Liz Claiborne Inc. today agreed to sell its namesake brand to J.C. Penney Co. Inc. as part of a series of transactions that will raise $328 million to pay down debt, focus the firm almost completely on its Kate Spade, Juicy Couture and Lucky Brand businesses, and prompt a corporate name change within a year.
Penney will also buy the Monet brand, while Bluestar Alliance agreed to buy Kensie and Kohl’s Corp. acquired Dana Buchman. Additionally, Claiborne agreed to end the DKNY Jeans and DKNY Active license at the end of this year, 12 months ahead of schedule.
Investors, who have been prodding the company to make such a move, applauded the plan and pushed Claiborne’s stock up 34.1 percent to $6.84.
The deals, most of which were done in-house, make Claiborne chief executive officer William L. McComb one of the busiest investment bankers in town this summer.
McComb, who joined Claiborne in 2006, has been transforming the company, focusing on its three main brands and paying down debt. Including money expected to come from the sale of a majority of the Mexx division to The Gores Group, cash from Elizabeth Arden Inc. for an updated fragrance agreement and Tuesday’s deals, Claiborne will have raised $471 million — virtually all of which will go to pay down debt.
Claiborne’s recent moves improve its capital structure and focus the company on core brands, but also lift a weight from the shoulders of McComb.
“The weight has not been the burden of running these businesses,” McComb said in a phone interview. “The weight has been the expectations of shareholders to unlock value. I’ve heard, listened to and heeded the advice of the collective mass of shareholders.”
McComb said the divestitures were driven by external economic pressures.
“At a time when most economists are calling an imminent recession in the U.S. and Europe, the kind of leverage that our company had cannot and will not be tolerated by Wall Street,” he said. “The amount of money we were paying the banks for the loans, it was too much money.”
Claiborne expects to end the year with debt of $270 million to $290 million.
Although Penney’s was expected to acquire the Liz Claiborne name — the retailer became the exclusive licensee for the brand in August 2010 and had an option to buy the business outright after five years — it is still a major milestone for a brand that is credited with dressing a generation of working women for the office. Liz Claiborne was the cornerstone of the company’s empire and drew revenues of more than $1 billion at one time. But the name slid into decline as department stores sought to differentiate their offerings and Macy’s Inc., a key customer, recoiled after Claiborne made a pact to launch a subbrand, Liz & Co., at Penney. The Liz & Co. deal was made under McComb’s predecessor, Paul Charron, who grew the company into a multibrand powerhouse.
“When I came into this business [the Liz Claiborne brand’s] profitability was crashing to a point of questionable value,” McComb said. “Today puts in perspective five years worth of work. I walked into a very contentious environment where Liz & Co. was just being planned. My team did it and made it a success. That success in turn led to this.”
The company said its 2011 pro forma adjusted earnings before interest, taxes, depreciation and amortization would range from $80 million to $90 million — compared with the previous guidance of $100 million to $120 million, including the outgoing brands. The firm will also make additional cuts in its corporate operations to reflect the changing nature of the business.
Penney is buying the domestic and international trademark rights for Liz Claiborne, Claiborne, Liz, Liz & Co., Concepts by Claiborne, LC, Elisabeth, LizGolf, LizSport, Liz Claiborne New York and Lizwear, as well as the U.S. and Puerto Rican rights to Monet.
Penney will then license back the QVC-centric Liz Claiborne New York and the discount-oriented Lizwear brands to the company royalty free until 2020.
All told, Penney’s will give Claiborne cash of $288 million and an advance of $20 million related to an agreement to develop exclusive brands for the retailer.
The other $40 million in the deals unveiled today comes from the agreement to sell Kensie, Kensiegirl and Mac & Jac to licensing firm Bluestar and the sale of Dana Buchman to Kohl’s. Claiborne is retaining its wholesale jewelry business and has agreements to be the exclusive supplier of jewelry for the Liz Claiborne and Monet brands at Penney and Dana Buchman at Kohl’s.
McComb said this most-recent downsizing plan was not a matter of survival for the company, but a prudent step that also allows it to zero in on the quickly growing Kate Spade, the speeding-up Lucky and the still-turning-around Juicy brand. Comparable sales at Kate Spade grew 114 percent last month, as Lucky Brand increased 24 percent and Juicy saw comps fall 5 percent. Juicy’s product has been revamped and will be reintroduced in January.
The ceo said the brands have across-the-board growth potential with room to expand into new channels, geographies and product categories.
“I’m not here just to keep us alive, it’s to thrive,” McComb said.
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