Liz Claiborne (LIZ)

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See all Bulls Reasons Bulls: Reasons To Buy Deals with KSS and JCP gives the company an opportunity to expand. 0% agree Deals with KSS and JCP gives the company an opportunity to expand. Deals with Department Stores, Kohl's (KSS) and J.C. Penney Company, Inc. Holding Company (JCP), gives the company an opportunity to expand. View or Edit Reason 0 votes 0% agree Company has strategically acquired brands that have potential growth 0% agree Company has strategically acquired brands that have potential growth Company has strategically acquired brands that have potential growth. View or Edit Reason 0 votes 0% agree Company has good rising inventory turnovers 0% agree Company has good rising inventory turnovers Company has good rising inventory turnovers. View or Edit Reason 0 votes 0% agree Bears: Reasons To Sell Feeling Bearish? Be the first to explain why this would make a poor investment Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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Liz Claiborne (NYSE:LIZ) is a multi-brand company that designs and markets women's, men's, and children's apparel, non-apparel items, fragrances, and jewelry. The company operates 399 specialty retail stores, 366 outlet stores, and 625 international concession stores and had revenue of approximately $5B in 2006. The company also distributes its products through department stores nationwide. The company’s primary brand was initially Liz Claiborne, but over time it has acquired and/or established 45 brands. The branded products offered range from sportswear/activewear to casual to business and formal.

The current environment has proven to be especially challenging for Liz. The company's wholesale apparel segment, which accounted for 58% of its sales in 2006, is suffering from decreased demand in its primary distribution channel: mid-tier department stores. Over the last 15 years, mid-tier department stores have seen significant industry consolidation, decreasing in number from 75 distinct companies to just 17. Consolidation typically results in the elimination of redundant and/or unprofitable retail locations, which typically translates into lower demand for wholesalers such as Liz. As department stores consolidate, their ability to negotiate lower prices with suppliers like Liz also increases. Finally, mid-tier apartment stores are placing greater emphasis on exclusive brands and private label brands that will be offered only in their stores, taking floor space away from Liz's products.

In order to combat this trend Liz has begun establishing relationships with several discount department stores such as Kohls and J.C.Penny's. The company is also establishing its own chain of specialty retail stores based on some of its recently acquired brands such as Juicy Couture and Lucky Brands Jeans.

[edit] History and Business Overview

Liz Claiborne Inc. was established in 1976 by Liz Claiborne, then a relatively unknown dress designer, on a concept of providing designer looks at a reasonable price for the working class, with a special focus on creating casual feminine clothes for the working woman.

Today, Liz Claiborne Inc. is a multi-billion dollar company that generates revenue through the sale of wholesale apparel, wholesale non-apparel, and retail. ("Wholesale apparel" is comprised of women's, men's, and children's clothing under Liz's wide range of brands). Key brands include Liz Claiborne, Lucky Brands Jeans, Kate Spade, Mexx, and Juicy Couture.

[edit] Wholesale Apparel, Non-Apparel, and Retail

In the face of declining sales for its core brands, Liz is shifting the focus of its higher-growth brands such as Juicy Couture and Lucky (double digit growth in 2006) to wholesale non-apparels, denim apparel, sportswear apparel, accessories, and fragrances.

• The Wholesale apparel net sales totaled $2.885 billion in 2006. This is a 2.19% decrease from 2005's net sales. The decrease in sales for the company’s power brand Liz Claiborne and other apparels was due to a number of factors such as lower volume units, retail consolidation, and department stores related issues.

• The wholesale non-apparel is comprised of handbags, small leather goods, fashion accessories, jewelry and cosmetics through many of its brand. The Wholesale non-apparel net sales equaled $701.5 million, showing an increase of 7.8% in 2006. This is due to the increase in accessories business, launch of new Juicy Couture, and Lucky Brand Fragrances.

• The company’s retail net sales totaled $1.362 billion, which is an increase of 12.8%. This is due again to openings of Lucky Brand, Juicy Couture, and Sigrid Olsen retail stores as well as Liz Claiborne and Mexx outlet stores in the U.S, Europe and Canada.

• Their licensed trademarks accounted only for one percent of its profits totaling $45.826 million.

