everybody. As John mentioned results in the Americas reflect the challenges of the global economy. Net revenues were down 13% on a reported basis, and 11% in constant currency. To put this in the appropriate context, both the Levi's and the Dockers brands were significantly impacted by customer bankruptcies in 2008. And as we discussed last year, our February 2008 results reflect $18 million in products shipped that would have otherwise shipped in the second quarter, a step we took in advance of our planned ERP implementation.

Beyond these issues, the Levi's brand posted solid performance for the quarter. The US Signature brand also did well, posting improved sales. For Dockers lower demand and higher sales allowances and discounts in the US led to a decline in first quarter revenues. The allowances and discounts reflect our continued focus on aggressively managing inventories in a rapidly evolved retail market. We will continue to focus our efforts on transforming the Dockers business with new products,a more focused and relevant assortment, and new in store merchandising presented around an expanded range of fits.

Revenues generated through our US retail store network were relatively flat compared to the same period last year as additional revenues from new stores were offset by declines in same-store sales consistent with market trends. Our Latin American business which now includes Mexico performed well despite weakening economies, though revenues were negatively impacted by currency. Operating income was down in the region due to our lower net revenues and lower operating margin. Operating margin declined, reflecting a lower gross margin. Although we have cut costs in the region to offset these challenges our actions did not fully compensate for the decline in net revenues.

2009 will continue to be a very challenging year for the Americas and we are not seeing any trends in our business suggesting improvements in consumer sentiment. As a result our focus will be on fighting for market share, and tightly managing our inventory.

Now back to John to review the results for Europe and Asia Pacific.

Revenues in Europe for the first quarter were down on both a reported and constant currency basis, as the strengthening US dollar continued to negatively impact our international results, a trend which began in the fourth quarter of 2008. Revenues from new Company operated stores partially offset declines in our wholesale channel. In this retail environment, the Levi's brand was down, as expected, driven mostly by our weak performance in the women's business. Levi's 501 jeans sales were relatively stable in the first quarter compared to last year, supported by the global marketing campaign. Europe's operating income decreased 41% for the first quarter. This decrease is due to a decline in revenues, gross margin and continued investment in the region's retail channel.

Looking ahead we expect the difficult conditions to persist in Europe. We will continue to take advantage of growth opportunities in retail, and in our developing markets. The new venture in Russia which we announced earlier this year reflects our commitment to this growth strategy.

And now Asia Pacific. We saw our strongest growth performance in our Asia Pacific region where revenues grew 3% on a reported basis, and would have been 9%, without the impact of currencies. This performance resulted from the continued expansion of our dedicated store base in our developing markets, particularly China, as well as increased sales driven by product promotions across the region. The Levi's brand delivered strong revenue growth across most of our market, helped by the 501 marketing campaign. The Signature brand also performed well offsetting a decline in revenue from the Dockers brand in certain markets.

Operating income in the region was up 3% in the first quarter, in line with revenues, and we continue to invest in retail, particularly with our developing markets. We will focus on fortifying our mature businesses and expanding our retail presence in our developing markets. We are mindful of the deteriorating macro economic conditions in the region.

Now Heidi will provide more detail concerning the financial results for the first quarter.

Thanks, John. Good afternoon, everyone. As John mentioned, our financial results for the first quarter were in line with our expectations. Consolidated net revenues were down 12% in the quarter and down 6% on a constant currency basis. Net income was down 50% for the quarter driven by our operating results. Consolidated gross profit declined 18% due to the lower net revenues and gross margin. Gross margin was 47%, compared to 50% last year, due to higher price promotion, discounting and inventory mark downs reflecting our aggressive approach to managing inventories in this unpredictable consumer market.

Total SG&A expense decreased $20 million compared to the prior period. Excluding the favorable impact of currency which was approximately $24 million, SG&A increased by $4 million. As expected, pension expense increased and we incurred higher selling costs associated with the expansion of our retail network. However, we reduced our spend on advertising and corporate areas, examples of our cost discipline.

We continue to invest in our retail store strategy, ending the quarter with a net increase of four Company operated stores and acquiring 28 existing Levi stores in Russia through the new business venture. This brings the total number of Company-operated stores to 292 at quarter end. These stores represented roughly 10% of our net revenues in the quarter. We will continue our strategic approach to opening additional stores in 2009, focusing on putting the right stores in the right locations with careful consideration of the economic environment.

