From the Wires
Liz Claiborne Inc. Reports 3rd Quarter and First Nine Months Results
- Reports Q3 Adjusted EPS from Continuing Operations Within Guided Range
Nov. 10, 2008 05:18 PM
NEW YORK, Nov. 10 /PRNewswire-FirstCall/ -- Liz Claiborne Inc. (NYSE: LIZ)
today announced earnings for the third quarter and first nine months of 2008.
For the third quarter of 2008 and on a GAAP basis, the loss per share from
continuing operations was ($0.10) compared to diluted earnings per share
("EPS") from continuing operations of $0.33 for the third quarter of 2007.
Adjusted diluted EPS from continuing operations for the third quarter of 2008
were $0.39 compared to adjusted diluted EPS from continuing operations of
$0.60 for the third quarter of 2007. Net sales from continuing operations for
the third quarter of 2008 were approximately $1.015 billion, a decrease of
$192 million, or 15.9%, from the comparable 2007 period, inclusive of a $181
million decrease associated with brands or certain brand activities that have
been licensed, closed or exited and have not been presented as part of
discontinued operations.
For the first nine months of 2008, the loss per share from continuing
operations was ($0.33) compared to diluted EPS from continuing operations of
$0.48 for the first nine months of 2007. Adjusted diluted EPS from continuing
operations for the first nine months of 2008 were $0.83 compared to adjusted
diluted EPS from continuing operations of $0.94 for the first nine months of
2007. These results include the $0.09 per share benefit from the
reclassification of the first half of 2008 results of the Enyce and Narciso
Rodriguez brands to discontinued operations. Net sales from continuing
operations for the first nine months of 2008 were approximately $3.074
billion, a decrease of $196 million, or 6.0%, from the comparable 2007 period,
inclusive of a $299 million decrease associated with brands or certain brand
activities that have been licensed, closed or exited and have not been
presented as part of discontinued operations.
The Company is tightening its adjusted diluted EPS guidance for the full
year 2008 to a range of $1.02 - $1.07. The adjusted results for the third
quarter and first nine months of 2008 and 2007 and the adjusted projected full
year 2008 results on a continuing operations basis exclude the impact of
expenses incurred in connection with the Company's streamlining and brand-
exiting activities and non-cash trademark impairment charges.
The Company believes that the adjusted results for the third quarter and
first nine months of 2008 and 2007 and the adjusted projected results for
fiscal 2008 represent a more meaningful presentation of its historical and
estimated operations and financial performance since these results provide
period to period comparisons that are consistent and more easily understood.
The attached tables, captioned "Reconciliation of Non-GAAP Financial
Information", provide a full reconciliation of actual results to the adjusted
results.
William L. McComb, Chief Executive Officer of Liz Claiborne Inc., said:
"Third quarter adjusted EPS from continuing operations were $0.39 in this
significantly challenging macroeconomic environment, primarily driven by
better than forecasted expense controls, which offset a top line which was
below our expectations. We continued to benefit from our streamlining
activities, which generated a $25 million year over year reduction in adjusted
SG&A in the quarter. As we indicated in our October 24th pre-announcement, our
balance sheet remains strong and we continued to drive improvements in working
capital in the third quarter, as evidenced by the 24% reduction in inventory
and 27% reduction in accounts receivable compared to last year, which include
the impact of brands sold, discontinued, or licensed. We expect our seasonally
strong fourth quarter cash flow to result in a total debt balance of $750 to
$775 million at year end, a reduction of approximately $110 to $135 million in
total debt from the end of last year. For the full year 2008, we expect to
generate $300 to $325 million of cash flow from continuing operating
activities. We were in compliance with our bank credit facility financial
covenants for the 3rd quarter and expect to be in compliance in the 4th
quarter as well."
Mr. McComb continued, "We will continue our intense focus on controlling
the controllables...inventory, accounts receivable, astute brand execution and
generating free cash flow to pay down debt. In terms of product and brand
execution, we've spent the past year developing outstanding product for this
Spring--and although the environment will temper our results, we are as
optimistic as we can be about how our brands will present at retail."
Mr. McComb concluded, "We are confirming our recently updated fourth
quarter adjusted EPS from continuing operations guidance in the range of $0.19
to $0.24. This results in an adjusted EPS from continuing operations guidance
range of $1.02 to $1.07 for the full year 2008. The current operating
environment has been negatively impacted by significant declines in consumer
confidence and discretionary spending. As we stated earlier, given the lack of
visibility caused by the highly uncertain environment, we are not providing
2009 guidance at this point."
The Company will sponsor a conference call at 10:00 am EST on November
11th to discuss its results for the third quarter and first nine months of
2008. The dial-in number is 1-888-694-4676 with pass code 70595657. The web
cast and slides accompanying the prepared remarks can be accessed via the
Investor Relations section of the Liz Claiborne website at
www.lizclaiborneinc.com. An archive of the webcast will be available on the
website. Additional information on the results of the Company's operations is
available in the Company's Form 10-Q for the third quarter of 2008, filed with
the Securities and Exchange Commission.
OPERATING SUMMARY
-- The Company aggregates its brand-based activities into two reporting
segments as follows:
- The Direct Brands segment - consists of the specialty retail, outlet,
wholesale apparel, wholesale non-apparel (including accessories,
jewelry and handbags), e-commerce and licensing operations of the
Company's four retail-based brands: Mexx, Juicy Couture, Lucky Brand
and Kate Spade.
- The Partnered Brands segment - consists of the wholesale apparel,
wholesale non-apparel, outlet, specialty retail, e-commerce and
licensing operations of the Company's owned and licensed wholesale
based brands.
