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Claiborne Earnings Up 4.8%

<CS:BOLD>NEW YORK -- Multibrand and multichannel diversification strategies helped Liz Claiborne Inc. post fourth-quarter results that, before special items, bested Wall Street's expectations by a penny.<BR><BR>For the quarter ended Dec. 29, income...

NEW YORK — Multibrand and multichannel diversification strategies helped Liz Claiborne Inc. post fourth-quarter results that, before special items, bested Wall Street’s expectations by a penny.

For the quarter ended Dec. 29, income was up 4.8 percent, to $41.5 million, or 39 cents a diluted share, from $39.6 million, or 38 cents, in the comparable year-ago period. Excluding a special investment gain and a restructuring charge, earnings per share were 49 cents, compared with last year’s 48 cents. Analysts polled by First Call had expected 48 cents for the quarter. Sales were up 17.6 percent, to $886.5 million from $754 million.

The company is forecasting a fiscal 2002 sales increase of 4 to 6 percent and EPS of between $2.08 and $2.13. It also is laying the groundwork for an increasingly global business.

Shares of Claiborne closed Thursday at $29.10, up 31 cents, or 1.1 percent, on the New York Stock Exchange. After a two-for-one split on Jan. 16, shares established a 52-week high of $29.25 on Feb. 14.

Robert Drbul of Lehman Bros., who on Wednesday maintained his “buy” rating on the stock, wrote in a research note that he believes there is upside potential for 2002 earnings based on its momentum going into fiscal 2002.

Trumpeting the firm’s 24th consecutive quarter of sales growth and its 28th straight quarter of growth in EPS, excluding special items, Paul Charron, chairman and chief executive officer, explained on a conference call to Wall Street analysts that “strengths in one area offset weaknesses in other areas.”

The ceo noted that 2001 was highlighted by improvements in fit and the matching of products to the needs of consumers. Last year’s results benefited from “dramatic improvement” in DKNY Jeans and the Kenneth Cole business. In nonapparel categories, the Monet and the Liz Claiborne jewelry businesses performed well. The cosmetics business, Charron added, was also healthy through the introduction of the Mambo fragrance and consistent performance from the Curve and Lucky You fragrances. The acquisition of Mexx, the Netherlands-based purveyor of European apparel and accessories, also contributed to the bottom line.

Charron, who noted that the Liz Claiborne brand is underdeveloped in Europe, said that within the next several months the company will begin deciding which brands will be introduced in Europe. The company also will be making similar moves concerning the introduction of Mexx in the U.S. He added that the move into Europe of Claiborne won’t be before late 2003, while the introduction of Mexx here will be “probably around 2004.”

Charron also said that the business model for a Mexx operation here, which hasn’t yet been determined, will likely parallel that of Lucky Brand — a specialty retail context with a select wholesale distribution component.

One lesson learned from Mexx that is being tested with select Liz Casual products concerns shortened lead times. Mexx Express cut its lead time from building a product to the shop floor to 60 days. Adapting that strategy on a test basis, Liz Quick has shortened the cycle time from design to sales floor to 14 weeks for certain “fashion infusion” products.

Charron said that any acquisition would have to be financially attractive and have a manageable execution risk. Men’s wear, specialty and accessories categories are among the areas in which Claiborne would like to expand.

Charron said he expects the Villager line at Kohl’s and Mervyn’s to do well and that the Crazy Horse line at J.C. Penney Co. and the Emma James collection available at Federated, Dillard’s and Saks Fifth Avenue stores are likely to meet company expectations.

“We’re always trying to pack as much value as we can into our product,” Charron said. He explained that much work over the year has been put into reengineering product line, refitting apparel and repackaging the career line, as well as sharper price points with Liz Claiborne Casuals. “In the fashion business, every line we come up with gives us the opportunity to reprice and recalibrate,” he noted.

In response to a question from an analyst, the ceo said emphatically that Claiborne was not a company that would ever own a factory. He focused on how Claiborne’s success was more attuned to keeping and nurturing its partnerships with retailers and contractors.

Angela Ahrendts, senior vice president of corporate merchandising and group president for modern brands, said during the conference call that there was little change in fashion trends from the third quarter to the fourth. “Fashion denim and soft dressing really outperformed consistently the career look and more basic replenishment,” she noted. Sweaters and novelty knits also did well. Ahrendts said that sweaters will still be strong in the next couple of quarters, with “intarsia coming onto the scene very aggressively.”

On the moderate front, denim was strong in the quarter, particularly DKNY Jeans and Lucky Brand. The company ended the year with 54 Lucky Brand stores and plans to open another 18 for 2002.

In the special markets, Ahrendts said that the Meg Allen line at Target was being phased out, but that the company was working with the discounter in developing both a costume jewelry line and another apparel line.

Trudy Sullivan, group president for Liz Claiborne Casual Collection and Elisabeth, noted that Monet box items and bracelets saw strong sales in the quarter, while handbags and small leather goods ended the year close to plan in the high-single digits, near last year’s numbers.

For the year, income was up 4 percent, to $192.1 million, or $1.83 a diluted share, from $184.6 million, or $1.72 cents, in 2000. Sales were up 11.1 percent, to $3.45 billion from $3.1 billion.