Liz Claiborne Puts 16 Brands Up for Sale, to Cut Jobs

By Heather Burke & Lauren Coleman-Lochner

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July 11, 2007

Liz Claiborne Inc. may sell or discontinue 16 unprofitable brands geared to older customers, and eliminate as much as 9 percent of its workforce to reverse six straight quarters of lower profit.

The maker of its namesake line of women's apparel may divest brands such as Dana Buchman and Ellen Tracy with $800 million in annual sales to department stores. Cutting as many as 800 jobs won't affect workers at 519 retail stores, the company said today.

Liz Claiborne plans to add more than 300 stores selling Juicy Couture clothes and bags from Kate Spade, whose customers tend to be younger than at some of the lines under review. New Chief Executive Officer William McComb wants to lift revenue from company-owned locations following a drop in sales to Macy's Inc. as department stores demand lower prices.

"They're talking about a lot of aggressive things here," said Robert Samuels, an analyst at J.P. Morgan Securities Inc. in New York. "There's definitely a healthy amount of skepticism." He rates Liz Claiborne shares "neutral."

Shares of New York-based Liz Claiborne rose 33 cents to $37.56 as of 4:22 p.m. in New York Stock Exchange composite trading. They are down 14 percent this year, trailing the 7.1 percent gain on the Standard & Poor's 500 Index and a 3.1 percent increase on the 29-member S&P Retail Index.

Liz Claiborne held a meeting today with analysts and investors in New York.

Buying, Selling

McComb, who took over in November, already eliminated the Elisabeth line of clothes for larger women. The company purchased Kate Spade in December. His predecessor Paul Charron, who took over the company in 1995, made at least 10 purchases including Mexx Group BV and Monet Group Inc. to bring the number of Liz Claiborne brands to about 40.

Founder Liz Claiborne, 78, died last month of cancer. She started the company in 1976 to bring mid-priced stylish clothing to professional women. The company posted almost $5 billion in sales last year.

The company also lowered its annual per-share profit forecast to $1.90 to $2 from $1.90 to $2.05, excluding some items. Nine analysts in a Bloomberg survey projected $2.03, on average. The company had profit of $2.99 last year. Sales may be unchanged or fall in the "low single digits," Liz Claiborne said today in a statement.

For the second quarter, it forecast profit of 22 cents to 24 cents a share. Analysts estimate 28 cents. In May, Liz Claiborne said first-quarter profit plunged 65 percent.

Cost Savings

Liz Claiborne said the job cuts and restructuring will save $190 million annually by 2010. It estimates 2008 sales of $4.2 billion to $4.3 billion and profit of $2.35 to $2.50 a share, excluding items. Liz Claiborne forecast long-term annual sales growth in the "high single digits" and earnings growth in the "high teens."

Last month, Liz Claiborne said it would reorganize its brands under two divisions: one will focus on Juicy Couture, Lucky and other lines sold at company-owned stores. Such lines may post $2.2 billion in sales in 2007. The company plans to increase these sales to $3 billion in 2010.

The other unit includes brands sold at department stores such as Liz Claiborne and Monet, with annual sales of about $2.8 billion. Other lines that may be divested or discontinued include Sigrid Olsen, Enyce and Laundry by Design.

The 16 brands under review lost a total of $15 million to $25 million last year, said Brad Stephens, an analyst at Morgan Keegan Inc. A Dana Buchman silk faille beaded skirt costs $425 at Saks Inc., while the Juicy Couture Web site sells a signature black velour hoodie and track pants for $256.

"Retail brands have more power in the long run," said Stephens, who is based in New York. "You're not in the hands of other retailers.'' He rates Liz Claiborne "market perform.''

Opening More Stores

Liz Claiborne plans to have more than 800 Juicy Couture, Kate Spade, Lucky and Mexx stores by 2011. The company also said it will spend more to market these brands.

The company plans to add 25 Juicy Couture stores overseas by 2009, executive vice president Jill Granoff said today at the meeting. Lucky will also "selectively pursue" international expansion, said Granoff.

"Everything we do will be centered on the key principle of building powerful brands,'' she said.

Kate Spade's annual sales may increase to as much as $300 million from $90 million now, said Granoff. The chain may add 80 new stores in next three years for a total of 120.

Macy's is the second-largest department-store company based on sales after Sears Holdings Corp.


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