The results of the Company's former Emma James, Intuitions, J.H.
Collectibles, Tapemeasure, C&C California, Laundry by Design, Prana, Narciso
Rodriguez and Enyce brands in addition to the retail operations of the
Company's former Ellen Tracy brand and certain of the retail operations of the
Sigrid Olsen brand are shown as discontinued operations.
In the second quarter of 2008, the Company entered into an exclusive long-
term global licensing agreement for the manufacture, distribution and
marketing of its fragrance brands. Although we believe this arrangement
provides us the opportunity to realize more consistent and profitable results,
it will continue to negatively affect year over year net sales comparisons, as
we now earn a royalty fee based on the sales of our fragrance products by
Elizabeth Arden.
-- Net sales from continuing operations for the third quarter of 2008 were
$1.015 billion, a decrease of $192 million, or 15.9% from 2007, inclusive of a
$181 million decrease associated with brands or certain brand activities that
have been licensed, closed or exited and have not been presented as part of
discontinued operations. The impact of changes in foreign currency exchange
rates in our international businesses increased net sales by approximately $25
million, or 2.0%, during the quarter. Net sales for our segments are provided
below:
- Direct Brands segment net sales decreased 1.8% in the third quarter to
$617 million. Excluding the impact of licensing our fragrance
operations in the second quarter of 2008, net sales increased 1.7%.
- Partnered Brands segment net sales decreased $180 million, or 31.2%,
in the third quarter to $398 million, inclusive of a $159 million
decrease associated with brands or certain brand activities that have
been licensed, closed or exited and have not been presented as part of
discontinued operations. -- Net sales for our Direct Brands segment in the third quarter were as
follows:
- impact of changes in foreign currency exchange rates, net sales for
Mexx were $311 million, a 15.0% decrease compared to last year.
- Juicy Couture - $144 million, a 6.8% increase compared to last year.
Excluding the impact of licensing our fragrance operations in the
second quarter of 2008, net sales increased 20.0%.
- Lucky Brand - $111 million, a 2.3% increase compared to last year.
Excluding the impact of licensing our fragrance operations in the
second quarter of 2008, net sales increased 9.7%.
- Kate Spade - $29 million, a 47.0% increase compared to last year. -- Operating income in the third quarter was $16 million (1.6% of net
sales) compared to operating income of $71 million (5.9% of net sales) in
2007. Adjusted operating income in the third quarter was $62 million (6.1% of
adjusted net sales) compared to $114 million (9.5% of adjusted net sales) in
2007. Operating income for our business segments are provided below:
- Direct Brands segment operating income in the third quarter was $35
million (5.7% of net sales), compared to $87 million (13.8% of net
sales) in 2007. Direct Brands segment adjusted operating income in the
third quarter was $53 million (8.5% of adjusted net sales) compared to
$95 million (15.1% of adjusted net sales) in 2007.
- Partnered Brands segment operating loss in the third quarter was ($19)
million ((4.7)% of net sales), compared to an operating loss of ($16)
million ((2.8)% of net sales) in 2007. Partnered Brands segment
adjusted operating income in the third quarter was $9 million (2.3% of
adjusted net sales) compared to adjusted operating income of $19
million (3.3% of adjusted net sales) in 2007. -- Expenses associated with our streamlining and brand-exiting activities
were $36 million in the third quarter of 2008 compared to $31 million in the
third quarter of 2007.
-- Inventories decreased 24.3% to $549 million compared to the third
quarter of 2007, primarily reflecting decreases in our Partnered Brands
segment, including the impact of brands sold, discontinued, or licensed,
partially offset by increases in our Direct Brands segment. Inventories of
ongoing Partnered Brands decreased 37.0% compared to the third quarter of
2007. The impact of changes in foreign currency exchange rates decreased
inventories by $8 million, or 1.1%, in the third quarter of 2008 compared to
the third quarter of 2007.
-- Accounts receivable decreased 27.1% to $483 million compared to the
third quarter of 2007, reflecting decreases in our Direct and Partnered Brands
segments, including the impact of brands sold, discontinued, or licensed. The
impact of changes in foreign currency exchange rates decreased accounts
receivable by $6 million, or 0.9%, in the third quarter of 2008 compared to
the third quarter of 2007.
-- Cash flow from continuing operating activities for the last twelve
months was $293 million.
-- We ended the quarter with $50 million in cash and with $974 million of
debt outstanding. Our total debt to total capital ratio was 41.4% in the third
quarter compared to 32.2% in 2007, primarily reflecting the impact of the 2007
goodwill impairment in addition to share repurchases, capital expenditures and
acquisition-related payments over the last 12 months.
THIRD QUARTER RESULTS
Overall Results
Net sales from continuing operations for the third quarter of 2008 were
$1.015 billion, a decrease of $192 million, or 15.9% from the third quarter of
2007, primarily due to decreases in our Partnered Brands segment. Net sales
were inclusive of a $181 million decrease associated with brands or certain
brand activities that have been licensed, closed or exited and have not been
presented as part of discontinued operations. The impact of changes in foreign
currency exchange rates in our international businesses increased net sales by
approximately $25 million, or 2.0%, during the quarter.
Gross profit as a percent of net sales was 49.3% in 2008 compared to 48.5%
in the third quarter of 2007, principally reflecting an increased gross profit
rate and an increased proportion of sales from our Direct Brands segment which
runs at a higher gross profit rate than the company average, partially offset
by a decreased gross profit rate in our Partnered Brands segment.
