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WIKI ANALYSIS
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. These products are sold through third-party specialty retail stores and department stores, in addition to the company's own 1,416 retail stores.[1] The company’s primary brand was initially Liz Claiborne, but over time it has acquired and/or established over 45 brands, including Lucky Brand Jeans and Juicy Couture. LIZ's brands cover a range of styles: sportswear, activewear, casual apparel, fashion, and formal attire.
In 2008 LIZ received over $3.9 billion in revenue, down 10.3% from 2007,[2] largely due to a $411.7 million decrease in net sales associated with brands that were exited since 2007.[3] The company also ended 2008 with a net loss of $952 million, which was greatly impacted by non-cash impairment charges to the company's goodwill of over $680 million.[4] Aside from these changes, LIZ's sales struggled in 2008 as the U.S. continued to endure the recession that began in late 2007,[5] as consumers cut back on spending. Despite overall sales falling, two of LIZ's top brands each experienced double-digit sales growth in 2008, Juicy Couture and Lucky Brand. In the long-term LIZ faces a fundamental challenge in its business model as department stores continue to increase their emphasis on private label merchandise instead of products from branded manufacturers such as LIZ.
Business Overview
LIZ designs and markets a variety of apparel and accessories through a portfolio of differentiated brands. LIZ uses third-party specialty retail stores, department stores and its own stores to get its products to consumers. LIZ's products are sold throughout the world, with most of its international business coming from Canada and Western Europe. LIZ's revenue declined 10.3% to $3.9 billion in 2008, down from $4.4 billion in 2007.[2]
- LIZ's total revenue declined in 2007 (1.2%) and 2008 (10.3%) as the company began the process of shrinking its brand portfolio to focus on its strongest performing brands, such as Juicy Couture and Lucky Brand jeans.
- LIZ operates 443 specialty retail stores and 365 outlet stores in the US and abroad, in addition to 608 concession stores in Europe.[1]
- LIZ swung to a net loss in 2007 and 2008 as the company began to cut staff and close distribution centers in order to decrease annual costs in the long run, absorbing charges related to these streamlining activities.[2]
| Liz Claiborne Inc. | 2006 | 2007 | 2008 |
| Revenue ($M) | $4,498 | $4,442 | $3,985 |
| Gross Margin | 48.8% | 47.5% | 47.8% |
| Operating Margin | 7.9% | (9.4%) | (18.4%) |
| Sales Change | 1.0% | (1.2%) | (10.3%) |
Business Segments
LIZ's brands include a range of styles of apparel, accessories, jewelry, cosmetics and other personal products. The company divides its merchandise into the following segments:
- Domestic-Based Direct Brands (30% of 2008 sales)[6]: This segment includes brands sold in brand-specific, LIZ-owned retail stores in the United States, in addition to third-party specialty stores and department stores. This segment includes Juicy Couture, Kate Spade and Lucky Brand. The Domestic-Based Direct Brands contributed $1.2 billion to net sales in 2008, up 20.0% from 2007.[6] Growth in this segment was driven by its largest brand, Juicy Couture, which sold $604 million of product in 2008, up 22.4% from 2007.[6]
- International-Based Direct Brands (30%)[6]: This segment is wholly composed of LIZ's MEXX brand, which offers fashionable apparel and accessories for men, women and children. MEXX is sold through LIZ-owned MEXX-branded specialty retail and outlet stores in Europe and Canada.[1] MEXX's sales were down 3.9% to $1.2 billion in 2008.[6]
- Partnered Brands (40%)[6]: This segment is made up of all of LIZ's brands that are sold in third-party specialty retail and department stores. Brands in this segment include Axcess, Claiborne, Concepts by Claiborne, Dana Buchman, Kensie, Liz & Co, Liz Calirbone, MAC & JAC, Marvella, MONET, TRIFARI, and multiple licensed DKNY brands. The Partnered Brands segment experienced a 27.9% decline in net sales in 2008 to $1.5 billion.[6] A significant portion of this decrease ($382 million) was due to LIZ's exit from a number of brands, including Sigrid Olsen, First Issue, Villager, Ellen Tracy and Dana Buchman.