Now turning to cash flow and the balance sheet, cash flow from operations declined $97 million relative to last year, principally due to timing. To elaborate, we collected less from customers as a result of lower receivables at the beginning of the year. Timing also drove higher cash disbursements for operating expense. Nonetheless, we are comfortable with our liquidity position of $186 million in cash and $245 million available under our credit facility. We ended the period with net debt of $1.6 billion compared to $1.7 billion this time last year. We finished the quarter with higher inventories than at year-end 2008. Given the changing retail landscape we continue to focus on our inventory levels as reflected in the level of discounting, allowances and inventory mark downs during the quarter. Despite challenges in the economy, we are comfortable with our trends and customer collections and are focused on managing terms to appropriate levels.

Capital expenditures were $15 million in the first quarter, down from $24 million last year reflecting the cost associated with last year's ERP implementation. To summarize, our operating performance reflects our expectations for the quarter. We will continue to focus on controlling expenses and managing inventories. We have sufficient liquidity to operate the business while we invest for future growth.

Now we'll take your questions.

Thank you. The floor is now open for questions. (Operator Instructions). Your first question comes from the line of Carla Casella from JPMorgan.

Hi, Can you hear me.

We can.

Okay. Great. You mentioned the currency impact on revenue. Can you give us a sense for what the currency impact has been on EBITDA?

So EBITDA, I don't have those analytics on me. Having said that, though, we had about $40 million impact at the gross profit level and, as you mentioned, a favorable impact to SG&A was about $24 million, to provide you some of the component impact. So provide you the component impacts.

Okay. Great. And do you have what that would have been for last year for the full year? Or I can probably go back. I think you called it out in your filings too.

We did. I don't have those numbers on me today.

Okay. I can pull that.

Those are on the Q&A as well.

Is it too early for a read on back to school? We are talking to a lot of retailers who are bringing inventory down anywhere from it seems like 7% to 12%. Would you say that is consistent with their back to school orders, as well?

We are obviously working really closely with our customers. As you can imagine, they're concentrating on keeping inventories as low as they can. We are really focused, as I mentioned before, working with each one of our customers on collaborative plans. So we have sales plans that we have built our inventories against and we are in the position to replenish, assuming the sales materialize against our plans. So we think that we will have the right inventory levels available for back to school to meet customer needs based on the plans we have in place. We have been taking some pretty aggressive actions in the first part of the year to make sure our inventories are in line with our current sales trends with our customers so we can go in to the back half of the year with fresh product and be prepared to respond to consumer demand as it comes.

And I know you mentioned that inventory's a little bit high at the end of this quarter, it was higher than we expected it. How long until that clears through and is that new product preparing for the second quarter, or is that a lot of older clearance that you need to get through?

It's a combination of both. Clearly our strategy is we want to keep aligning our inventories with the retailer needs. There's no point in shipping product they don't need. But we would say it is a combination of some core product and some seasonal product.

Okay. Great. And then just in Europe, now that you are closing the Hungary facility, where will you be sourcing for European operations?

It was a small component anyway. Our own factories represent only about 5% of sourcing, Carla, so a lot of it comes out of Asia. So for us it's just once again realigning our production levels against our bookings. So no real change. No one country represents more than 20% of our sourcing mix.

Okay. I will let someone else get in queue and I'll get back in.

Okay. Thanks.

Your next question comes from the line of Karru Martinson from Deutsche Bank.

On Carla's question in terms of your collaborative plans or back to school, are you seeing that you're displacing customers, are you gaining the share as you guys talked about that as being the focus for the year?

As John mentioned, our focus in this environment, and as I've mentioned, is on really driving to gain market share, and to manage our inventories really tightly. We have obviously built our plans customer by customer. We are attacking as aggressively as we can but responsibly in this environment. We have built product pricing, promotion and display strategies with all of our key customers in an effort to get as much out of the consumer marketplace as possible in this economic environment. So I think we feel good about the plans we have in place. Whether we are able to gain share or not is to be determined by our execution and we will be able to talk about the results in future quarters.

So we have the floor place, but we haven't necessarily seen an increase to date, it's really just all the execution to come correct?

We obviously have implemented our strategies. One of the opportunities we have built into our plans with our ongoing customer base is to transition sales from the bankrupt customers from last year -- Mervyn's and Goody's, in particular -- to our existing customer base. And so we expect to gain share for those customers with our brands in their doors and we are implementing against those plans right now. But in the total market, it's to be determined and we will address that in future quarters.

