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Claiborne Tweaks Arden Deal, Raises $58.4M

Company also extended its relationship with Li & Fung.

Liz Claiborne Inc. raised $58.4 million in cash from Elizabeth Arden Inc., agreeing to accept lower royalty payments on fragrance businesses tied to its brands — including Juicy Couture and Lucky Brand — and transferring the trademark for its Curve fragrance to Arden.

The deal will help Claiborne pay down some of its debt and clears the way for Arden to invest more into the licensed fragrance brands. Arden also reported Thursday that both fourth-quarter and year-end profits more than doubled.

For Claiborne, the deal could be a prelude of more to come. The company is already in talks to sell a majority stake in its Mexx division.

“The fact that they were able to get $50 million [in the Arden deal] was a surprise,” said Jim Chartier, an analyst at Monness, Crespi, Hardt & Co. Inc. “I think the turnaround’s on track, but it’s probably in their best interest to continue to sell some of these noncore assets.”

The amendment to the 2008 licensing agreement also includes the transfer of other smaller fragrance brands to Arden, a reduction in the minimum guaranteed royalties and the prepayment of certain royalties.

The changes could be a boon for Arden, which benefits by owning the Curve fragrance business outright and from the lower royalty fees on Claiborne licenses. During the company’s earnings call on Thursday, Arden chairman, president and chief executive officer E. Scott Beattie told analysts that lower royalties will allow the company to increase its investment behind the fragrance brands licensed from Claiborne. Regarding Arden’s decision to purchase Curve, Beattie said, “It’s a stand-alone fragrance business so it made sense to buy that out.” Beattie expects the transaction to begin to benefit Arden’s earnings in fiscal 2012, and more significantly in 2013.

Arden ended its fiscal year on strong footing.

For the three months ended June 30, Arden’s net income was $5.4 million, or 18 cents a diluted share, up from $2.3 million, or 8 cents, in the year-ago quarter. Net sales in the quarter gained 11.2 percent to $253.8 million, from $228.2 million in the year-earlier period. Excluding the impact of foreign currency translation, net sales gained 7.7 percent.

For the year, net income also more than doubled to $41 million, or $1.41 a diluted share, from $19.5 million, or 68 cents a share, a year ago. Sales for the year gained 6.5 percent to $1.18 billion, or 5.9 percent excluding the impact foreign currency translation, driven by gains in North American and International sales. Revenue in North America gained 5.2 percent to $756.7 million, outpaced by international sales, which gained 8.9 percent to $418.8 million.

In a bid to meaningfully reinvent the mass market fragrance business, Arden is currently rolling out scent tester bars to key mass retailers.

Arden also is gearing up for the introduction of Taylor Swift’s fragrance Wonderstruck, which will launch in prestige stores in the U.S. this fall, followed by an international rollout in 2012.