Levi Strauss Replaces Its Finance Chief

Levi Strauss & Co. said Monday that it replaced its chief financial officer and hired a turnaround specialist to help reverse the struggling jeans maker’s sagging performance.

Levi said it hired Jim Fogarty, managing director of management consulting firm Alvarez & Marsal Inc., as interim CFO and also retained the firm.

Fogarty took over from William B. Chiasson, who had been with Levi for five years. The San Francisco company, which has had seven years of declining sales, gave no reason for Chiasson’s departure.

Fogarty had been CFO for Warnaco Group Inc., the maker of Calvin Klein jeans and Olga bras that emerged from Chapter 11 bankruptcy protection in February.

As for Alvarez & Marsal, it has “done a lot of work in advising companies how to improve performance and how to achieve operational excellence,” Levi spokeswoman Linda Butler said.

Some on Wall Street said Levi’s announcement might indicate that the long-suffering maker of the Levi and Dockers brands had a long way to go before it would be restored to full financial health.

“I don’t think there’s a lot of investor confidence, and now that a turnaround company has entered the mix, I personally don’t think there will be any sort of change in that sentiment,” said Thomas Razukas, an analyst with credit-rating firm Fitch Ratings in New York.

“Is there further change to come on the management side? It is a question, but I have no answer for that.”

Although Levi is privately held, its debt is publicly traded.

“You could look at it both ways: From one point of view it could be positive, because they are having a professional come in from the outside and take a fresh look at the finances,” said Susan Ding, a credit analyst with Standard & Poor’s in New York.

“From another point of view, people can interpret it as someone coming in” to restructure the company yet again, she said.

Levi has struggled against fierce price competition and changing styles in the denim market.

In the spring, two former tax managers sued Levi, claiming they were fired for refusing to take part in a scheme to hide information from the company’s auditors and the Internal Revenue Service.

The pair said Levi avoided paying $70 million in federal taxes from 1997 through 1999 and created a questionable Brazilian tax shelter to deduct $149 million in taxes from 1986 to 1994.

Levi countersued, accusing the former employees of defaming the company.

In September, burdened with an estimated $2.37 billion in debt, Levi said it would lay off nearly 7% of its U.S. employees as part of a cost-cutting effort.

Later that month, the company said that by the end of the year, it would close the last of its North American manufacturing plants, putting 2,000 workers out of work.

Then in October, Levi acknowledged taking the same tax deduction twice, in 1998 and 1999, and said it would have to restate third-quarter 2003 and full-year 2001 financial results.

The company also said it would delay its final third-quarter filing with the Securities and Exchange Commission.

Then last month, the company said that 2003 revenue would be as much as 7% below last year’s, partly because slow October sales spooked retailers into buying less for the holidays.

That news caused three big credit-rating firms to issue warnings about the company’s prospects. Moody’s Investors Service and Fitch Ratings cut their ratings on several issues of Levi debt; Standard & Poor’s put the company on its CreditWatch list, saying it found the timing of the announcement “especially troublesome.”

Notes of closely held Levi Strauss had slumped since the sales forecast was revised, as investors saw a greater chance of default on the company’s debt. Its 12.25% coupon bond maturing in 2012 has declined to about 70 cents on the dollar from a high of 96.5 cents in September. On Monday, Levi’s most active corporate bonds dipped to 68 cents.

The company said it had ample liquidity after a September refinancing. Levi has $130 million of cash on hand and hasn’t drawn on its approximately $400-million revolving credit line, the company told Bloomberg News.

Still, some analysts worry about the potential of a bankruptcy filing if the company doesn’t improve sales and earnings soon.

Chief Executive Philip A. Marineau, a former PepsiCo Inc. executive who has tried to right Levi with his own ambitious turnaround strategy, said he hired Alvarez & Marsal to advise him “on additional strategies and actions to reduce debt and costs, while building our brands and returning the company to profitable growth.”