Levi Strauss and Company

In the year 1853, Bavarian Emergent Levi Strauss traveled from the East Coast of United States across the untamed land of the young and expanding country to San Francisco, California. He had read and heard much about the California Gold Rush and the mass migration of thousands in search of a better life and dreams of striking it rich. By nature Levi Strauss was an entrepreneur who had the same idea of a better life. Instead of panning for gold in the wild rivers that flowed from the great Sierra Nevada Mountain range, Levi wanted to set up shop in the busy Pacific Port of the Bay Area. There Levi planned to set up shop selling wholesale dry goods to the port-workers, settlers, and gold miners. As an honest and intelligent business man, Levi successfully managed his company and gained a reputation for not only a successful merchant but also a community leader.

It wasn't until the year 1873 that Levi Strauss and tailor Jacob Davis created one of the most successful products in the world. By riveting together heavy cotton cloth with metal rivets, tailor Jacob Davis created the most durable work pant that the gold miners had ever used. Levi in turn, was able to patent the new technology, produce mass quantities and distribute throughout the Golden State. This pairing of unique skill sets had just created what would become the most successful clothing the world had ever seen, blue jeans.

Spanning 151 years, blue jeans are more popular today than at any point in history. Hundreds of companies ferociously compete to gain market share and competitive margins in the blue jeans market. Levi Strauss created and set the standard that each blue jean company dreamed to replicate. If only a fraction of the success could be duplicated, companies would recognize success and profits many businesses can only imagine.

What had culminated from the successful expansion of merchant with a solid reputation and a savvy business sense in 1996 Levi Strauss and Company had become a billion dollar corporation with net sales in excess of $7 billion. This year however proved to be the turning point. Chairman of the Board Robert Hass explained to Fortune magazine in early 1997 that, "The remarkable growth of the past decade had some undesirable consequences. Our focus became diffused. We became less attentive in our hiring, staffing, and cost-control effort" (Sherman 1997, para. 8). The responsibility he admitted was that of his own and other management.

The awareness Robert Hass shared with the public about the Levi's current strategic position was only the beginning of challenges Levi Strauss and Company would face throughout the 'next seven years. From the peak of $7.1 billion dollars in net sales, LS&CO revenue would drop about $3 billion during the proceeding time to the current position. Continuing the downward trends the Wall Street Journal reported at year end 2004 that "sales are set to decline 2% to 3% this year" (Beatty 2004, para. 6). Moreover in 2004 tax regulators found that LS&CO. "lacked sufficient documentation for certain tax positions and that it will have to restate financial results after taking the same tax deduction twice" (Report 2004, para. 1). The combination of declining sales and questionable reporting spurred LS&CO. to replace its chief financial officer.

Current Performance

The corporation is set to report earning for the financial year ending November 2004 during late January 2005 or early February 2005. As this data is not yet available this paper will contrast the previous years data as reported on public financials and apply interim financial information as reported and shared by creditable industry sources.

Levi Strauss and Company's 2003 Annual Report shows net sales for the industry giant were reported at $4.26 billion financial year end 2002. The same period ending in 2003 totaled $4.14 billion. Although sales decreased by only $120 million dollars the major effect was recognized within the company's net income. $151 million in net income for the FYE 2002 was followed by a $126 million slide for a grand total of $25million net income for FYE 2003.

In addition to the poor performance LS&CO. stated on their 2003 annual report, net income for FYE 2002 was found to be an erroneous number stemming from the duplication of a tax deduction. The New York Times reported on October 10, 2004 that, 'an improper tax deduction would wipe out $30.9 million in profits. The company said the mix-up was a result of a tax deduction for losses on plant closures that was mistakenly claimed twice on its 1998 and 1999 returns.' The result is a final net income for FYE 2002 of$125 million.

Some good news can be derived from analyzing a comparison between the first nine months of 2003 and 2004. "Through the first nine