Selling, general & administrative expenses ("SG&A") were $474 million, or
46.7% of net sales in 2008, compared to $502 million, or 41.6% of net sales in
the third quarter of 2007, primarily reflecting the following:
-- a $27 million increase associated with retail expansion in our Direct
Brands segment;
-- a $13 million increase due to the impact of changes in foreign currency
exchange rates in our international operations;
-- a $4 million increase in Direct Brands SG&A;
-- a $1 million year over year increase in expenses associated with our
streamlining and brand-exiting activities; and
-- a $73 million decrease in Partnered Brands and corporate SG&A.
Operating income was $16 million (1.6% of net sales) in the third quarter
of 2008 compared to operating income of $71 million (5.9% of net sales) in the
third quarter of 2007. Adjusted operating income in the third quarter was $62
million (6.1% of adjusted net sales) compared to $114 million (9.5% of
adjusted net sales) in 2007. The impact of changes in foreign currency
exchange rates in our international businesses was immaterial during the
quarter.
Income taxes in the third quarter of 2008 decreased by $10 million to $14
million compared to $24 million in the third quarter of 2007. The income tax
expense rate for the third quarter of 2008 was affected by a change in
estimated fiscal 2008 pre-tax income and the mix of pre-tax income in various
jurisdictions, partially offset by the favorable outcome of uncertain tax
positions that have been settled with various tax authorities.
Loss from continuing operations in the third quarter of 2008 was ($9)
million, or ($0.10) per share, compared to income from continuing operations
in the third quarter of 2007 of $34 million, or $0.33 per share. Adjusted
diluted EPS from continuing operations in the third quarter of 2008 were $0.39
compared to adjusted diluted EPS from continuing operations of $0.60 in the
third quarter of 2007.
Net loss in the third quarter of 2008 was ($69) million, inclusive of
losses related to discontinued operations of ($59) million, compared to net
income of $33 million in the third quarter of 2007. Loss per share was ($0.73)
in the third quarter of 2008 compared to diluted EPS of $0.33 in the third
quarter of 2007.
Segment Highlights
Direct Brands
Net sales in our Direct Brands segment in the third quarter were $617
million, decreasing $12 million, or 1.8%. Excluding the impact of licensing
our fragrance operations in the second quarter of 2008, net sales increased
1.7%.
Net sales for Mexx were $333 million, an 8.9% decrease compared to 2007.
Excluding the impact of changes in foreign currency exchange rates, net sales
for Mexx were $311 million, a 15.0% decrease compared to last year.
- We ended the quarter with 133 specialty stores, 99 outlets and 234
concessions, reflecting the net addition over the last 12 months of
15 outlet stores and the net closure of 4 specialty stores and 72
concessions;
- Average retail square footage in the third quarter was
approximately 1.450 million square feet, an 8% increase compared to
2007;
- Sales per square foot for comparable stores over the latest twelve
months was $458; and
- Comparable store sales decreased 13% in the third quarter,
reflecting decreases in our Mexx Europe and Mexx Canada businesses.
Net sales for Juicy Couture were $144 million, a 6.8% increase compared
to 2007, primarily driven by increases in retail and outlet. Excluding the
impact of licensing our fragrance operations in the second quarter of 2008,
net sales increased 20.0%.
- We ended the quarter with 56 specialty stores and 29 outlet stores,
reflecting the net addition over the last 12 months of 23 specialty
stores and 16 outlet stores;
- Average retail square footage in the third quarter was
approximately 287 thousand square feet, a 130% increase compared to
2007;
- Sales per square foot for comparable stores over the latest twelve
months was $1,214; and
- Comparable store sales increased 5% in the third quarter.
Net sales for Lucky Brand were $111 million, a 2.3% increase compared
to 2007, primarily driven by increases in outlet, partially offset by
decreases in wholesale apparel. Excluding the impact of licensing our
fragrance operations in the second quarter of 2008, net sales increased 9.7%.
- We ended the quarter with 187 specialty stores and 35 outlet
stores, reflecting the net addition over the last 12 months of 28
specialty stores and 25 outlet stores;
- Average retail square footage in the third quarter was
approximately 528 thousand square feet, a 38% increase compared to
2007;
- Sales per square foot for comparable stores over the latest twelve
months was $606; and
- Comparable store sales decreased 4% in the third quarter.
Net sales for Kate Spade were $29 million, a 47.0% increase compared to
2007, primarily driven by increases in retail, outlet and wholesale.
- We ended the quarter with 41 specialty stores and 25 outlet stores,
reflecting the net addition over the last 12 months of 18 specialty
stores and 19 outlet stores;
- Average retail square footage in the third quarter was
approximately 124 thousand square feet, a 118% increase compared to
2007;
- Sales per square foot for comparable stores over the latest twelve
months was $729; and
- Comparable store sales decreased 13% in the third quarter.
Direct Brands segment operating income in the third quarter was $35
million (5.7% of net sales), compared to $87 million (13.8% of net sales) in
2007. Direct Brands segment adjusted operating income in the third quarter was
$53 million (8.5% of adjusted net sales) compared to $95 million (15.1% of
adjusted net sales) in 2007.
Partnered Brands
Net sales from continuing operations in our Partnered Brands segment
decreased $180 million, or 31.2%, in the third quarter to $398 million.
- The $180 million decrease in net sales in our Partnered Brands segment
was primarily due to the $159 million decrease associated with brands or
certain brand activities that have been licensed, closed or exited and have
not been presented as part of discontinued operations in addition to
decreases in our Liz Claiborne and Claiborne brands, partially offset by
increases in our Liz & Co. and Kensie brands.
