By  on June 7, 2007

NEW YORK — Citigroup is feeling good about Liz Claiborne Inc. and its new chief executive officer, William L. McComb, going into the vendor's long-awaited July 11 strategic meeting.

After meeting with McComb, president Trudy Sullivan and chief operating officer Mike Scarpa on May 30, Citigroup released a report of its findings, which included Claiborne's focus on growing its "power brands" and retail division, while divesting smaller and lackluster brands, in addition to general cost-cutting.

Citigroup maintains its "hold" rating on Claiborne stock, calling the company high risk. Its target $42 stock price compares with Wednesday's closing price of $35.98.

Citigroup's meeting with McComb — its first since the former Johnson & Johnson group president took the position in November — was scheduled before the company's first-quarter earnings dropped more than 60 percent. "There was very little they were able to say, but the lunch ended up being a really good conversation," said Citigroup analyst Kate McShane.

The report put faith in McComb, whom it dubbed "McCEO" and labeled "a dynamic speaker and extremely sharp."

"We think he has a very strong command of the apparel industry and Liz's business despite not having an apparel background and given that he has been in the role only seven months," according to the report.

McComb declined comment Wednesday on the report.

But the report was not without serious concerns for the July 11 meeting, in which McComb will unveil his manifesto. McShane's biggest concern over the next year is Claiborne's relationship with Macy's Inc. Although she believes the two companies will ultimately resolve their differences, she thinks it will take years, not months. She referred to past troubled relationships in the industry, such as that between Foot Locker and Nike, as an example of how long such reconciliations can take.

Citigroup expects Claiborne to continue its investment in its five "power brands" — Lucky Brand Jeans, Juicy Couture, Mexx, Liz Claiborne and Kate Spade — and their accompanying retail stores.

"Lucky Brand is just reaching the scale necessary to better leverage overhead costs, and Juicy is soon to follow as it approaches a base of 40 to 50 stores," according to the report. "With operating margins well below the corporate level (5.1 percent in fiscal 2006 versus 10.5 percent overall), we think there could also be more opportunity for margin improvement over both the short and long term."

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