[edit] Acquisitions

Much of Liz's growth in recent years has been driven by acuisitions, notably Mexx, Lucky brands, and Juicy Couture. In 2006 the net sales of Mexx Europe and Canada increased by 8% from 2005. Lucky Brands net sales increased by an estimated 20% and the Juicy Couture brand increased by an estimated 30%. The company also has a 50% ownership interest in designer Narciso Rodriguez's name brand. This new acquisition will allow the company to tap into the “Luxury Brand” market, hence, once again broadening its portfolio. Going forward it may be difficult for Liz to repeat these success given that the market for acquisitions has become increasing competitive, making companies like Mexx and Lucky Brands increasingly more expensive.

[edit] Recent Earnings

Despite the recent acquisitions activity, Liz has been on a two-year slide--each quarter since 3Q05 has reported profit declines. 3rd quarter 07 was no different, as Liz revealed a 63% drop in net income from 3Q06. Net sales were down only 4% from 2006, but serious financial disappointments remained in the form of a 10% increase in administrative/general and selling expenses and a depressing 54% drop in operating income. However, recent market activity seems to be more optimistic, as some traders begin to buy in hopes that Liz has finally "bottomed out," with nowhere to go up but up. Liz has remained on track for its July turnaround plan, aimed at reducing costs and refreshing and reassessing Liz's current brands.

[edit] Trends and Forces

[edit] Department Stores

Consolidation

Over the last 15 years, mid-tier department stores have seen significant consolidation, decreasing in number from 75 to 17. Consolidation typically results in the elimination of redundant and/or unprofitable retail locations. This typically translates into lower demand for wholesalers such as Liz. As department stores consolidate their ability to negotiate lower prices with suppliers like Liz also increases.

Exclusivity and private label

Department stores are increasingly seeking to distinguish themselves by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain. Private label brands are produced by wholesellers but sold under the brand name of the retailer. In 2005, Federated Department Stores acquired May Department Stores. In 2006, Federated began converting May's stores to Macy's name plate; Macy's sources approximately 80% of its Merchandise through private labels. Given Liz's wide portfolio of brands it seems reasonable in that in time they will be able to adapt to this trend by creating their own lines of exclusive brands to offer to department stores. In the short run, however, they may see decreases in sales volume.

Shifting Consumer preferences

Mid-tier department stores have been experiencing decreasing foot traffic as customers turn to discount department stores and online retailers. This in turn results in decreased demand for products made by wholesellers such as Liz.

[edit] Specialty Stores

The company is trying to protect its interests by further diversifying its distribution channels. Liz is expanding its specialty retail stores. The company's rise in specialty store sales along with non-apparel sales has helped offset the decline in wholesale apparel. 100-125 specialty stores are slated to open in 2007. The company’s goal is to maximize their specialty retail to account for 35%-40% of their total sales.

[edit] Fashion Risk

Although Liz has an eclectic range of brands, it must be able to predict key fashion trends and shifts in consumer demands. Analysts note that the reduction in the company's wholesale apparel sales is due to the decrease demand in the company’s upscale products. Liz must be able to respond to fashion trends across its multiple markets. The company must also be able to produce distinct differentiated products from other wholesalers in its market.

[edit] International Opportunities

The company's acquisition of brands based in Europe and Canada, such as Mexx, has increased Liz's international sales. The two brands have contributed 9.6% in sales in 2006.

[edit] Same stores Sales Growth

Comparable store sales or same store sales measures the sales of stores open for a year and longer. Comparable stores do not include concession stands. Liz's same store sales have been substantially mediocre compared to its competitors. In 2004, the company’s outlet stores sales decreased by 1.6%. In 2006 outlet stores decreased 4.3%. The decline in outlet stores is due to decline in foot traffic.

[edit] Competition

Although, its gross margin has been increasing as well as its operating margin, its Selling, General, and Administrative Costs are also increasing. This is, in part, due to Liz's high operating costs and its spending on acquisitions. Thus, its operating margin is not as high as that of Polo Ralph Lauren or Jones Apparel Group (JNY), which have lower SG&As. Liz has four plus inventory turnovers annually. Inventory Turnovers is the cost of goods sold divided by the average inventory. The higher the inventory turnover, the more an investment is working for you. Liz’s number of inventory turnovers gives it an edge over its main competitor Ralph Lauren. Another operational metric discussed above, is Liz’s same store sales. As can be seen, Liz is far behind both Ralph Lauren and NY Jones in same store sales growth.

[edit] References