Partnered Brands segment operating loss in the third quarter was ($19)
million ((4.7)% of net sales), compared to an operating loss of ($16) million
((2.8)% of net sales) in 2007. Partnered Brands segment adjusted operating
income in the third quarter was $9 million (2.3% of adjusted net sales)
compared to $19 million (3.3% of adjusted net sales) in 2007.
FIRST NINE MONTHS RESULTS
Overall Results
Net sales from continuing operations for the first nine months of 2008
were $3.074 billion, a decrease of $196 million, or 6.0%, from the first nine
months of 2007, primarily due to decreases in our Partnered Brands segment,
offset by increases in our Direct Brands segment. Net sales were inclusive of
a $299 million decrease associated with brands or certain brand activities
that have been licensed, closed or exited and have not been presented as part
of discontinued operations. The impact of changes in foreign currency exchange
rates in our international businesses increased net sales by approximately
$120 million, or 3.7%, in the first nine months of 2008.
Net sales for our Direct Brands segment in the first nine months of 2008
were as follows:
- Mexx - $965 million, a 5.1% increase compared to last year. Excluding
the impact of changes in foreign currency exchange rates, net sales for Mexx
were $861 million, a 6.2% decrease compared to last year.
- Juicy Couture - $432 million, a 33.3% increase compared to last year.
Excluding the impact of licensing our fragrance operations in the second
quarter of 2008, net sales increased 35.3%.
- Lucky Brand - $339 million, a 10.3% increase compared to last year.
Excluding the impact of licensing our fragrance operations in the second
quarter of 2008, net sales increased 16.9%.
- Kate Spade - $86 million, a 45.2% increase compared to last year.
Operating loss was ($18) million ((0.6)% of net sales) in the first nine
months of 2008 compared to operating income of $118 million (3.6% of net
sales) in 2007. Adjusted operating income in the first nine months of 2008 was
$137 million (4.5% of adjusted net sales) compared to $192 million (5.9% of
adjusted net sales) in 2007. The impact of changes in foreign currency
exchange rates in our international businesses increased operating income by
approximately $3 million in the first nine months of 2008.
Direct Brands segment operating income in the first nine months of 2008
was $75 million (4.1% of net sales) compared to $167 million (10.4% of net
sales) in 2007. Direct Brands segment adjusted operating income in the first
nine months of 2008 was $119 million (6.6% of adjusted net sales) compared to
$181 million (11.2% of adjusted net sales) in 2007.
Partnered Brands segment operating loss in the first nine months of 2008
was ($93) million ((7.4)% of net sales) compared to an operating loss of ($49)
million ((2.9)% of net sales) in 2007. Partnered Brands segment adjusted
operating income in the first nine months of 2008 was $18 million (1.4% of
adjusted net sales) compared to adjusted operating income of $11 million (0.7%
of adjusted net sales) in 2007.
Income taxes in the first nine months of 2008 decreased by $61 million to
a tax benefit of $24 million compared to a tax expense of $37 million in the
first nine months of 2007. The income tax benefit rate for the first nine
months of 2008 increased slightly to 43.3% from a 42.7% income tax expense
rate for the first nine months of 2007.
Loss from continuing operations in the first nine months of 2008 was ($31)
million, or ($0.33) per share, compared to income from continuing operations
in the first nine months of 2007 of $49 million, or $0.48 per share. Adjusted
diluted EPS from continuing operations in the first nine months of 2008 were
$0.83 compared to adjusted diluted EPS from continuing operations of $0.94 in
the first nine months of 2007.
Net loss in the first nine months of 2008 was ($123) million compared to
net income of $63 million in 2007. Loss per share was ($1.31) in the first
nine months of 2008 compared to diluted EPS of $0.62 in 2007.
About Liz Claiborne Inc.
Liz Claiborne Inc. designs and markets a global portfolio of retail-based
premium brands including Kate Spade, Juicy Couture, Lucky Brand and Mexx. The
Company also has a refined group of department store-based brands with strong
consumer franchises including the Liz Claiborne and Monet families of brands,
Kensie, Kensiegirl, Mac & Jac, and the licensed DKNY Jeans Group. For more
information visit www.lizclaiborneinc.com.
Forward-Looking Statement
Statements contained herein that relate to future events or the Company's
future performance, including, without limitation, statements with respect to
the Company's anticipated results of operations or level of business for 2008
or any other future period, are forward-looking statements within the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements are based on current expectations only and are not guarantees
of future performance, and are subject to certain risks, uncertainties and
assumptions. The Company may change its intentions, belief or expectations at
any time and without notice, based upon any change in the Company's
assumptions or otherwise. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. In
addition, some factors are beyond the Company's control. Among the factors
that could cause actual results to materially differ include: risks associated
with the current economic conditions, including the tightening of the credit
markets, reduction in consumer confidence and discretionary spending,
continued recessionary pressures in the United States, Europe and other parts
of the world, and continued lower levels of consumer traffic within department
stores, malls and other shopping and selling environments; the Company's
ability to continue to have access on favorable terms to sufficient sources of
liquidity necessary to fund ongoing cash requirements of it operations, ,
which access may be adversely impacted by a number of factors, including the
reduced availability of credit generally and the substantial tightening of the
credit markets, including lending by financial institutions, who are sources
of credit for the Company, the recent increase in the cost of capital, the
level of the Company's cash flows, which will be impacted by the level of
consumer spending and retailer and consumer acceptance of its products,
further adverse changes in the Company's credit ratings, the Company's ability
to comply with the financial covenants (as amended) included in its debt and
credit facilities, and interest rate and exchange rate fluctuations; risks
relating to possible further impairment of goodwill or other long-lived assets
that could result from a number of factors, including downward pressure on the
company's market capitalization; risks related to the reorganization of the
Company and the realignment of the Company's management structure; risks
associated with the Company's ability to attract and retain talented, highly
qualified executives and other key personnel and to provide for the succession
of senior management; risks associated with the Company's efforts to
reorganize its Mexx Europe operations; risks associated with the Company's
ability to execute successfully on its long-term growth plans; risks
associated with the Company's strategic review of brands completed in 2008,
including whether the Company identified the appropriate brands for review or
appropriately valued assets related to brands sold or licensed to third
parties; risks associated with the Company's operation of its specialty retail
and outlet businesses, including the ability to successfully expand the
specialty retail store base of its Direct Brands segment and to develop best-
in-class retail capabilities; risks associated with the Company's ability to
achieve greater collaboration with its wholesale customers; risks associated
with the Company's ability to achieve projected cost savings; risks related to
the Company's ability to successfully continue to evolve its supply chain
system, including its product development, sourcing, logistics and technology
functions, to, among other things, reduce product cycle-time and costs and
meet customer demands and the requirements of the Company's specialty retail
and outlet businesses; risks associated with selling the Company's Liz & Co.
