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Levi’s boosts margins as it turns away from off-price stores

Denim brand Levi’s plans to scale back shipments to off-price retailers in the US as it targets a further improvement in gross margin and long-term ambitions in the growing Chinese market. 

The company ended the year reporting US$1.57 billion in sales, slightly behind analyst estimates, but with a gross margin up by 100 basis points compared to the prior year. 

Sales in Europe rose by 5 per cent and its operating profit there by a healthy 47 per cent, but sales in Asia rose by just 1 per cent, and operating profit there took a 43-per-cent hit, largely due to civil unrest in Hong Kong and India. 

While the company expects to take a hit in Mainland China after closing about half of its stores there in response to the coronavirus outbreak, the company says its sales there account for just 3 per cent of its global turnover. 

“It probably puts a damper – at least in the short-term – for our growth plans in China, but we are here for the long-term,” CFO Harmit Singh told Yahoo Finance. “We are still long on China.”

Singh said the company would restrict shipments to off-price retailers like Ross Stores and TJ Maxx, which erode profit margins. It will sell more products into a joint venture with discount department store Target and into other higher-priced retailers like department stores. 

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