US jeans maker Levi Strauss posted a 98 per cent drop in quarterly net profit today, slammed by costs from the roll-out of a new business support system that caused shipping delays and hurt sales in the United States.
The results abruptly ended about two years of robust profit gains for the company with roots in the California Gold Rush which had recovered from years of slumping sales.
Levi Strauss cited weak consumer spending in major global markets, including the United States, and said the rest of the year would be challenging.
"We're getting no help from the economy in any of our markets around the world," said chief executive John Anderson.
Many of the same factors affecting consumer spending in the United States, including rising food and fuel prices, were now being seen in some of Levi Strauss' European and Asian markets, Mr Anderson said.
But, he added: "We believe we are well positioned for when market conditions start to improve."
Levi Strauss reported a second-quarter net profit of $1 million compared with $46 million a year earlier.
Retail expansion also crimped profit, the company said. Levi Strauss owns and operates some 48 US stores and is searching for new locations. Those retail stores saw positive same-stores sales, a key gauge of retail performance, during the quarter, the company said.
The company's US Dockers casual pants business fared worse than expected as it dealt with style issues, and sales were further hurt by the recent Chapter 11 filing of a customer, Goody's Family Clothing.
Revenues fell 8 percent to $936 million from $1.02 billion. The weak US economic environment hurt results in the Americas region, where sales fell 19 per cent, the company said, together with shipping issues related to the implementation of the company's enterprise resource planning system (ERP).
ERP systems use a common database that can be accessed and used by various departments, whether they be supply chain management, human resources or financials.
Issues with the ERP system led to delayed orders and cancellations by retailers and amounted to a "substantial portion" of Levi Strauss' revenue decline in the quarter.
Additionally, costs during the quarter rose to $385.5 million from $344.8 million, reflecting currency fluctuations and costs related to the ERP stabilization efforts.