and Concepts by Claiborne brands outside of better department stores; risks
associated with the Company's Liz Claiborne and Claiborne branded products
association with known designers and retailer and consumer acceptance of the
resulting products; risks associated with the Company's dependence on sales to
a limited number of large United States department store customers; the impact
of consolidation, restructurings and other ownership changes, and, financial
difficulties, including bankruptcies, in the retail industry, including with
respect to the Company's department store customers; the Company's ability to
respond to constantly changing consumer demands and tastes and fashion trends,
across multiple product lines, shopping channels and geographies; risks
associated with the use of unaffiliated manufacturers, including the possible
failure of the Company's unaffiliated manufacturers to manufacture and deliver
products in a timely manner, to meet quality or safety standards or to comply
with Company policies regarding labor practices or applicable laws or
regulations; risks related to the Company's ability to adapt to and compete
effectively in the current quota environment, including changes in sourcing
patterns resulting from the elimination of quota on apparel products as well
as lowered barriers to entry; risks associated with the Company's ability to
maintain and enhance favorable brand recognition; risks associated with the
Company's ability to correctly balance the level of its commitments with
actual orders; risks associated with new business relationships and new
product lines, product categories and markets, including risks relating to
achieving projected or satisfactory levels of sales, profits and/or return on
investment, and risks inherent in licensing arrangements, such as the
Company's license of the DKNY Jeans and DKNY Active brands, the fragrance
license with Elizabeth Arden, and the Dana Buchman license with Kohl's
Corporation; risks associated with any significant disruptions in the
Company's relationship with its employees or with its relationship with the
unions which represent certain Company employees; risks associated with
changes in social, political, economic, legal and other conditions affecting
foreign operations, sourcing or international trade, including the impact of
foreign currency exchange rates, and currency devaluations in countries in
which the Company sources product and risks associated with the importation
and exportation of product; risks associated with war, the threat of war and
terrorist activities; work stoppages or slowdowns by suppliers or service
providers; risks relating to protecting and managing the Company's
intellectual property rights; and such other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices and such other factors as are set forth
in the Company's Quarterly Report on Form 10-Q for the quarter ended October
4, 2008 filed today, including under the sections captioned "Item 1A. Risk
Factors" and "Statements Regarding Forward-looking Statements", and in the
Company's 2007 Annual Report on Form 10-K. The Company undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
LIZ CLAIBORNE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per common share data)
(Unaudited)
Three Months Ended Three Months Ended
October 4, 2008 % of September 29, 2007 % of
(13 weeks) Sales (13 weeks) Sales
Net Sales $1,014,969 100.0% $1,206,719 100.0%
Cost of goods sold 514,615 50.7% 622,009 51.5%
Gross Profit 500,354 49.3% 584,710 48.5%
Selling, general
& administrative
expenses 474,115 46.7% 501,537 41.6%
Trademark
impairment 10,046 1.0% 12,300 1.0%
Operating Income 16,193 1.6% 70,873 5.9%
Other income
(expense), net 798 0.1% (1,519) (0.1)%
Interest expense,
net (12,050) (1.2)% (11,739) (1.0)%
Income Before Provision
for Income Taxes 4,941 0.5% 57,615 4.8%
Provision for
income taxes 14,360 1.4% 24,098 2.0%
(Loss) Income from
Continuing Operations (9,419) (0.9)% 33,517 2.8%
(Loss) income from
discontinued
operations, net
of tax (8,099) 2,002
Loss on disposal of
discontinued
operations, net
of tax (51,207) (2,468)
Net (Loss) Income $(68,725) $33,051
Earnings per Share:
Basic
(Loss) Income from
Continuing
Operations $(0.10) $0.33
(Loss) Income from
Discontinued
Operations (0.08) 0.02
Loss on Disposal
of Discontinued
Operations (0.55) (0.02)
Net (Loss) Income $(0.73) $0.33
Diluted
(Loss) Income from
Continuing
Operations $(0.10) $0.33
(Loss) Income from
Discontinued
Operations (0.08) 0.02
Loss on Disposal of
Discontinued
Operations (0.55) (0.02)
Net (Loss) Income $(0.73) $0.33
Weighted Average
Shares, Basic (1) 93,641 99,820
Weighted Average
Shares, Diluted (1) 93,641 100,700
Supplemental
Information:
Dividends Paid per
Common Share (Rounded
to the nearest penny) $0.06 $0.06
(1) Because the Company incurred a loss from continuing operations in
2008, all outstanding stock options and restricted shares are antidilutive.
