The Liz Claiborne Inc. board is standing by its man.
Despite disappointing earnings and a lagging stock price, Liz Claiborne's board members remain behind chief executive officer William L. McComb and his strategy. Board members firmly dismissed growing speculation that they are questioning McComb's performance, and instead attributed the anticipated missed earnings not to problems with the company's strategy, execution or leadership, but rather to inherited problems, changes in the wholesale marketplace and macroeconomic issues.
"The entire board has confidence in Bill, and we are very clear on the path we've chosen," said board chair Kay Koplovitz, who is also the founder of USA Network and a principal of media investment firm Koplovitz & Co. LLC. "We know the macroeconomic environment has changed since we set the targets, but the strategy we've chosen is correct and the execution is correct. We realize we have a lot to do, that it can't be done overnight, and we are focused on meeting our targets over a three-year period."
McComb said Wednesday that the company is in a "quiet period," and therefore he is unable to comment about the board's attitude toward his performance or the company's earnings.
The former Johnson & Johnson group president has been on the job at Claiborne for about 15 months. It's been seven months since his July 11 investors meeting when he laid out the new strategy for the $4.99 billion vendor, which included divesting more than a dozen less-profitable brands and pumping investments into power brands Juicy Couture, Lucky Brand, Kate Spade and Mexx. Since then, the company has restructured, cut costs and jobs and decided the fates of 14 of the 16 brands it put on review, including Dana Buchman and Ellen Tracy.
Koplovitz said the board's time frame is based on seeing positive results from the strategic review by 2010, a period McComb laid out in July. The board last met in January and will convene again in March.
"It's too early to reach any conclusions," said board member Raul J. Fernandez, ceo and chair of ObjectVideo Inc., who also echoed support for McComb. "These things take time. He's just begun to execute on the divestiture and restructuring. It would be like declaring a winner in the first quarter of the game."Of course, it's not unheard of for boards to reevaluate executives early into their terms. Just this week, Dawn Robertson exited as Old Navy president after 16 months on the job. In 2006, William D. Perez stepped down as chief executive of Nike Inc. after 13 months, and Mark Weber stepped down from the top role at Phillips-Van Heusen Corp. after eight months.
Sources point to this month's exit of Paul E. Tierney Jr., who had served on Claiborne's board since 1995, as a sign that the board might not be as unified as it claims. Tierney was close with McComb's predecessor, Paul Charron, but the company said that did not play a role in his exit.
"Paul Tierney has been a valued director of Liz Claiborne Inc. since 1995 and has contributed immeasurably throughout his tenure," McComb said. "At this time, Paul has other commitments that he feels will preclude him from serving the shareholders to the best of his ability, and while we respect his decision, we are sorry to see him go."
Tierney, co-founding member of Development Capital LLC and general partner of Aperture Venture Partners LLC, serves on many nonprofit boards, including chairing TechnoServe Inc., which he invited McComb to serve on with him. Tierney declined to comment Wednesday on why he stepped down.
Even with the board's support, McComb still has to contend with shareholders in the face of an $18.06 stock price. Wall Street sent Claiborne's stock down 18.4 percent Feb. 14 after the vendor warned that fourth-quarter and year-end earnings would miss expectations. The warning followed three consecutive quarters of 65 percent earnings declines.
"While nobody is happy with the outcome for the fiscal year, our faith in Bill remains absolutely intact," said board member Arthur C. Martinez, retired chair, president and ceo of Sears, Roebuck and Co. "If anything, the turbulent markets in the retail world make us realize how much we needed a new strategy. This company needed some dramatic things to happen to it. Strategies get tired, people get tired — we needed someone with a fresh perspective."
Martinez admitted he was disappointed in the stock price and the price the brands on review fetched, but said both were primarily the result of the marketplace."Liz is not the only fashion apparel retail company going through a difficult period," said board member Bernard W. Aronson, managing partner of ACON Investments LLC. "The earnings miss was not because of errors in execution or strategy. These are broad long-term trends, and to Liz's credit, we understood these trends and adopted this strategy to deal with it."
Aronson added that he thinks the bad news is behind the company, and points to progress the company has made with Juicy Couture, restructuring, cost savings, selling off less profitable businesses and hires like Tim Gunn and Isaac Mizrahi.
"The old strategy just wasn't going to work, and we knew a change of this magnitude would take time and have ups and downs," said board member Daniel A. Carp, retired ceo and chair of Eastman Kodak Co. "While we don't like to be doing this in the face of headwinds from the economy, we are very pleased with the results. We're watching it every quarter, and as long as we continue to see good progress, we are comfortable not looking at changes in the strategy."
Brad Stephens, a retail analyst for Morgan Keegan & Co. Inc., doesn't see a light at the end of the tunnel and worries the company will miss even its adjusted earnings projection of $1.50 to $1.70 a share for 2008. But even Stephens argues for patience.
"Absolutely McComb needs more time," he said. "The earnings miss proves how much his strategy was right: how vulnerable the company is to whims of department stores."
Analyst Jennifer Black said she thinks the board will give McComb at least two years from his November 2006 start date, and added that the board shouldn't shake up leadership during the planning for fall and holiday. Moreover, the impact of new hires — from Deborah Lloyd at Kate Spade to Mizrahi for the Liz Claiborne brand — won't be fully seen until the spring 2009 collections.
Until then, the Claiborne board backs McComb. "I have full confidence in our ceo, Bill McComb. I have full confidence in the team he is putting together, and I have full confidence in the strategy we are now implementing," said board member Nancy J. Karch, director emeritus of McKinsey & Co. "Unfortunately, we are in tough market times."
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