For Liz Claiborne Inc., 2007 was martyred to the higher cause of long-term growth, company executives said in a fourth-quarter and year-end conference call Friday morning.

This story first appeared in the March 17, 2008 issue of WWD. Subscribe Today.

Claiborne released its earnings, which included a fourth-quarter $451 million goodwill write-down that took the company into the red, after the stock market closed on Thursday.

“As painful as a public and visible restructuring like this can be, we are convinced our actions will serve our shareholders well,” said chief executive officer William L. McComb. “As the economy has taken its own direction, popping bubbles in the credit and real estate markets and significantly impacting consumer confidence in spending patterns, we are focused on doing what’s right to prepare our company to participate in the inevitable rebound with sales and earnings growth and enviable brand strength.”

The $4.6 billion company is tilting toward retail, with 32 percent of revenues coming from direct sales — compared with 27 percent last year — split evenly between domestic and international business.

For the full year, the direct brand segment — on which the firm is banking its future — saw sales climb 18 percent to $649 million from $551 million in 2006. By 2010, the company expects this segment to make up about two-thirds of revenues, from about one-half today. A breakdown of that segment showed that:

Juicy Couture led the revenue growth with an increase of 49 percent to $494 million, with comps of 23 percent. The firm almost doubled its retail door count to 52, with 25 new full-priced stores and 15 outlet stores planned this fall. “[The growth] was driven in large part by the continued evolution of our product assortment, specifically the growth of fashion apparel, accessories, fragrance and gifting, clearly moving Juicy beyond the tracksuit,” said Jill Granoff, executive vice president of direct brands.

Lucky Brand sales increased 10 percent to $422 million, with flat comps and 42 new stores, to total 186. On the retail side, Lucky will add 15 to 20 full-priced doors and 20 outlets, and on the wholesale side, executives hope growth in accessories will offset losses in apparel so Lucky maintains its wholesale business this year.

Mexx sales increased 8 percent to $1.3 billion, with negative 2 percent same-store sales; store count reached 222, increased from 210.

Kate Spade, acquired by Claiborne in December 2006, saw brand sales up 15 percent to $90 million, with 15 new stores to total 39.

For partnered brands, on the other hand, sales for the year slid 24 percent to $587 million. Chief financial officer Andrew Warren itemized problems:

“First, the level of markdown support required to ensure stable distribution in 2008 was more than anticipated, particularly for Liz Claiborne and Claiborne brands,” he said. The Liz Claiborne brand is down to about $875 million in volume, and only about $90 million — practically a 10th of that — is done at Macy’s. The rest of the brands in the Claiborne family do about $500 million.

“There is no question that the designer launches for the Liz Claiborne and Claiborne brand in 2009 will give us real opportunities to start growing again at Macy’s,” Warren said, adding later that Macy’s is “ecstatic” about Isaac Mizrahi coming on to design the women’s line.

“It’s a good thing to control your own destiny and have volume coming from a lot of sources. On the other hand, I see a lot of opportunity because we’re at the rock bottom level with Macy’s,” McComb told WWD.

“Second, the brands under strategic review eroded more significantly than planned,” Warren said. “There is no question that the uncertainty of the strategic review process, uncertainty about the outcome impacted these results. But it’s important to note that most of these brands had been trending down or experiencing inconsistent performance for some time, independent of the review process.”

The company concluded its strategic review process with the decision to keep the final two brands, Mac & Jac and Kensie.

McComb told WWD that the Vancouver-based Mac & Jac and Kensie team presented a plan, after July 11, focusing on wholesale growth for the Kensie brand that was more compelling than any other offer. “This is really about the Kensie brand. The brand is profitable and growing and our accounts like it.”

“We believe that holding on to those assets and waiting for a more robust M&A environment would not have led to better outcomes,” McComb said. “So we’re pleased to have this chapter and the turnaround complete, and we are vigorously pursuing the elimination of the stranded costs across the system.”

“Third, the cosmetics business also delivered a very tough quarter, with year-end cancellations, resulting from inventory buildup at retail,” Warren said.

“Fourth, our aggressive liquidation of excess inventories across all brands negatively impacted gross margin,” Warren said.

Losses in the partnered brands segment were partially offset by the launch of Liz & Co., DKNY men’s jeans business and the Usher fragrance introduction. On Friday, Claiborne said it has signed a licensing agreement to do better men’s sportswear for DKNY Jeans, “leveraging the same team that has successfully built the DKNY Denim line,” Warren said.

Claiborne executives also warned not to expect too much in 2008.

“Working against us is a difficult and still unpredictable macroeconomic environment, which has changed our view of what we can expect in 2008 for profit margin recovery in partnered brands,” McComb said. “In addition, we anticipate that our department store partners will be managing open-to-buy very conservatively. And we therefore are likely to see volume reductions beyond our early 2008 projections last summer in partner brands.”

Launches aimed at improving the wholesale business will also require additional spending this year. “We need to spend this year preparing for the Isaac Mizrahi launch, for the John Bartlett launch in men’s and for the Dana Buchman launch [at Kohl’s], all of which is 2008 work that will hit in 2009,” McComb said.