Okay. And in terms of the health of your customer, obviously Mervyn's and Goody's and a few others here have struggled. How do you feel about your reserves and the exposure that you have to the segment?

I think that, whereas we have talked before, we don't give any specific customer guidance, as I said in my comments, we are looking to manage it day by day, have active discussion with our customers, manage credit terms and get ahead of things as we see potential problems. Having said that, as it relates specifically to our reserves, we feel that where we've got our realizable value of our receivables today is appropriate.

Okay. Just lastly, for comparison sake against the year ago quarter for the second quarter, how much was the SAP implementation costs and how should we be looking at the year-over-year comparisons apple to apples?

As Robert mentioned, we preship product in the first quarter, about $18 million, and the impact of the ERP implementation did not take place in the first quarter last year.

Yes. So if you recall in my comments, we are capitalizing most of that cost. So in quarter one of '08 we were capitalizing the pre-implementation cost.

I was actually more curious about the second quarter when we go forward, when we look at sales and the EBITDA in the second quarter, what was the impact from the ERP on that?

We are not quantifying that.

All right. Thank you.

Your next question comes from the line of Todd Harkrider from Goldman Sachs.

Thank you for taking the question. I was hoping to get a little more clarity on the gross margin decline. Can you maybe break up decline into buckets, like from sales allowances versus markdowns, and if it was more pronounced in the US and maybe because of Dockers. I was just hoping to get a little more clarity there. Thanks.

Why don't I provide a little bit more color here, and list these in terms of order of magnitude. So we certainly had higher sales allowances in the period, discounts, product promotional activity. And then the other driver would be product markdowns. So, inventory markdowns where we are taking reserves for, as John mentioned, some areas of the business where we have some excess inventory.

Okay. Appreciate it. And not sure if someone else brought up, I had to step off for a couple seconds, but in regards to the advertising spend is down pretty dramatically. Should we see a continuation of that for the rest of the year due to the environment or do you think you'll ramp it back up again as the year progresses?

We look at this on a month by month basis. We still are committed to advertise behind our brand. It is one of the variable cost opportunities we have got. But at this stage we stay committed to investing behind our brand.

Okay. And to try to change the subject and try to focus on the licensing side of the business for a second. You have grown it from, I want to say around $35 million, $37 million in 2002 to $98 million last year. I assume you enjoy high margins from it. Do you have a goal or initiatives in place to continue growing the licensing business?

Well, we clearly, as you have stated, the licensing is an important part of our business. It is more about optimizing the licenses we have today. And we are looking to try to get more productivity out of those. So as we look at new opportunities, there are no new opportunities we have in mind at this stage. It is more about the same approach we have with the rest of our business, just optimizing where we are today.

Can you give us maybe a general ball park where margins are on that.

No, but they're acceptable.

I tried. Appreciate it. Thanks a lot.

You're welcome.

Your next question comes from the line of Grant Jordan with Wachovia.

Great. Thanks for taking the questions. You talked earlier, you said the results came in line with your expectations. I was just wondering if the inventory levels at quarter end were also in line with your expectations.

I would say pretty much, yes. Maybe slightly on the higher side but we anticipated that and certainly not at a level that concerns us at this stage.

Okay. And then as the year progresses, like last year there was a pretty good pick up in inventories, obviously, from Q1 to Q2. Should we expect to see similar increase this year or was there more of a one-time impact last year?

I think it was more of a one-time impact last year. We are just looking to manage our business very tightly, as you can imagine, on a week by week, month by month basis at the moment.

Great. My next question, obviously you have your own retail stores as well as the wholesale channel you sell into. Have you seen any significant difference in the performance between those two distribution channels?

Yes. It is varied by region around the world. I would say our retail network is performing slightly stronger than our wholesale network for us in Europe, and we have said both are pretty much in line with what you are seeing happening in the marketplace for the US.

Okay. Great. My last question, in previous filings you've given a nice breakdown in your Q or K or cash requirements for post retirement health plans and pension plans. It wasn't in there this time. Do you have that information on hand for this quarter?

What I would tell you is that we intend to update that to the extent that what we disclosed in our 10-K for annual expectations changes significantly. So in terms of looking at that I would refer you back to our 10-K and tell you that our expectations haven't changed.

