Liz Claiborne Inc. investors had to take the bad news with the good Tuesday as the firm slashed its bottom-line projections for the fourth quarter, but also extended its bank credit facility, putting off a deadline that had loomed over the stock like a dark cloud.
Shares of the firm rose in morning trading, but ultimately retreated, sliding 23 cents, or 7.7 percent, to $2.74. Over the past year, the stock has traded as high as $22.78 and as low as $1.46.
Claiborne now expects adjusted fourth-quarter results to range from breakeven to a loss of 15 cents a share. In November, the firm penciled in a 19- to 24-cent profit following previous guidance of 66 to 71 cents a share.
“The operating environment in the fourth quarter was the most challenging we have experienced in decades,” said William McComb, chief executive officer. “Despite a pickup in [comparable-]store sales in the last few weeks of the quarter, our comps for Juicy Couture, Lucky Brand and Kate Spade were each in the negative midteens, while Mexx’s comps were negative 12 percent.”
Final results for the fourth quarter and year ended Jan. 3 will be reported in early March.
Claiborne extended its revolving credit facility to May 2011 from October of this year and reduced it to $600 million from $750 million. While leverage and asset coverage covenants were eliminated, fees and interest rates were increased. J.P. Morgan Securities Inc. and Banc of America Securities arranged the amendment and extension.
“We know that the financial community has been closely monitoring this transaction in light of very challenging credit market conditions,” McComb said. “While we continue to aggressively manage our balance sheet and preserve liquidity, this amendment and extension affords us stability in the face of a most uncertain 2009.”
The company also managed inventory closely and paid down $175 million in bank debt in the quarter, for total bank debt of about $234 million. Overall debt at the end of the year weighed in at about $745 million, below the $750 million to $775 million range the firm projected in November.
“[Claiborne] stays alive to fight another day, but its liquidity and financial flexibility continue to decline, as does the retailing/apparel environment it faces,” said Carol Levenson, director of research at Gimme Credit, an independent debt research firm, in a note to clients.
Levenson said the company’s fundamentals and outlook continue to deteriorate.
“It suffers from the woes of its department store customers as well as having its own problems as a specialty retailer,” she said. “Moreover, even with a relatively low debt load, it is under pressure regarding its liquidity and financial flexibility as earnings and margins plunge and its reliance upon its bank lines escalates.”
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