GOOD NEWS AHEAD AT LAST? CLAIBORNE PROFITS SURGE IN QUARTER
Byline: Vicki M. Young
NEW YORK — Manufacturers may serve up a few pleasant earnings surprises in the weeks to come, if Liz Claiborne’s numbers are any indication.
Subtle but discernible improvements in the retail market helped catapult Liz Claiborne Inc.’s first-quarter profits ahead nearly a dozen points and prod its second-quarter earnings expectations up by a penny. Claiborne is the first of the major public manufacturers to post quarterly results.
Net income for the three months ended March 30 was $50.9 million, or 48 cents a diluted share, 3 cents above consensus estimates and 11.9 percent above the $45.5 million, or 44 cents, logged in the year-ago quarter. Sales rose 8 percent to $892.9 million from $826.7 million.
Michael Scarpa, chief financial officer, said during a conference call that the company was projecting second-quarter earnings at 33 to 35 cents, up from a previous guidance of 32 cents to 34 cents. In addition, full-year 2002 earnings per share are expected to be in the $2.14 to $2.17 range, on a projected sales increase of 4 to 6 percent.
The company said the strong showing was fueled by its Mexx acquisition last year, more robust sell-through at regular prices and leaner inventories. Optimism about the future is coming from strong indications that fashion and full-price selling are working their way back onto the retail landscape.
Dennis Rosenberg, analyst at Credit Suisse First Boston, in a research update, wrote: “Liz outperformed the competition at retail in nearly all categories, including its core department store business.” The analyst, who has a “strong buy” rating on the stock, raised the 12-month price target to $37 from $35.
Shares of Liz on Thursday closed at $31.31, down 2 cents, or 0.1 percent, in trading on the New York Stock Exchange two days after hitting a 52-week high of $31.52.
Paul Charron, chief executive officer, told analysts during the call that the “retail environment has improved since the fourth quarter of last year” and that retail inventories of Liz’s products were “quite clean.”
The ceo said that the company “experienced more good news” than it originally expected, due to both a greater sell-through of product that was trend-right on a fashion basis and the ability to chase volume through its new quick response program, Liz Quick.
Sensing a swing back to style, and away from price orientation, Charron observed: “We have seen consumers’ interest in fashion continue with the success of more fashionable product, and the decline of more basic unadorned product.”
While retailers have remained conservative in their ordering practices, a move Charron applauded, he noted a trend toward price stabilization and more full-price selling, a by-product of market restraint.
“I hope we don’t go back to the days when the retailer buys as much as he or she can and then sells as much as [he or she] can for whatever price, and then we get into this dialog of who’s paying for it,” he said.
Bookings for summer, which began in November, indicate that the core business is “still down compared to last year, but at a smaller rate,” Scarpa said.
A small shortfall versus plan was attributed to retailers holding back a portion of their open-to-buy. The cfo said that the holdback minimizes markdowns and allows Liz and the retailer to capitalize on Liz Quick.
According to Scarpa, wholesale apparel sales in the quarter were up 5.6 percent to $635.4 million, largely attributable to Mexx sales and solid increases in the Special Markets category and the Sigrid Olsen line. Sales, however, decreased in the core women’s and men’s businesses. Wholesale nonapparel sales were down 6.9 percent to $107.4 million, while retail sales were up 38.7 percent to $146.4 million.
On the specialty retail side, the cfo said sales were up 58.8 percent, driven by increases in Mexx and Lucky Brand stores. Comparable-store sales were down 3.2 percent at specialty stores. Outlet sales were up 15.4 percent overall, reflecting the inclusion of 24 Mexx outlet stores.
Excluding Mexx, inventories were down by $80 million, or 18.1 percent, as a result of improved procedures instituted throughout all business units. The reduction, Scarpa noted, also lowered the company’s distressed inventory position.
Angela Ahrendts, executive vice president in charge of the brands falling outside of the Liz Claiborne label, said that key fashion drivers were pants, knit tops and sweaters, which represented more than 70 percent of retail sales. “Styles with distinctive design detail have the highest sell-throughs,” she said.
Trudy Sullivan, executive vice president for the Liz brands, told Wall Street that sales of the Liz Casual sportswear business were on plan, albeit flat with last year. Selling well were pants, woven shirts and knit tops, which generated nearly 70 percent of sales. She added that in fragrances, the company saw a single-digit increase attributable to its Mambo line, which had “excellent Valentine’s Day results.” The firm is getting ready to launch Bora Bora in more than 2,200 department store doors targeting men and women between the ages of 18 and 24.
According to Sullivan, the Liz Claiborne and Monet jewelry businesses continued to “outperform the competition,” trending 50 percent better than the department store average. Handbags and small leather goods also did well, up in the single digits to plan and double digits to last year, driven by fashion colors and repositioning efforts in handbags.