Okay, thank you.

Your next question comes from Mary Gilbert from Imperial Capital.

Yes. Thank you. In looking at the SAP implementation last year in the second quarter, when we look at the SG&A line that's where we saw a significant increase year-over-year, and then we saw it come down coming into the third quarter. So, would we use the first quarter SG&A as a guideline for what we can expect for the second quarter for this year?

Are you referring to the first quarter of 2009 in terms of expectations for second quarter of 2009, just to be clear?

Yes.

Okay. I would say it is probably a reasonable approximation.

Okay. All right. That's helpful. And then, so we are really going against some very easy comparisons. So we really shouldn't have the same impact that we experienced last year except for the global economic crisis that we are experiencing.

That's a pretty big except.

I know. It is, isn't it. Oh well.

And the customer bankruptcies that occurred in 2008. Because those were not material.

Okay. Yes. And actually hitting on that, when you talk about where there could be some market share expansion, what retailers are picking up the loss of Mervyn's and Goody's? Is it Kohl's, is it JCPenney's, is it a number? Can you give us an idea of who are picking up share there?

What I can share with you is what we've done. Obviously those were big businesses for us and it is important we don't lose any business that's rightfully for our brand. So we've worked with all of our top customers to essentially map the business that was within a reasonable radius of the former Mervyn's and Goody's stores, and we essentially mapped all of the customers that are within that radius and then we've laid out transition plans to transition those sales to our existing customer base. Clearly our largest customer base includes Macy's, JCPenney and Kohl's. We are working with them but not limited to them to make sure that we can transfer as much of the sales as possible. We have really rigorous plans in place that are across all four Ps - product, pricing, promotion and display to recapture as much of that business as possible.

Okay. And then with that occurring, if you look at the trends they're experiencing, would you say because there is this pick up from lost customers that the trends you would be experiencing would be less negative, let's say? So you would be performing better than the stores.

We are satisfied with our performance. It is meeting on our continuing customers our plan expectations to date. What you find in cases like this typically is you don't walk 100% of the sales from the bankrupt customers directly into you existing customer base. It takes time to rebuild the business but we have laid out a rebuild strategy that started in the first quarter of this year and won't be concluded until the end of the year. And we are on pace with the plans that we have laid out by our customers.

Okay. All right. That's very helpful. And then can you talk about some of the cost measures? I guess one is going to be on the advertising side, right? So we should expect, is that true, ad expense to be lower year-over-year as we move through the balance of the fiscal year?

It is one of the variables we have got. At this stage, as I said earlier on, we plan to keep investing behind our brand but we'll also be pragmatic in the environment in which we operate. But it is one of the variable triggers we can use to look at aligning our business to the true consumer demand.

And looking beyond advertising we have taken cost out of the business and we'll continue to do so, and globally. And we'll be looking at most of our categories of spend. We have taken actions that range from head count and compensation down to evaluation of discretionary, et cetera. So really looking at all of the categories of spend globally.

Okay. Great. So it sounds like a lot of it is on the SG&A line.

That is right.

Okay. All right. Great. That's most helpful. And also do you expect to generate free cash flow this year?

Yes.

Okay. After debt and amortization?

Yes.

Okay. Great. Thank you.

Your next question comes from the line of Pam Wilson from W.L. Ross.

Could you give a little bit more information on the other accrued liabilities decline $70 million? What was that about?

Are you talking period over period fluctuation on the face of the balance sheet there between November and February?

Right.

Sure. I'd say we have a couple of key drivers here. One is simply about just, as we have been discussing, lower SG&A spend giving rise to lower accruals. Some of this is going to be related also to the seasonality of the business as we come out of Q4 and into Q1. But we also had greater use of cash associated with payments as well.

Thank you.

Your next question comes from the line of Emily Shanks from Barclay's Capital.

Hi, good afternoon. I was hoping, can you speak to the employee benefit plans gain of about $1.8 million that's on the statement cash flows. Is 100% of that recognized in SG&A?

Yes, it is.

Great. And then relating to the two bankrupt customers during the quarter, were there any receivables write downs that you took? I didn't see it in the Q but I wanted to double check.

All of that occurred in 2008. So we have no carry forward, if you will, associated with bad debt or what have you in the current period.

Perfect. And then my final question is around your new store plans for fiscal year '09 as well as if you can answer or give us a little color around your CapEx expectation, if you could speak to the quantity of stores you are planning on opening and then what your CapEx plans, just to refresh us, that would be great.

