Investors turned their backs on Liz Claiborne Inc. Thursday, driving the stock down 25.9 percent to $2.98 after the company said second-quarter losses would be greater than analysts expected and it would issue new convertible debt.
Claiborne said in a regulatory filing its adjusted second-quarter losses would “increase moderately” from the adjusted deficit of 37 cents a share in the first quarter. Analysts had Claiborne pegged for losses of 32 cents for the second quarter, and the company in May said its second-quarter losses would be “similar” to the first quarter.
The firm is selling $75 million in convertible senior notes due in 2014 to reduce borrowings under its credit facility. Freeing up capacity under the bank agreement by taking on more debt would effectively expand the pool of money Claiborne can tap into immediately. The convertible debt could also dilute the stake of current shareholders.
Andrew Warren, executive vice president and chief financial officer, said the move would “enhance liquidity, strengthen the balance sheet and expand the maturity profile.”
The second quarter ends July 4 and Claiborne said there is still some uncertainty regarding results.
Claiborne’s decline stood out on a day when the S&P Retail Index fell 1.3 percent, or 4.25 points, to 316.41 and the Dow Jones Industrial Average advanced 0.7 percent, or 58.42 points, to 8,555.60. Department stores, in particular, slumped, with Macy’s Inc. off 5.3 percent to $10.63; J.C. Penney Co. Inc., 4.3 percent to $25.90, and Saks Inc., 2.8 percent to $3.87.
Investors were bearish in Asia, where the Hang Seng Index fell 1.7 percent and the Nikkei 225 dipped 1.4 percent, and more bullish in Europe, where the FTSE 100 inched up 0.1 percent and the CAC 40 advanced 1 percent.
The Conference Board also took a bullish tone with its Leading Economic Index, which rose 1.2 percent last month after a 1.1 percent lift in April. The index, which gauges 10 economic indicators, including stock prices, consumer expectations and building permits, now stands at 100.2.
“The recession is losing steam,” said Ken Goldstein, economist at The Conference Board. “Confidence is rebuilding and financial market volatility is abating. Even the housing market appears to be stabilizing. If these trends continue, expect a slow recovery beginning before the end of the year. However, employment will take longer to turn around.”
Consumer spending is strongly influenced by the relative strength of the job market and the unemployment rate, now at a 26-year high of 9.4 percent, is likely to top 10 percent.
The toll of rising unemployment and personal bankruptcies was clear in Discover Financial Services’ second-quarter report Thursday. The financial firm said its Discover Card sales fell 4 percent for the quarter to $21 billion. Discover’s charge-off rate rose to 7.79 percent from 4.99 percent a year earlier as consumers struggled to pay off their credit cards.
The company said its charge-off rate for the third quarter would rise to a range of 8.5 percent to 9 percent. That means more consumers will be digging themselves into a hole so deep the credit card company will basically assume it will never get its money back.