NEW YORK — Liz Claiborne Inc. turned in double-digit third-quarter gains on both the top and bottom lines, but still managed to rattle investors with cautious 2004 projections.
Net income shot up 17.2 percent for the quarter ended Oct. 4 to $97.9 million, or 89 cents a diluted share, 2 cents above the Wall Street consensus estimate provided by Thomson Financial/First Call. This compared with year-ago profits of $83.5 million, or 78 cents.
Sales for the three months were up 12.8 percent to $1.17 billion from $1.04 billion a year ago.
Apparently investors were not too impressed, though, as the firm’s shares fell $1.92, or 5 percent, on the New York Stock Exchange Thursday to close at $36.60.
The shareholder ire was apparently raised by Claiborne’s 2004 forecasts calling for earnings of $2.65 to $2.72 a share and sales growth of 3 to 6 percent. Last year, diluted earnings per share came in at $2.16 with sales of $3.72 billion.
“This is the first time we’ve given guidance for the new year,” noted chairman and chief executive Paul Charron in a telephone interview. That guidance, though, is exclusive of any future acquisitions.
“We’ve done acquisitions every year since 1999,” he noted. Already this year, the firm, which is always evaluating acquisition options and sees a fruitful environment in the market, acquired Juicy Couture.
Although Charron had no comment on whether he expects another deal to be closed this year, when asked if 2004 would pass without an acquisition, he responded, “Absolutely not.”
So how many brands can the company, which already has a stable of 32, digest?
“The only limitation to the number of brands we can manage is the capacity of our people,” said the ceo. “Why can’t Liz be the Procter & Gamble of this industry?” he asked, alluding to the consumer products giant where he used to work.
Claiborne, he said, is looking for “names that can be meaningful, not names that are one-night stands. We’re talking about names that have longevity. You can marry those names.”On a morning conference call, the ceo described the current retail environment as “unsettled and unsettling,” but noted trends at retail have improved as of late while stores have held a tight rein on inventory, echoing others in the industry.
“Generally speaking, promotional activity in major accounts has slowed from the rate experienced earlier in the year,” he said. “At the same time, we funded markdown assistance in the third quarter at higher levels than was our original intention as we moved to address potential inventory issues with certain partners.” Brands such as Liz Claiborne, Villager and Crazy Horse turned at a slower rate than expected.
A majority of the markdowns were in moderately priced goods, said the firm.
“The midmarket today is not without its risks,” noted Charron. “This suggests some rationalization of the units that we ship to this sector is in order for the short term.”
In the interview, he added, “I can chase volume and I’d rather chase volume than chase T.J. Maxx trying to get them to take my excess inventory.”
Offsetting the midmarket markdowns were strong performances elsewhere in Claiborne’s portfolio of businesses, such as bridge, contemporary and denim, and logistical and sourcing improvements.
The company also had some difficulties in the better portion of its business, particularly its core Liz Claiborne label. Charron said there would be a reduction in planned sales for the brand next year, which would be offset by increases elsewhere in the company, as was the case in the third quarter.
Wholesale apparel sales for the quarter rose 14.5 percent to $814 million due to the addition of $88 million in sales from the Sept. 2002 acquisition of Ellen Tracy and the April purchase of Juicy Couture, as well as currency exchange, which added $22 million. Sales of the core Claiborne businesses fell 11.8 percent.
As reported, the Liz Claiborne label is in the process of being consolidated from four subbrands into one label for spring.
He described the label as being on the “offensive,” noting that it should resume a growth posture “in relatively short order,” although probably not next year.The namesake label might be losing ground in the U.S. now, but the firm has hopes to grow it and some of its other brands abroad in a way that leans heavily on the European infrastructure of its Mexx division.
The Liz Claiborne brand, adapted to better suit markets in Europe, would most likely hit stores there in 2005, though some of the other brands — such as Lucky, Laundry and Ellen Tracy — will roll out on the Continent next fall. Juicy Couture, which already has a presence there, also could be expanded through the Mexx infrastructure.
Whether the European rollouts would be at the wholesale or retail level depends on the brand, said Charron, who said plans are still being formalized.
There probably won’t be a large marketing push, though, since many of the brands destined for Europe don’t require much support in that area, he noted, adding the flagship brand may require some advertising.
For the nine months, earnings ascended 19.3 percent to $206.6 million, or $1.89 a diluted share, from $173.2 million, or $1.62 a year ago. Sales picked up 17.8 percent to $3.21 billion from $2.72 billion a year earlier.
Claiborne narrowed its earnings estimates for this year to $2.52 to $2.55 a share from $2.49 to $2.55. Sales projections were bumped up to a 14 to 15 percent increase, from the 11 to 13 percent previously anticipated.
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