By  on October 28, 2005

NEW YORK — As Liz Claiborne Inc. posted third-quarter results in line with the low end of its guidance while cutting its full-year earnings forecast, the company said it remains interested in making acquisitions and launching its own brands.

Wall Street focused on the profit miss and lowered guidance, sending shares of Liz down 9.7 percent to close at $34.56. But one equity analyst said Liz's Juicy Couture brand could one day be a billion-dollar business.

"We have not lost our zest for acquisitions or internally developed brand launches. You should expect to see more on this front in the coming weeks," said Paul Charron, chairman and chief executive officer, during an investor conference call.

For the three months ended Oct. 1, the apparel giant posted a 1.7 percent rise in net income to $113.5 million, or $1.06 a diluted share, from $111.6 million, or $1.03, in the same year-ago quarter. Wall Street had expected the firm to deliver EPS of $1.09.

Sales in the quarter rose 2.3 percent to $1.34 billion from $1.31 billion. By segment, wholesale apparel sales were $837.3 million, representing 62.6 percent of total revenues. Wholesale nonapparel sales were $198.5 million, or 14.9 percent. Retail sales were $289.8 million, or 21.7 percent of total revenues, with comparable store sales up 6.6 percent. Lucky Brand same-store sales rose 18.1 percent. The balance of the revenue base was from licensing income.

For the nine months, net income was up 3.5 percent to $239.1 million, or $2.20 a diluted share, from $230.9 million, or $2.10, last year while sales increased 6.2 percent to $3.65 billion from $3.44 billion.

"The second half of 2005 is being adversely impacted by another series of developments which can be grouped under the general heading retail consolidation. Let me say that consolidation itself is not necessarily a bad thing. We have been accused from time to time of being consolidators ourselves. But it is the sheer number of mergers and buyouts and combinations and the reactions of the various parties to these events and the strategies which shift as a result which make navigation of these waters somewhat more challenging than has been the case historically," said Charron, referring to mergers such as Federated Department Stores and May Department Stores, and Kmart Holding Corp. acquiring Sears Holdings Corp.The chairman cited a "depressing litany of factors" that is creating a challenging environment. This includes higher transportation and energy costs, the economic impact of the fall hurricane season, rising interest rates and concerns over increasing inflation and a slowing economy

As a result, the company offered a cautious outlook for the year, and cut its initial forecast, citing a weakened economy that has made estimating future results more difficult. For fiscal year 2005, the company forecast earnings in the range of $2.90 to $2.94 a share, which compares with a prior estimate of $2.98 to $3.04. Sales projections were also reduced to a 4.5 percent gain, which compares with initial guidance of an increase of 6 to 7.5 percent. Liz's fourth-quarter EPS estimate is pegged between 70 cents and 74 cents on flat sales.

The company said in a statement that "factors in the macroeconomic environment combined with the uncertain impact of retailer consolidations in the United States work to restrict our visibility for the coming year. At this time, we can see a low single digit sales increase and 2006 EPS in a broad range between $2.90 and $3.05."

"Although the company continues to face pressures in its core Liz Claiborne business, its diversification is proving to be as crucial as ever to the success of Liz Claiborne in the highly competitive apparel industry. We are encouraged that the company continues to pursue growth organically and via acquisitions," observed Robert Drbul, analyst at Lehman Brothers, in a research note.

"The company's diversified portfolio is enabling it to better weather the current economic malaise that is hurting the middle- and lower-income consumers. We deem it as a positive that Liz is well on its way toward being less and less dependent on the department store channel. We do believe that Liz's retail business can eventually represent 40 percent of the company's total sales....We believe Juicy Couture could eventually drive $1 billion in worldwide sales," noted Jennifer Black, analyst at the firm that bears her name.

Trudy Sullivan, executive vice president at Liz, said during the call that "direct-to-consumer, including specialty, retail, outlet and online, will become more important to us, representing 28 percent of total sales by the end of 2006, up from 25 percent at the end of this year."She said the nonapparel business was the standout during the quarter, with exceptionally strong performances in the Lucky brands, Kenneth Cole jewelry and Juicy Couture, which she boasted won the 2005 ACE award accessories brand launch.

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