Accordingly, basic and diluted weighted average shares outstanding are equal
for such period.
LIZ CLAIBORNE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per common share data)
(Unaudited)
Nine Months Ended Nine Months Ended
October 4, 2008 % of September 29, 2007 % of
(40 weeks) Sales (39 weeks) Sales
Net Sales $3,073,773 100.0% $3,269,899 100.0%
Cost of
goods sold 1,586,358 51.6% 1,690,481 51.7%
Gross Profit 1,487,415 48.4% 1,579,418 48.3%
Selling, general &
administrative
expenses 1,495,280 48.6% 1,449,197 44.3%
Trademark
impairment 10,046 0.3% 12,300 0.4%
Operating (Loss)
Income (17,911) (0.6)% 117,921 3.6%
Other expense, net (2,875) (0.1)% (1,874) (0.1)%
Interest expense,
net (33,922) (1.1)% (30,126) (0.9)%
(Loss) Income Before
(Benefit) Provision
for Income Taxes (54,708) (1.8)% 85,921 2.6%
(Benefit) provision
for income taxes (23,692) (0.8)% 36,648 1.1%
(Loss) Income from
Continuing
Operations (31,016) (1.0)% 49,273 1.5%
(Loss) income from
discontinued
operations,
net of tax (26,789) 16,075
Loss on disposal
of discontinued
operations,
net of tax (65,104) (2,468)
Net (Loss) Income $(122,909) $62,880
Earnings per Share:
Basic
(Loss) Income from
Continuing
Operations $(0.33) $0.48
(Loss) Income from
Discontinued
Operations (0.29) 0.16
Loss on Disposal
of Discontinued
Operations (0.69) (0.02)
Net (Loss) Income $(1.31) $0.62
Diluted
(Loss) Income from
Continuing
Operations $(0.33) $0.48
(Loss) Income from
Discontinued
Operations (0.29) 0.16
Loss on Disposal
of Discontinued
Operations (0.69) (0.02)
Net (Loss) Income $(1.31) $0.62
Weighted Average
Shares, Basic (1) 93,608 101,157
Weighted Average
Shares, Diluted (1) 93,608 102,219
Supplemental
Information:
Dividends Paid per
Common Share (Rounded
to the nearest penny) $0.17 $0.17
(1) Because the Company incurred a loss from continuing operations in
2008, all outstanding stock options and restricted shares are antidilutive.
Accordingly, basic and diluted weighted average shares outstanding are equal
for such period.
LIZ CLAIBORNE INC.
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
(Unaudited)
October 4, 2008 September 29, 2007
Assets
Current Assets:
Cash and cash equivalents $50,342 $111,634
Accounts receivable - trade, net 483,327 663,197
Inventories, net 549,270 725,802
Deferred income taxes 73,128 91,396
Other current assets 274,745 155,571
Assets held for sale 10,267 19,360
Total current assets 1,441,079 1,766,960
Property and Equipment, Net 590,070 583,343
Goodwill and Intangibles, Net 931,175 1,453,581
Deferred Income Taxes 31,297 -
Other Assets 20,773 21,890
Total Assets $3,014,394 $3,825,774
Liabilities and Stockholders' Equity
Current Liabilities:
Short term borrowings $61,807 $455,852
Other current liabilities 551,248 601,930
Total current liabilities 613,055 1,057,782
Long-Term Debt 912,046 520,749
Other Non-Current Liabilities 107,649 113,933
Deferred Income Taxes 363 71,821
Minority Interest 3,894 3,510
Stockholders' Equity 1,377,387 2,057,979
Total Liabilities and Stockholders'
Equity $3,014,394 $3,825,774
LIZ CLAIBORNE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Nine Months Ended
October 4, 2008 September 29, 2007
(40 Weeks) (39 Weeks)
Cash Flows from Operating Activities:
Net (loss) income $(122,909) $62,880
Adjustments to arrive at (loss)
income from continuing operations 91,893 (13,607)
(Loss) income from continuing
operations (31,016) 49,273
Adjustments to reconcile (loss)
income from continuing operations
to net cash used in operating
activities:
Depreciation and amortization 117,745 108,587
Trademark impairment 10,046 12,300
Streamlining initiatives; asset
write-down 2,805 -
Loss on asset disposals 14,991 18,141
Share-based compensation 11,738 16,171
Tax benefit on exercise of stock
options 7 5,603
Other, net (92) (858)
Changes in assets and liabilities,
exclusive of acquisitions:
Increase in accounts
receivable - trade, net (60,460) (146,777)
Increase in inventories, net (37,338) (131,810)
Increase in other current
and non-current assets (11,195) (6,421)
Increase in accounts payable 19,912 5,543
Decrease in accrued expenses (67,120) (43,513)
Net change in income tax assets
and liabilities (61,053) (13,645)
Net cash (used in) provided by
operating activities of
discontinued operations (26,763) 21,539
Net cash used in operating
activities (117,793) (105,867)
Cash Flows from Investing Activities:
Proceeds from disposition 21,252 -
Purchases of property and
equipment (141,681) (111,645)
Purchases of businesses and
payment of related debt (84,420) (34,313)
Payments for in-store merchandise
shops (5,793) (4,012)
Proceeds from sales of securities - 9,616
Proceeds from sale of property and
equipment - 1,410
Other, net (211) 472
Net cash provided by (used in)
investing activities of
discontinued operations 64,769 (16,584)
Net cash used in
investing activities (146,084) (155,056)
LIZ CLAIBORNE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(All amounts in thousands)
(Unaudited)
Nine Months Ended
October 4, 2008 September 29, 2007
(40 Weeks) (39 Weeks)
Cash Flows from Financing
Activities:
Short term borrowings, net 122,408 432,144
Principal payments under capital
lease obligations (3,128) (4,288)
Commercial paper, net - (82,075)
Proceeds from exercise of common
stock options 70 42,726
Purchase of common stock - (181,616)
Dividends paid (15,793) (17,102)
Excess tax benefit related to
share-based compensation - 2,410
Other, net (2,304) (1,076)
Net cash provided by
financing activities 101,253 191,123
Effect of exchange rate changes on
cash and cash equivalents 7,565 (4,211)
Net Change in Cash and Cash Equivalents (155,059) (74,011)
Cash and Cash Equivalents at
Beginning of Period 205,401 185,645
Cash and Cash Equivalents at End of
Period $50,342 $111,634
LIZ CLAIBORNE INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
(Unaudited)
The following tables provide reconciliations of (Loss) Income from
Continuing Operations to Income from Continuing Operations Excluding
Streamlining Initiatives and Brand-Exiting Activities and Trademark Impairment
and of Operating Income (Loss) to Income from Continuing Operations Excluding
Streamlining Initiatives and Brand-Exiting Activities and Trademark
Impairment.
