Levi Strauss Cut Costs And Lay Off Another 500 People

Levi Strauss & Co. said the group has signed a strategic agreement of at least $143 million in five years with the global technology service provider Wipro Limited (NYSE:WIT) Co., Ltd., which will include outsourcing of IT, finance, human resources, customer service and consumer relations from the first quarter of 2015. This means that the relevant positions will be withdrawn from Levi Strauss & Co., involving about 500 employees.

The group will also continue to reduce management levels, eliminate duplication of jobs and change its structure.

This stage will generate $4500-5500 in restructuring and related expenses, most of which will be recorded in the fourth quarter of fiscal year 2014.

In addition, Levi Strauss & Co. will pay at least $143 million to Wipro Limited (NYSE:WIT)

The final expenditure will depend on the actual demand of the group.

At the first stage of business restructuring and cost reduction plan,

Co. has reduced about 800 non retail and non manufacturing jobs, accounting for nearly 20% of its total workforce, and is expected to save 75 million -1 billion a year.

The whole plan starts in March and is expected to last 12-18 months, aiming at reducing the operating cost of 1.75-2.00 billion annually.

In the three quarter of August 24, 2014, the plan has already cost $103 million, and the cost savings will not exceed $100 million to $125 million in the next year, higher than expected.

The three quarter profits of Levi Strauss & Co. continued to decline, from 11.3% US dollars in the same period last year to 50 million 620 thousand US dollars, or 11.3%.

Suffer

The sluggish drag resulted in a total revenue of $1 billion 154 million 100 thousand, an increase of 1% over the same period of 1 billion 141 million 300 thousand dollars a year, a gross profit of 562 million 200 thousand US dollars, a decrease of 2%, and a gross margin of 150 basis points, down from 50.2% in the same period last year to 48.7%.

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"The construction of shopping centers and the development of e-commerce have diverted many traditional street store outlets. The lack of consumer confidence caused by the economic downturn will also bring some pressure on the demand for consumer goods, and the overall sales revenue and profits of the footwear industry fluctuated considerably."

In an analyst's view, under the background of the industry downturn, two shoe companies have not escaped the industry's performance haze.

Data show that in 2012-2014 June, the Red Dragonfly achieved net profit of 293 million yuan, 257 million yuan and 129 million yuan respectively, while the data of AOKANG International were 510 million yuan, 270 million yuan and 150 million yuan, respectively, and the trend of performance growth slowed down obviously.

It also plagued the entire leather shoe industry with high inventories.

In the prospectus, red dragonfly said that with the expansion of the company's marketing network terminals and the increase of sales scale, the stock held directly for the franchisee to pick up the goods also increased.

By the end of June 30, 2014 and the end of 2013, the stock balance of red dragonflies was 500 million yuan, 610 million yuan and 550 million yuan respectively, accounting for 89.86%, 92.44% and 90.21% of the total inventory ratio respectively.

Similarly, AOKANG International's inventories are increasing year by year. At the end of 2012, the company's stock was only 540 million yuan, and by September 30, 2014, this figure had changed to 930 million yuan.

"High inventory is a stubborn disease in the shoe and clothing industry. When the inventory is high and terminal sales are sluggish, enterprises will sell goods at a discount if they are exposed to inventory pressure, and the fall in retail prices will impact on gross margins."

An industry analyst said.

It is not yet known whether the Red Dragonfly sells goods by discount means, but the gross profit margin of the company is much lower than that of the same industry.

The average gross profit margin of the industry listed companies in the past 2011-2013 years was 53.73%, 52.59% and 53.01% respectively, while the Red Dragonfly's gross profit rate was only 34.05%, 35.49% and 36.11% at the same time, which was lower than that of AOKANG, which was also the same as franchising.

For AOKANG, its accounts receivable may be faced with a larger risk of repayment. Although AOKANG raised 2 billion yuan in 2012, the company's accounts receivable and the proportion of accounts receivable were higher than the red dragonfly and the industry average.

At the end of -2013 in the end of 2011, the proportion of accounts receivable of Listed Companies in the same industry was 21.08%, 19.55% and 19.1% respectively, while the data of AOKANG were as high as 41.98%, 28.99% and 26.33%. In addition to the accounts receivable ratio of 2013 was slightly lower than that of red dragonfly, it was higher than that of red dragonfly in the other two years.