We continue to look at retail opportunities. Clearly in this environment, we are looking much closer than we were previously. If the right profitable opportunity arises then we will look to continue to invest in stores. But to give you, we do not have a firm number in mind. It really is based on profitable opportunities as they emerge but clearly we would still like to invest behind opening stores in terms of CapEx. I'll ask Heidi to answer that.

In terms of CapEx, we disclosed about $88 million as our expectation for the year. We still believe that that's a solid expectation. And recognize our CapEx spend is retail as well as IT investments and other facility costs, as well.

Great. Can you give us a break out of how that $88 million is comprised?

No, we don't break that out any further.

Okay. Can you give me directionally, should I assume maintenance CapEx is over half of that? Is that a good metric?

No, we really just can't provide that level of analytics for you.

Okay. All right. Thank you.

Thanks.

You have a follow up question from the line of Carla Casella from JPMorgan.

Hi. My question is on the Dockers business. Are you starting to see any stabilization in that or do you think it's down truly with the category or is it losing share?

Carla, I think we have been talking about the fact that we are in an important transformation strategy with the Dockers brand. It is all built around focusing on leadership and khaki fit fabric, and hand and wash. We are transforming the way that we are displaying the product around a range of fits at retail and are working on developing out a more effective and compelling way of marketing the brand to our core customer base. That will take some time. And yet as we mentioned, we are taking some pretty aggressive actions to get that business back on track. It will just take some time to deliver it. From our perspective, we are where we planned to be against our turnaround trajectory with the brand and we will keep you posted as we make progress moving forward.

Okay, great. And then Roger, did you give the restricted payment basket or approximation of where that stands today?

No we haven't. What we typically say is it is very difficult for you to calculate it. On the face it is half of our net income from December 1 of 2004, and if you did that math, you would come within I think 15% of it.

Okay.

You'd be high. And that's because of all the restrictions underlying the subsidiaries offshore.

Okay. Great. That's it. Thanks.

Your next question comes from the line of Jeff Kobylarz of Stone Harbor Investment.

Good afternoon. Just wondering if you can talk about the cost of product, just how that looks. We are just hearing that as resourcing in Asia has become more affordable, there are more deals to be had from Asian resources. Can you comment at all about that for yourself?

Well, Jeff, there's a lead time involved in this industry. So we traditionally are placing product nine months to twelve months ahead of the delivery time. So the product we have been delivering in the first quarter, for instance, we place that in the first half of last year. And you will remember that energy costs were quite high then, and also demand was a bit stronger than what it is today. Clearly a lot of that has changed. And the impact of any of that change we wouldn't be expecting to see, if there was any impact of that, until the second half of the year.

All right. Fine. And then about your market share, do you have any general comment, any general way of saying if you are gaining market share or if you are at least stable or where it stands?

We would say on a global basis, that we are slightly increasing to holding our market share.

Okay. And can you comment about shelf space at your retailers? Do you think that is, can you comment about that versus last year at this time?

Again it varies by brand segment. With our Signature business, we are holding our shelf space. With the Levi's business, based on what I said about transferring particularly sales from bankrupt customers from 2008, we are actually gaining shelf space across our remaining customer base. And with the Dockers brand we are essentially holding shelf space as we are trying to reposition that brand for stabilization and then growth into the future. So, again, it does vary by brand but all in it is either holding or, in the case of Levi's brand, slightly growing.

Okay. Fine. If you can comment in general about any talk you're hearing from your global retail customer base, just if you look out at, say, a year, are they seeing any stabilization at all in the trends?

I think overall we would say we are not seeing any stabilization in trends. The reality is, you are reading the same results we are that are occurring across the marketplace, and things remain very difficult. We are not seeing anything to change that fact.

Okay. All right. Thanks.

Your next question comes from the line of Jeff Stewart from (inaudible).

Thank you. Actually one question about retail within your own stores. Did I hear you say in your comments that your own retail store business turned bad towards the end of the quarter? Did you say that in your comments?

No, we did not.

You did not. So how did that retail business trend at your stores during the quarter?

We would say on a global basis it is pretty much in line with what you are seeing happening across the industry.

So was the last month of the quarter better than the first or they were all down equally?

Consistent with what was happening across the industry.

Which would be a sequential decline, an increase?

