Levi Strauss does not expect to be able to reopen in Russia this year, its chief executive said on Wednesday, a month after the California jeans maker suspended operations there “temporarily” in response to Vladimir Putin’s invasion of Ukraine.
“The way things are going now, I’m not optimistic we’ll be back in business in full force any time soon,” Chip Bergh told the Financial Times, adding that its forecasts now assumed no further revenues in 2022 from a market that contributed about 2 per cent of sales last year.
Levi’s is still paying more than 800 employees in Russia, and has kept a couple of outlet stores open “to flush inventory”, he said, but “every day when you open the newspaper the situation looks worse”.
Conditions for western companies in Russia were “really difficult”, Bergh said, noting authorities had assumed powers that could allow them to nationalise the operations of businesses that stop supplying Russian customers.
“They could literally take our trademark,” he warned, echoing a concern other executives have voiced privately.
A Boston Consulting Group survey, released this week, found that two-thirds of investors expected it would take at least two years before western companies were willing to operate in Russia again, including 39 per cent that said it would be five years or more.
Few CEOs have made any public projections of how long they might be frozen out of Russia’s market, however.
Despite the question hanging over Russia, Levi’s reaffirmed its full-year guidance after delivering first-quarter revenues and earnings per share that beat consensus estimates.
“We grew the old fashioned way, by generating lots of demand and lots of full-price selling,” Bergh said, pointing to a 22 per cent jump in revenues to $1.59bn for the three months to February, above the $1.55bn Wall Street had expected.
Record operating profit margins, up from 13.3 per cent to 14.7 per cent, boosted adjusted earnings per share more than a third to 46 cents, or 4 cents above expectations.
Levi’s had increased average prices 10 per cent in a year to try to offset “across the board” inflationary pressures, Bergh noted.
“We are planning for more [price rises] later this year because we know costs are going to continue to go up,” he said, adding that running businesses in high-inflation periods of the 1980s had taught him that “you’ve got to get in front of [inflation], because if you don’t you just can’t catch up”.
Levi’s had offset much of the higher costs of cotton, shipping and wages by renegotiating leases and using its scale to agree better terms with vendors, said Harmit Singh, chief financial officer.
Bergh expressed confidence in the outlook for US consumer demand, saying: “Despite the pandemic and everything we’ve been through, despite consumers seeing inflation hitting them at the gas pump and the grocery store, the confidence level is still quite high.”
That said, he added, the fact that it was maintaining full-year guidance after beating expectations for the first quarter “infers we are maybe expecting the second half to be a little bit softer”.
Source: Economy - ft.com
