Aided by its strategic acquisitions, Liz Claiborne Inc. on Thursday posted double-digit increases in first-quarter profits and sales and beat earnings-per-share consensus estimates by 2 cents. The firm also indicated it was withdrawing from the Russ program at Wal-Mart, which generated about $30 million in annual revenues.
For the three months ended April 5, income was up 26 percent to $64.1 million, or 59 cents a diluted share, from $50.9 million, or 48 cents, in the year-ago quarter. The mean estimate of Wall Street analysts, according to Thomson First Call, was 57 cents.
Shares of Claiborne Thursday closed at $32.56, up 3 cents, or 0.1 percent, in New York Stock Exchange trading.
Sales rose 20.5 percent to $1.08 billion from $892.9 million with last year’s acquisitions of Ellen Tracy and Mexx Canada, adding $58 million in sales to the quarter. Also, about $36 million of the increase was attributable to the impact of currency exchange rate fluctuation, primarily because of the relative strength of the euro. Wholesale sales of apparel jumped 21.9 percent to $775.8 million over the year-ago figures, while wholesale sales of nonapparel rose 14.3 percent to $121.4 million. Retail sales gained 17.3 percent to $171.8 million.
The quarter’s numbers do not include results from Travis Jeans, the parent of Juicy Couture acquired for an undisclosed sum last month.
Paul Charron, chairman and chief executive officer, said during a conference call: "Our sales, earnings per share and operating margins all met or exceeded our expectations." He added that the firm’s wide range of offerings "performed reasonably well overall."
Jennifer Black, analyst at Wells Fargo Securities, said: "I think the results in this difficult environment were very impressive. The diversification of brand strategy that has been in place, coupled with strong management and great products, have driven the sales and bottom line for the company. I see them staying on course and am raising estimates."
Raising her price target for Claiborne to $46 from $45, she said in an interview that the firm has the strongest leadership in the apparel industry, and that the firm is Wells Fargo’s number one stock pick among specialty retailers and apparel manufacturers.She predicted that Claiborne will make another acquisition, and maybe even two, during the remainder of the fiscal year: "We believe that the company’s ability to integrate new businesses while maintaining strength in its core businesses should drive its ongoing success."
Charron told analysts that the "current environment presents a good number of opportunities," but didn’t elaborate except to note that the company’s acquisition criteria hadn’t changed.
The company ended the quarter with $111 million in cash, cash equivalents and marketable securities, and $476 million of debt. The firm added $73 million in year-over-year debt due mostly to the Mexx Canada and Ellen Tracy acquisitions. Claiborne ended the quarter with $452 million of inventory, up 8.8 percent from last year’s $416 million, primarily because of acquisitions and new businesses.
The ceo told analysts that while the spring 2003 season was one of its strongest for its Russ brand at Wal-Mart, Claiborne was exiting that segment of the marketplace. He explained that Wal-Mart, in line with its new focus, was shifting Russ to high-volume apparel, which was inconsistent with Claiborne’s efforts on the fashion side.
"To align with Wal-Mart’s direction and do meaningful volume [would be] contrary to our design capability. We’ve agreed with Wal-Mart to withdraw the Russ line in fall 2003," the ceo said.
The discontinuation of the business would have an "immaterial impact" on earnings. Charron said that the two firms expect to maintain an ongoing dialogue over possible collaboration opportunities that might arise.
Executives participating in the call said that while markdown pressures "come from everywhere," the last quarter saw increased pressure from the moderate side of the business, mostly because it was the segment that underperformed at retail and because of increased promotional activity to move merchandise out of retail doors.
Charron lauded Juicy Couture, Claiborne’s most recent acquisition, as a "leading contemporary brand of casual lifestyle" apparel and "one of the fastest-growing" brands in the upscale denim zone. Sales last year were $47 million.
In other categories, Claiborne plans to introduce a new fragrance, Spark, in August. Targeting the older, sophisticated consumer between ages 25 to 45, it will be distributed to more than 2000 department and specialty store doors.In the modern brands segment of the business, pants, knits and sweaters drove sales in the bridge market, with lines such as Ellen Tracy, Dana Buchman and Sigrid Olsen outperforming the competition, executives said on the call. In the core Liz Claiborne apparel brands, the aggressive rollout of its "carefree" products posted strong sell-throughs, such as in shirts, sweaters and knits.
While the company said it was satisfied with the performance of Mexx, the German market remained the most challenging in Europe. The company will launch Mexx in the U.S. this fall.
For the year, the company projected a sales increase of between 9 and 11 percent and an EPS range of between $2.49 and $2.55. The estimate includes the previously stated EPS accretion of 2 cents related to the Juicy acquisition. Second-quarter sales gains are expected to be in the range of between 10 and 13 percent, with an EPS range of between 39 and 41 cents.
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