Brands' New Problems

Levi Strauss and Revlon, two of the most formidable brand names in the world, reported bad news. Revlon's credit ratings were cut yesterday by Standard & Poor's. And Levi's reported an 8.6 percent drop in its fiscal fourth quarter ended Nov. 26, 2000.

Revlon's problems seemed by far the more serious. In reducing Revlon's credit ratings – and reducing the ratings on the affiliated Rev Holdings – S&P attacked Revlon's announcement to perhaps cancel its redemption of certain zero-coupon bonds, calling it “tantamount to default.” In December, the company said it would buy back $630 million of its zero-coupon bonds, sell new bonds with a later maturity date and swap them for an additional $140 million of the zeros that matured on March 15. Rev Holdings recently said it didn't have the money to redeem the maturing bonds. In lowering Rev Holding's corporate credit and senior secured debt rating from CCC- to CC (the lowest rating for non-bankrupt companies), S&P said further cuts were possible.

In announcing Levi's fourth quarter sales drop, the company insisted that its turnaround program was working “better than expected.” Net income for the quarter ($75.4 million) was half of what it had been a year earlier, though operating income increased. Levi Strauss has shifted production offshore, cut overhead expenses and revamped its marketing in recent years, all in an attempt to stem the effects of losing market share to smaller, more youth-oriented brands.