Trends and Forces
Market Pressures Lead to Goodwill Impairment Charges
As the stock market began to weaken at the end of 2007, LIZ's stock price began to tumble, falling from over $40 per share in late 2007 (market cap over $3.8 billion) to less than $2 per share in March 2009 (market cap under $200 million). Subsequently, the firm had to make impairment charges to its goodwill in 2008 because the company's book value was greater than its market capitalization.[4] These non-cash charges totaled over $680 million and played a major role in the $952 million net loss LIZ reported in 2008.[4] Despite augmenting the firm's net loss, these impairment charges were simply accounting activities and did not affect the cash flows of the organization and in the long-term may not have any significant impact on LIZ's ability to operate.
Could LIZ's Top U.S. Brands Stay Hot Through the Recession?
Despite a full-blown recession in the U.S.[5] that has crippled sales for many retailers and manufacturers, LIZ's Domestic-Based Direct Brands segment was able to increase sales 20% in 2008.[6] This growth was driven by strong performances by Juicy Couture and Lucky Brand. Juicy Couture's sales grew 22.4% in 2008 to $604 million[6], including sales at 94 Juicy Couture stores.[1] Lucky Brand's sales increased 13.1% in 2008 to $476 million[6], including sales at 221 Lucky Brand stores.[1] Each of these brands targets young adults (primarily women) with fashionable apparel and accessories at higher prices (up to $160 for a single pair of Lucky Brand jeans)[8]. Despite such high prices in the midst of a recession, consumers have been drawn to the fashion styles of these brands. Such continued behavior could position Juicy Couture and Lucky Brand as incredibly popular and strong brands as competing brands struggle through the recession.
Department Stores Turning to Private Labels
Department stores are increasingly seeking to distinguish themselves by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain. Private label brands are produced by third-party manufacturers but sold under the brand name of the retailer. Not only do exclusive and private label brands differentiate retailers, they offer higher profit margins for retailers than comparable merchandise from branded manufacturers. Due to these advantages, many department stores have been increasing their investment in exclusive and private labels and, in turn, these brands have been taking shelf space away from branded manufacturers like Liz Claiborne. This trend poses a threat to LIZ's business model and LIZ may have to shift more of its attention to its own specialty stores in order to make up losses in shelf space in department stores.
Competition
As a firm that operates a portfolio of brands in the apparel and accessories space, LIZ faces direct competition from comparable holding companies such as Jones Apparel Group (JNY) and Phillips-Van Heusen (PVH). Jones Apparel Group owns brands such as Anne Klein, Nine West, Easy Spirit and Jones New York. Phillips-Van Heusen holds brands such as Calvin Klein, IZOD, Van Heusen and Kenneth Cole. In addition to these holding companies, each of LIZ's brands face competition from a variety of sources. Many of LIZ's brands face competition from other department store mainstays such as Polo Ralph Lauren (RL) and department store-owned private labels.
| Company | Revenue ($M) | Gross Margin | Operating Margin | Net Income (Loss) | Revenue Growth (Decline) from FY07 |
| Liz Claiborne (LIZ) | $3,985 | 47.8% | 0.0% | ($952) | (10.3%) |
| Jones Apparel Group (JNY) | $3,616 | 32.5% | 0.0% | ($765) | (6.0%) |
| Phillips-Van Heusen (PVH) | $2,425 | 49.1% | 12.7% | $183 | 16.0% |
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 Liz Claiborne (LIZ) 10-K 2008, Specialty Retail Stores, pg. 14
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 Liz Claiborne (LIZ) 10-K 2008, Selected Financial Data, pg. 38
- ↑ Liz Claiborne (LIZ) 10-K 2008, 2008 Overall Results, pg. 43
- ↑ 4.0 4.1 4.2 Liz Claiborne (LIZ) 10-K 2008, Goodwill Impairment, pg. 48
- ↑ 5.0 5.1 WSJ.com, "NBER Makes It Official: Recession Started in December 2007", December 1, 2008
- ↑ 6.00 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 Liz Claiborne (LIZ) 10-K 2008, Net Sales, pg. 45
- ↑ Liz Claiborne (LIZ) 10-K 2008, International Operations, pg. 44
- ↑ Lucky Brand Website
- ↑ Phillips-Van Heusen (PVH) 10-K, Results of Operations, pg. 41
- ↑ Jones Apparel Group (JNY) 10-K 2008
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