You can determine that as much as we can. Things remain tough out there.

Well I can look, we may be looking at different references. So I am trying to get a sense for what your reference point when you say consistent with the industry.

Our reference points would be our customers.

If I look across at your sales mix, and look at the same-store sales results, when you say consistent with the industry, you would say that?

That is indicative, yes.

I don't know if you covered the detail, if you did I missed it and I apologize. It does sound like that there's a big piece of the gross margin here, correct me if I'm wrong, has to do with your markdown allowances and all of the issues with coming to the end of the season. Did you hang a number on that or give us a sense for how big it was year-over-year? I know that there's probably some competitive dynamic to the absolute number but I'm just wondering how much of the year-over-year decline in EBITDA was attributable just to that markdown and all the other things that happened at the end of the season.

No, we didn't give a quantify case of that particular aspect but what I did provide was color in term of order of mag any stud starting with our discount and allowance activity which was higher order of magnitude than the markdown.

Okay. And I mean, can we get any sort of number on that relative to the decline in profit year-over-year?

No, I'm sorry. We are not breaking that out in any further level of detail.

For the quarter -- okay. The other thing is, actually you brought it up so I thought I would just chime in and say, you said at the beginning of your remarks that you came in right on top of what you were looking for. And I would say, we can celebrate that with you if you had told us what you were looking for. So I'm wondering, maybe you can shed a little light on what you are looking for for the rest of year, that way if that comment comes up again in one of the next two to three calls then we will know relatively speaking how close you were to that number on the budget and how, whether you are slipping relative to that budget or not.

So, fair comment. Having said that, Levi Strauss & Co. hasn't given forward-looking guidance in terms of historical practice. And I think, as you've seen the marketplace, many of our competitors that do are even pulling back on the level of external disclosure just given the volatility that we're seeing in the marketplace today.

Okay. So, a couple of people were hinting at the fact that you have a very easy comparison in the May quarter. If I look back at the 2007 results, they were somewhere in the $135-ish million EBITDA range, and then with the SAP and the other issues you had a really negative comp in May of 2008 versus that, in the $70-ish million range. So it looks optically looks like an easy comparison. Are you expecting that quarter to be a negative comparison?

So, once again, remember we mentioned to you that a lot has changed in that time, particularly in terms of how the economies are around the world. And we've had bankruptcies. So I think you are -- I just caution you that it is a different world today and a lot of the situation that was then does not exist now. So, you will just have to wait and see.

So does that mean that you are expecting that to be a negative comp?

We are not giving a forward guidance, as Heidi mentioned.

Okay. All right. Great. I will jump back in queue. Thanks.

Your next question comes from the line of [Anya Watts] from (inaudible)

This is Anya Watts from (inaudible). Can you refresh my memory please on when Mervyn's and Goody's bankruptcies took place last year and how much of revenues in the first quarter of 2008 related to Easter?

I will answer the first question and then Heidi can answer the second. In terms of the bankruptcy, Goody's was in the second quarter and Mervyn's was in the third quarter of last year.

And then in terms of, your second part of your question was looking for some more specifics on what our revenue was generated from those customers last year; is that correct?

Right. Specifically in the first Q.

Okay. So we don't disclose customer specific revenue information.

Got you. But you mentioned in your remarks it was material. Did I not hear you correctly?

Yes, it was a significant impact.

Okay. Great. And then, Levi's brand,in the first Q of 2009, you mentioned excluding all that noise -- foreign exchange and the Mervyn's and Goody's bankruptcies -- actually performed well. Is it better than last year or flat or within your expectations? And how is the brand, how has it done so far year-to-date?

We would say it is within our expectations. Taking all of the noise out, as I mentioned earlier on, the market share is either maintained or slightly increased. So that will give you an indication of how it is performing.

Okay. And after the quarter, it is the same pretty much in the second Q so far? Is it the same?

It is too early to say. We have just started the second quarter. But it is difficult to say because it is just so volatile and remains to be volatile out there today. But I think if we just focus on the first quarter, we are maintaining to slightly increased share and that's exactly where we planned the business to be.

Okay. Great. And then finally, just going back to the SG&A issue, excluding the FX, it was actually up year-over-year while your revenues declined. You mentioned that you are investing in your brands but it seems to me it is high relative to revenues, and without giving specific guidance going forward, is that where you, do you feel comfortable with that level of SG&A?