Three Months Ended Nine Months Ended
October 4, September 29, October 4, September 29,
2008 2007 2008 2007
(13 weeks) (13 weeks) (40 weeks) (39 weeks)
(Loss) Income from
Continuing Operations $(9,419) $33,517 $(31,016) $49,273
Streamlining initiatives and
brand-exiting
activities(1) 35,533 31,013 144,470 61,761
Trademark impairment (2) 10,046 12,300 10,046 12,300
Benefit (provision) for
income taxes 190 (16,223) (45,517) (26,975)
Income from Continuing
Operations Excluding
Streamlining Initiatives
and Brand-Exiting
Activities and
Trademark Impairment $36,350 $60,607 $77,983 $96,359
Operating Income (Loss) $16,193 $70,873 $(17,911) $117,921
Streamlining initiatives and
brand-exiting
activities(1) 35,533 31,013 144,470 61,761
Trademark impairment (2) 10,046 12,300 10,046 12,300
Operating Income Excluding
Streamlining Initiatives and
Brand-Exiting Activities
and Trademark Impairment 61,772 114,186 136,605 191,982
Interest expense, net 12,050 11,739 33,922 30,126
Other (income) expense, net (798) 1,519 2,875 1,874
Provision for income taxes (14,170) (40,321) (21,825) (63,623)
Income from Continuing
Operations Excluding
Streamlining Initiatives
and Brand-Exiting
Activities and
Trademark Impairment $36,350 $60,607 $77,983 $96,359
Basic Earnings per Common
Share from Continuing
Operations Excluding
Streamlining Initiatives
and Brand-Exiting
Activities and Trademark
Impairment $0.39 $0.61 $0.83 $0.95
Diluted Earnings per Common
Share from Continuing
Operations Excluding
Streamlining Initiatives
and Brand-Exiting
Activities and Trademark
Impairment (3) $0.39 $0.60 $0.83 $0.94
(1) During the three and nine months ended October 4, 2008 and September
29, 2007, the Company recorded expenses related to its streamlining
initiatives and brand-exiting activities as follows:
Three Months Ended Nine Months Ended
October September October September
4, 2008 29, 2007 4, 2008 29, 2007
(13 weeks) (13 weeks) (40 weeks) (39 weeks)
Payroll, lease
terminations
and asset write-downs $23,622 $21,328 $82,612 $48,698
Store closure and other
costs 11,911 9,685 61,858 13,063
$35,533 $31,013 $144,470 $61,761
(2) During 2008, the Company recorded a non-cash impairment charge of
$10.0 million ($6.3 million after-tax, or $0.07 per share in the 13 and 40
weeks ended October 4, 2008) to reduce the value of the Villager, Crazy Horse
and Russ trademark. During 2007, the Company recorded a non-cash impairment
charge of $12.3 million ($7.5 million after-tax, or $0.07 per share in the 13
and 39 weeks ended September 29, 2007) to reduce the value of the Ellen Tracy
trademark. These impairment charges were recorded as a result of declines in
future anticipated cash flows of the respective brands.
(3) Amounts for the three and nine months ended October 4, 2008 are based
on 93,975 and 93,826 weighted average shares outstanding, respectively.
LIZ CLAIBORNE INC.
SEGMENT REPORTING
(All amounts in thousands)
(Unaudited)
Three Months Ended Three Months Ended
October 4, 2008 % to September 29, 2007 % to
(13 weeks) Total (13 weeks) Total
NET SALES:
Direct Brands $617,205 60.8% $628,705 52.1%
Partnered Brands 397,764 39.2% 578,014 47.9%
Total Net
Sales $1,014,969 100.0% $1,206,719 100.0%
Three Months Ended Three Months Ended
October 4, 2008 % to September 29, 2007 % to
(13 weeks) Sales (13 weeks) Sales
OPERATING INCOME:
Direct Brands $34,960 5.7% $87,046 13.8%
Partnered Brands (18,767) (4.7)% (16,173) (2.8)%
Total Operating
Income $16,193 1.6% $70,873 5.9%
Three Months Ended Three Months Ended
October 4, 2008 % to September 29, 2007 % to
(13 weeks) Total (13 weeks) Total
NET SALES:
Domestic $625,989 61.7% $788,058 65.3%
International 388,980 38.3% 418,661 34.7%
Total Net
Sales $1,014,969 100.0% $1,206,719 100.0%
Three Months Ended Three Months Ended
October 4, 2008 % to September 29, 2007 % to
(13 weeks) Sales (13 weeks) Sales
OPERATING INCOME:
Domestic $(5,976) (1.0)% $27,793 3.5%
International 22,169 5.7% 43,080 10.3%
Total Operating
Income $16,193 1.6% $70,873 5.9%
LIZ CLAIBORNE INC.
