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NEW YORK — Liz is going to let the little Claibornes run the store.
In announcing a 39.7 percent increase in fourth-quarter earnings Thursday, Liz Claiborne Inc. said it will shutter all 22 remaining freestanding Liz Claiborne stores in the U.S., while converting at least five of these units to other corporate nameplates. For instance, after an expensive recent renovation, the Liz Claiborne store on Fifth Avenue in Manhattan will become the first U.S. retail location for Mexx, the Netherlands-based label acquired in May 2001.
This story first appeared in the February 21, 2003 issue of WWD. Subscribe Today.
The apparel giant’s retail strategy includes the opening of its first Sigrid Olsen site by late summer 2003 in the Boston area. There were no announced changes to its retail outlet strategy.
Paul Charron, chairman and chief executive officer, said during a morning conference call that the firm was changing its specialty retail strategy as part of its ongoing effort to deploy resources and assets to concepts showing greater growth potential. He pointed out that while all 22 domestic Liz Claiborne stores will shutter, it is a move that the company began since 1999, when it closed 19 stores. Since then, the company has been closing stores when leases came due.
In a statement, Charron noted: “The Liz Claiborne consumer is well-served by a wide department store distribution [consisting of] 2,000 locations nationwide. To this end, Liz Claiborne brand specialty stores are essentially redundant.”
The ceo said on the call that specialty retail has been an area of focus for the company, but that it has been “unable to find a specialty retail acquisition that meets our criteria.” While the firm continues to explore possible opportunities, it decided to take brands already owned to the specialty channel.
That said, Charron was quick to acknowledge that acquisitions will continue to remain important to the company’s maintenance of long-term core growth. The current environment, he noted, could bring some good opportunities, provided that they meet the firm’s strategy of being financially attractive with manageable risks.
About five of the existing Liz locations will be converted to either a Mexx or Sigrid Olsen format. A total of five Mexx sites are planned in the U.S. this year, and the first will open at what is now Liz Claiborne’s 17,000-square-foot Manhattan flagship at 650 Fifth Avenue in New York. Based in the Netherlands, Mexx is a designer and marketeer for women’s, men’s and children’s apparel, and is sold in over 7,500 locations in 40 countries. The U.S. stores will feature apparel and accessories targeting men and women between ages 20 and 40.
A total of six Sigrid Olsen stores are planned for 2003, with the first to open in the late summer in Boston. The lifestyle sportswear collection had been in department store doors since being acquired by the apparel giant acquisition in 1999.
For the three months ended Dec. 28, the company said income rose 39.7 percent to $58 million, or 54 cents a diluted share, from $41.5 million, or 39 cents, in the year-ago quarter. Included in the quarter is a $7.1 million pretax restructuring charge connected with 22 Liz Claiborne retail closures.
Sales in the quarter jumped 12.1 percent to $993.9 million from $886.5 million, making it the company’s 28th consecutive quarter of sales growth.
Shares of Liz closed on Thursday at $27.51, up 1 cent in trading on the New York Stock Exchange on a day when the Dow Jones Industrial Average shed 85.64 points, or 1.1 percent, to end the day at 7,914.96.
Charron said during a conference call that the difficulties of the retail environment in the U.S. have been particularly challenging, with significant geopolitical issues showing no signs of resolution. He added that this is “not the sort of situation where one expects to muscle out.”
He also told Wall Street that sourcing costs for 2003 continue to decline for the company as “investments in technology have positively impacted the ability to perform in a challenging environment.”
During 2002, the company saw growth in its apparel business, costume jewelry business and its international operations.
“Dana Buchman, Sigrid Olsen and Ellen Tracy are our trio of brands at upper-price points that outperformed the better and moderate segments,” the ceo noted.
In an unrelated move on Thursday, the company’s Lucky Brand subsidiary said it had signed a licensing agreement with Charles Komar & Sons for the production of men’s and women’s loungewear, sleepwear and underwear. Current plans are to have limited distribution of both collections in the stores this fall, with retail price points between $15 and $90. Lucky Brand sleepwear and underwear will also be carried in better department and specialty stores.
Ellen Schlossberg, analyst at William Blair & Co., said: “In light of the retailing environment, Liz Claiborne actually did very well.” She noted that the company’s investment in the back end of the business for the last six years or so has positively impacted the company’s efficiencies. While Mexx and Sigrid Olsen could be potential hits for the firm, she doesn’t expect to see a roll-out of stores until the end of 2004 or 2005. Neither brand name has a lot of competitors and they aren’t overexposed in the retail channel, she observed. In addition, the experience from operating Mexx stores overseas and the Lucky Brand chain in the U.S. should help the company successfully operate and roll out Mexx and Sigrid Olsen stores in the U.S., she noted.
Michael Scarpa, chief financial officer, said that wholesale sales of apparel increased 13.6 percent to $634 million in the quarter, attributable to Ellen Tracy and the growth of Mexx, as well as solid increases at Sigrid Olsen and Lucky Brand. In the nonapparel segment, sales were up 5.6 percent to $138 million, driven by gains in fragrances and handbags. Retail sales rose 11.9 percent to $216.9 million. The outlet business, not affected by the specialty retail restructuring focus, posted a 4.8 percent gain to $110.9 million.
Angela Ahrendts, senior vice president and group president for the modern brands, said the integration of Ellen Tracy into the firm has been focused on back-end management. Sales of the Crazy Horse brand were up in the double digits, with the company testing new products at J.C. Penney Co. New to market are recent shipments of J.H. Collectibles. Ahrendts said there was optimism from the first few weeks of selling, with the label “critical” to the firm’s ability to create new product concepts.
UBS Warburg’s Jeffrey Edelman noted that buyers have been enthusiastic about the revived J.H. Collectibles line. He said that strong bookings are anticipated in almost 600 doors and that it should complement the already successful Emma James brand and enhance Liz Claiborne’s presence in department stores such as Marshall Field’s.
Trudy Sullivan, group president for Liz Claiborne, said that sales for the year for the core Liz apparel business were down in the mid-single digits. While units were up during the retail shift from regular price to off-price, the volume increase failed to offset the price decreases. The costume jewelry business saw gains driven by sales in color and key silhouettes such as bold bracelets and chandelier earrings.
The company reaffirmed previous guidance for fiscal 2003 of a sales increase of between 9 and 11 percent and earnings per share in a range of $2.47 to $2.52. First-quarter EPS range is estimated at between 56 and 58 cents. Second-quarter EPS is expected to land between 39 and 41 cents.
For the year, income rose 20.4 percent to $231.2 million, or $2.16 a diluted share, from $192.1 million, or $1.83, last year. Sales were up 7.8 percent to $3.72 billion from $3.45 billion.