Levi's profits drop 98% as new SAP system disrupts shipments and internal controls

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Iconic US jeans manufacturer Levi Strauss blamed a 98% drop in its second quarter profits to $701,000 on problems caused by its new SAP enterprise software system. John Stokdyk reports.

In its 10-Q filing with the US Securities and Exchange Commission for the quarter that ended on 25 May this year, Levi's said the $47m drop in profits from the equivalent period last year reflected its implementation of an enterprise resource planning (ERP) system at the beginning of the quarter.

Without naming the supplier, the company explained, "Order fulfillment issues and higher operating expenses related to the implementation and stabilization of the system negatively impacted our net revenue and operating income."

Levi's decision to implement SAP was widely trumpeted in trade r...

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Dennis Howlett published an item about Levi's around the same time I posted this one. He did a very interesting segmental analysis to conclde that Levi's had probably overcooked the impact of the ERP implementation on its overall Q2 performance.

There's also a couple of good comments from Francine McKenna's blog. She thinks the public comments about the ERP implementation (and the reasons for the "stabilisation") were a result of new auditor PwC, "bringing the hammer down" on control weaknesses within the new system.

John Stokdyk
Technology editor
AccountingWEB.co.uk

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