I think there's a couple of things that we should call out again, and really the SG&A is up. We have a couple of principal drivers there. One is our expansion of retail. We have got about 80 additional stores this time of company-operated retail compared to last time, and 28 of which were acquired through the Russia initiative. So we are going to have higher selling costs associated with our retail expansion. And we also have the higher pension expense that we have talked about which is contributing to about $9 million in incremental spend in the quarter, as well. So we have those two drivers that I think would uplift SG&A as a percentage of revenue, through the year.

Got you. Okay. Great. Thanks.

Your next question comes from the line of Colleen Burns of Oppenheimer.

Hi, thanks. I think you said you haven't seen any stabilization from your retail customers. Is it safe to say you haven't seen a pick up in your reorders or any changes in those behaviors more recently?

We have not seen any changes in the marketplace more recently.

I think you said part of your inventory was clearance or end of season markdowns. Would you say that at this point you have worked through that? Is that a big piece of that inventory number?

It's pretty much where we want it to be. We are delivering on our internal expectations.

Just lastly on your product mix, have you seen shifts to some of your lower price or out of your premium price points?

Well, as Robert mentioned to you earlier on, in the US we have seen our Signature brand perform well. So that would be indicative of what is happening in that channel of distribution. Otherwise we are not. We are seeing our prices hold firm at this stage out of retail.

Do you have any changes regarding pricing as you look out to this year or are you holding it pretty constant?

We will just evaluate the marketplace as it unfolds through the balance of the year.

Okay. Thanks a lot. That's it for me.

Your next question comes from the line of A.J. Guido from Golden Tree.

Just a quick question on the cashflow statement. You have the realized gain on foreign currency. What did that flow through the income statement, which lines? Is is just in SG&A or is it in other.

It flowed down in other income and expense.

And then the employee benefit plans, amortization, where did that flow through?

That flows through SG&A.

Okay, that's it, thank you.

You have a follow-up from the line of Jeff Kobylarz from Stone Harbor Investment.

Yes, the $9 million pension expense, is that trend going to continue for the next few quarter of this year?

That trend will continue through the balance of the year.

Okay. And then the Russian stores, the joint venture you have entered, can you comment if those stores are profitable on a cash flow basis.

It is early days for us. We have just acquired the stores from the beginning of the year onwards, and we continue to evaluate as we take control of those stores, but clearly we see it as a long term opportunity but we are evaluating where it is because it is early days for us as we enter this joint venture.

How many stores did you say you added with this joint venture?

28.

28. Thank you.

Your final question comes from the line of. [Elise Timera] from (inaudible).

Hi. Thank you. I just was curious if you could talk about, the one thing that really hasn't been mentioned much yet on this call, just in general private label and how you feel like that's been impacting your business so far this year?

Yes. Hi. We would say that, if anything, we are seeing a relatively stable mix between private label, exclusive brands and national brands in our customers within the United States. If anything, I think our customers are reluctant to make major shifts in their mix because they obviously have customers for all three types of brands in their stores, and in these uncertain times they want to make sure that they've got the brands stocked that their customers are looking for. So we feel feel okay about how we're positioned. Obviously we are working collaboratively with each one of our customers to build plans to meet both their and our expectations. And as we said earlier, we are on track to deliver against those plans so far this year.

Have you had to, I know you mentioned about markdowns and promotions, but have they asked you to go to a price point that matches what they're doing also in private label by any chance?

Understand that our wholesale customers determine their own pricing strategies and on-floor pricing. So that is just an important point to make. As John mentioned, we are not seeing any downward pressure in our pricing strategies for all three of our brands within the US. We feel good about that because we are putting more value into our products, and we feel like we've got a fair price for the value we have built into our products, and we are not facing pressure from our customers to adjust off of our pricing strategies at this point. They clearly have a mix of private brands, exclusive brands and national brands for a reason that enables them to have an assortment of price points to deliver against their customer requirements.

Thanks.

At this time I would like to turn the floor back over to the presenters for any closing remarks.

Thank you. In summary, 2009 is going be a very challenging year. We are pleased with our results given the conditions we faced during the quarter. The Levi's brand continues to perform well in these uncertain times and we continue to support all three brands for investment in our retail channel and marketing programs. We look forward to talking with you next quarter. Thank you, everyone.

Thank you. This concludes today's conference call. You may now disconnect your lines.