CLAIBORNE NET INCHES UP IN QUARTER

Byline: Vicki M. Young

NEW YORK — Liz Claiborne Inc. on Wednesday reported third-quarter results that beat Wall Street estimates by 2 cents, but then warned of slower sales growth in 2001.
The company reported $67.1 million in income, or $1.26 a diluted share, for the quarter ended Sept. 30, a 1.1 percent increase from the $66.4 million in income, or $1.08, tallied for the comparable 1999 period. Sales for the quarter rose 7.1 percent, to $879 million from $821 million. The quarter’s results include a $5.4 million pretax restructuring charge for the closure of eight specialty stores and the relocation of a divisional office.
The company had $145 million in income, or $2.67 a diluted share, for the nine months, a 1.7 percent jump over last year’s $142.6 million, or $2.26, in the comparable period. Sales were up 10.4 percent, to $2.35 billion from $2.13 billion. Year-to-date results include the restructuring charge and a special investment gain of $8.5 million.
Shares of the company closed Wednesday at $37.13, up $2.06 or 5.88 percent, in trading on the New York Stock Exchange. The 52-week low is $30.94 and the high $48.31.
Paul Charron, chairman and chief executive officer, said in a conference call that while the 7.1 percent increase in sales for the quarter was below the company’s target of 10 percent, “We consider this rate quite robust for a macroeconomic and retail environment, which must be considered rather challenged at present.”
The latest quarterly results represent the 19th-consecutive quarter of sales growth and the 23rd-consecutive quarter of growth in earnings per share, excluding the restructuring charge and special investment gain. The ceo noted that the company’s results are “in line with our long-term growth target of 10 percent in sales and 15 percent in earnings per share.”
He added that the company was able to achieve its results because of the diversity of brands that it has brought to its portfolio in the last few years.
“This diversity continues to help us navigate a retail environment that had been quite challenging, even more so than we’d thought would be the case when we put our plans for 2000 to bed some time back.”
Looking ahead, Charron noted that macroeconomic pressures — slowing consumer income growth, higher personal debt levels, rising energy costs, increasing interest rates, the collapse of many dot-com enterprises and market volatility — have impact on most consumers’ discretionary shopping behavior.
“In this environment, the predictable response is for the consumer to move into a more judicious and discriminating mode. For our retail partners up and down the food chain, this has resulted in lower store traffic and comparable-store sales, which are relatively disappointing versus earlier expectations.”
The ceo also recalled his earlier days as a naval officer, citing parallels between the environment in which the company and its retail partners currently operate and the weather systems he once faced in transiting the North Atlantic in small ships during fall and winter.
“The passages were never routine,” he recalled. “Storms came up rapidly and the seas built, and then the winds died down. A day or two later, the situation was repeated. Experienced crews and sound courses prudently carried the day then, and they will do so in the current environment as well.
“While retailers and suppliers may be adversely affected by the storm currently swirling in the macroenvironment, companies with sound strategies and crisp, consistent execution stand out,” he continued. “I have total confidence in the course being steered and expect it will continue to carry us successfully through a period of some uneasiness and discomfort.”
The ceo pointed out that the breadth of Claiborne’s diversification initiatives will give it a higher degree of insulation in the current environment. Currently, the company has been assimilating its summer acquisition of Monet, which is expected to be profitable this year. The company is also in the final stages of its preparation for the November launch of Elisabeth.com, a direct-to-consumer Web site targeting the plus-size customer.
Denise Seegal, president, noted that the fragrance division performed strongly in the quarter, with Curve continuing to be a leader in its category and the Lucky You fragrance helping to build “notoriety” for the Lucky brand jeans line. Charron hinted at the company’s 2001 hopes for its fragrance business, but provided few details about the company’s new fragrance, set to launch in August.
Robert S. Drbul, analyst at Lehman Brothers, wrote in a research note Wednesday that “Liz Claiborne’s goal is to become the world’s leading branded fashion apparel and accessories company. The company is progressing toward achieving this goal by building a portfolio of powerful brands that are differentiated by unique positioning in multiple channels, geographics, consumer groups and target markets.” He rated the shares of Claiborne a “buy.” The analyst is maintaining his fourth-quarter estimate of 97 cents a share, but — given the sluggishness on the retail front — reduced full-year 2001 expectations for revenue growth to 5.9 percent from 10 percent. He also lowered the 2001 earnings per share estimate to $4.04 from $4.10.
Executives at Claiborne said its wholesale nonapparel sales rose 33.4 percent in the quarter, with retail revenues up 12.7 percent and wholesale apparel revenue up 1.3 percent.
On the apparel side, the Nikki Taylor line is being test-marketed in 150 Target stores, with plans to be in all Target doors by fall 2001. The Liz Claiborne Collection business in recent weeks has been gaining momentum, a trend Seegal said the company hopes will continue. The Kenneth Cole New York line, she said, has been performing well.
“We believe that ultimately the sales potential here could exceed original expectations,” she said. The other licensed Kenneth Cole Reaction line has experienced slower sales momentum on orders for spring 2001. The company, Seegal said, is temporarily delaying the launch of its Kenneth Cole Unlisted.com junior line, which was set to make its debut in fall 2001, until a satisfactory momentum has been achieved in the two lines already in the market.
“Going forward,” Charron said, “we will continue to control inventory both at the wholesale and retail levels, avoiding the temptation to build more product for our retail partners than they can profitably sell to our customers.”
He reminded listeners on the call that mistakes in inventory control result in a need to clear merchandise at disadvantageous margins. “In this environment, we would rather be conservative and wrong, leaving some business on the table, than be aggressive and wrong, ending up with material markdowns and inventory liability. Said another way, the upside of being right is more than offset by the downside of being wrong.”
Charron said he expects the company to meet fourth-quarter estimates, which would give the company a 15 percent earnings per share for the full year, before the special investment gain and restructuring charge. He projected a 5 to 7 percent sales increase for 2001, noting that the cautious projection reflects the “difficult and highly promotional women’s better apparel market we have experienced so far this year.”

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