CLAIBORNE POSTS SOLID 4TH QUARTER
Byline: Vicki M. Young
NEW YORK — Liz Claiborne Inc. on Thursday said it overcame the retail slowdown of late 2000 to post fourth-quarter earnings that were in line with Wall Street’s expectations.
In a conference call with analysts, chairman and chief executive officer Paul R. Charron said the company was “extremely pleased with these results especially given the challenging retail environment which confronted us for all of the fourth quarter.”
He said he took the results as a sign that the company’s moves to broaden its base of products and brands was proving a sound one and that the company expects to see earnings growth in excess of 10 percent this year, despite current economic uncertainties.
The company reported net income for the quarter ended Dec. 30 of $39.6 million, or 76 cents a share, including a $15.6 million pretax restructuring charge. That compares with net income of $49.8 million in the prior-year quarter.
Excluding the one-time charge — which Wall Street analysts factor out in forming their estimates — per-share earnings would have been up 12.9 percent, to 96 cents a diluted share. The per-share figure was helped by the company’s repurchase of $248 million of its stock — 6.2 million shares — over the past year.
Sales for the quarter were $754 million, up 11.4 percent from $677.1 million.
The results, which marked the company’s 24th-consecutive quarter of growth in earnings per share, helped to inch the company’s stock up $1.33, to close at $48.21 in Thursday’s trading on the New York Stock Exchange. That left it slightly off its 52-week high of $50.31, set Feb 7.
On the conference call, Charron said he believed the company’s multibrand, multichannel diversification strategy helped it “achieve our long-term goal of 10 percent topline and 15 percent EPS growth in a period when many companies did not come close to such aggressive targets. We broadened our portfolio with a successful launch of a men’s counterpart to our well-established Crazy Horse women’s brand at J.C. Penney’s.”
Charron said Claiborne has been successful in integrating the Monet jewelry acquisition, which he said was “immediately accretive.” He also noted that the company plans to launch the Meg Allen misses’ line in 150 Target stores this fall to replace the discontinued Niki Taylor line.
He said he believed that the company’s broad stable of brands has helped soften the bumps of an uncertain retail environment.
“Specifically, a different array of brands targeted different consumers in different channels, coupled with prudent business management, and facilitated by contemporary technology helped us to weather these difficult times,” he said. “The ultimate consumer is extremely discriminating. She has abundant options. She considers the entire retail spectrum to find products and services, which meet her needs, at price points we often find surprising for the values they represent. Liz Claiborne Inc. seeks to provide branded options wherever the consumer chooses to shop for fashion apparel and accessories. We continue to be successful in this regard.”
At one point during the call, in response to a question from an analyst, Charron sounded almost defensive about some of the recent management changes at the company.
Explaining Denise Seegal’s November departure, Charron said it was because “we wanted a flatter structure.” He said that while Seegal, who held the post of president, is a “wonderful merchant,” there were other people at the company who were able to do what the company needs to be flatter and more flexible.
The ceo said he was “sorry” to see Richard Zannino leave his executive vice president post in January, but said the former executive “didn’t feel that his responsibilities allowed him to impact Liz Claiborne as he would have liked.” Charron said the company was looking for a replacement for Zannino.
In addition, the ceo said that the new restructuring will result in like businesses grouped together to “insure we capture synergies, coordinate activities and better lever our mass. This structure also flattens the organization to expedite decision making.”
The day before earnings were released, Robert Drbul at Lehman Brothers raised his 12-month target price for Claiborne stock to $62 from $57, with a 2001 earnings-per-share estimate of $4.04.
After the earnings announcement, Drbul wrote in a research note: “Liz Claiborne boasts a strong balance sheet that provides a solid platform for growth….Despite approximately $395 million of expenditures to increase shareholder value over the last 12 months, Liz Claiborne ended [the fourth quarter of 2000] with just $269 million of debt on its balance sheet and debt-to-total capitalization ratio of just 24 percent.”
The analyst is expecting a 5.1 percent increase in sales to $3.26 billion for fiscal 2001, with greater growth in the second half due to outlet store openings, the rollout of the Meg Allen brand to Target stores and the opening of Lucky Brand stores.
On the call, Charron reaffirmed the company’s earlier guidance for 2001, stating that the company was “optimistic” that it can achieve a 5 percent to 7 percent sales increase and an 11 percent to 13 percent increase in earnings per share, excluding this year’s restructuring charges and special investment gain or any future stock repurchases. Kim Roy, group president of casual, special markets and accessories noted that the company was able to offset sales shortfalls in some of its divisions with strong performance elsewhere during the fourth quarter. While retailers took significant markdowns in the quarter in the Liz casual sportswear business, she said that enabled the company to start 2001 with a cleaner inventory position at retail.
She said the special markets division, which includes labels such as Emma James, Crazy Horse and Meg Allen continues to see significant increases over the last year.
The fragrance division, she continued, continued its strong performance during the quarter, led by “Curve,” which continues to be a top performer in all categories. In the accessories business, Roy said the top performers were tennis bracelets, chain belts and P.V.C. handbags.
Angela Ahrendts, group president, over the DKNY, Kenneth Cole, Lucky Brand and Laundry lines, discussed the performance of the modern brands. She said that the DKNY junior jeans business is performing exceptionally well, while the City DKNY line is just hitting the sales floor in the better women’s sportswear category. Even though there was a slight shortfall in retail bookings, Ahrendts said consumer appeal for the DKNY brand should enable the company to reach annual sales of $200 million. In the Lucky division, performance was helped by strong increases in comparable-store sales.
Michael Scarpa, chief financial officer, said that wholesale apparel sales to external customers in the quarter was $488 million, up 6.1 percent. In other wholesale categories, sales to external customers skyrocketed 33 percent over the year-ago quarter, to $118 million, fueled by gains in the jewelry business and from the Lucky You fragrance launch in August 2000. Retail sales were up 13 percent, to $143 million, which included an 11.7 percent increase in outlet-store sales and an 8.6 percent increase in specialty-store sales that was driven both by a comps increase in the Lucky Brand stores and the opening of eight new units in the quarter.
For the year, net income was $184.6 million, or $3.43 a diluted share, including an $8.8 million one-time pretax gain and $21 million in pretax restructuring charges. The 2000 earnings compared with net income of $192.4 million, or $3.12 a share, in 1999.
Sales were up 10.6 percent, to $3.1 billion from $2.8 billion.
According to Scarpa, wholesale apparel sales for the year were up 8 percent, wholesale sales of other merchandise increased 26 percent and retail sales rose 21 percent.