SEGMENT REPORTING
(All amounts in thousands)
(Unaudited)
Nine Months Ended Nine Months Ended
October 4, 2008 % to September 29, 2007 % to
(40 weeks) Total (39 weeks) Total
NET SALES:
Direct Brands $1,821,535 59.3% $1,608,376 49.2%
Partnered Brands 1,252,238 40.7% 1,661,523 50.8%
Total Net
Sales $3,073,773 100.0% $3,269,899 100.0%
Nine Months Ended Nine Months Ended
October 4, 2008 % to September 29, 2007 % to
(40 weeks) Sales (39 weeks) Sales
OPERATING (LOSS) INCOME:
Direct Brands $74,984 4.1% $166,870 10.4%
Partnered Brands (92,895) (7.4)% (48,949) (2.9)%
Total Operating
(Loss) Income $(17,911) (0.6)% $117,921 3.6%
Nine Months Ended Nine Months Ended
October 4, 2008 % to September 29, 2007 % to
(40 weeks) Total (39 weeks) Total
NET SALES:
Domestic $1,940,050 63.1% $2,184,873 66.8%
International 1,133,723 36.9% 1,085,026 33.2%
Total Net
Sales $3,073,773 100.0% $3,269,899 100.0%
Nine Months Ended Nine Months Ended
October 4, 2008 % to September 29, 2007 % to
(40 weeks) Sales (39 weeks) Sales
OPERATING (LOSS) INCOME:
Domestic $(54,821) (2.8)% $51,055 2.3%
International 36,910 3.3% 66,866 6.2%
Total Operating
(Loss) Income $(17,911) (0.6)% $117,921 3.6%
LIZ CLAIBORNE INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
SEGMENT REPORTING
(All amounts in thousands)
(Unaudited)
The following tables provide reconciliations of Net Sales to Adjusted Net
Sales, which excludes Store Closure and Brand-Exiting Activities and of
Operating Income (Loss) to Adjusted Operating Income, which excludes
Streamlining Initiatives and Brand-Exiting Activities and Trademark
Impairment.
Three Months Ended
October 4, 2008 (13 weeks)
Direct Partnered
Brands Brands Total
Net Sales:
As Reported $617,205 $397,764 $1,014,969
Store Closure and
Brand-Exiting Activities (1,820) 5,465 3,645
Adjusted Net Sales $615,385 $403,229 $1,018,614
Operating Income (Loss):
As Reported $34,960 $(18,767) $16,193
Trademark Impairment - 10,046 10,046
Streamlining Initiatives
and Brand-Exiting
Activities 17,595 17,938 35,533
Adjusted Operating Income $52,555 $9,217 $61,772
% of Adjusted Net Sales 8.5% 2.3% 6.1%
Three Months Ended
September 29, 2007 (13 weeks)
Direct Partnered
Brands Brands Total
Net Sales:
As Reported $628,705 $578,014 $1,206,719
Store Closure and
Brand-Exiting Activities - (1,930) (1,930)
Adjusted Net Sales $628,705 $576,084 $1,204,789
Operating Income (Loss):
As Reported $87,046 $(16,173) $70,873
Trademark Impairment - 12,300 12,300
Streamlining Initiatives
and Brand-Exiting
Activities 7,910 23,103 31,013
Adjusted Operating Income $94,956 $19,230 $114,186
% of Adjusted Net Sales 15.1% 3.3% 9.5%
LIZ CLAIBORNE INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
SEGMENT REPORTING
(All amounts in thousands)
(Unaudited)
The following tables provide reconciliations of Net Sales to Adjusted Net
Sales, which excludes Store Closure and Brand-Exiting Activities and of
Operating Income (Loss) to Adjusted Operating Income, which excludes
Streamlining Initiatives and Brand-Exiting Activities and Trademark
Impairment.
Nine Months Ended
October 4, 2008 (40 weeks)
Direct Partnered
Brands Brands Total
Net Sales:
As Reported $1,821,535 $1,252,238 $3,073,773
Store Closure and
Brand-Exiting Activities (7,552) (20,751) (28,303)
Adjusted Net Sales $1,813,983 $1,231,487 $3,045,470
Operating Income (Loss):
As Reported $74,984 $(92,895) $(17,911)
Trademark Impairment - 10,046 10,046
Streamlining Initiatives
and Brand-Exiting
Activities 43,868 100,602 144,470
Adjusted Operating Income $118,852 $17,753 $136,605
% of Adjusted Net Sales 6.6% 1.4% 4.5%
Nine Months Ended
September 29, 2007 (39 weeks)
Direct Partnered
Brands Brands Total
Net Sales:
As Reported $1,608,376 $1,661,523 $3,269,899
Store Closure and
Brand-Exiting Activities - (12,959) (12,959)
Adjusted Net Sales $1,608,376 $1,648,564 $3,256,940
Operating Income (Loss):
As Reported $166,870 $(48,949) $117,921
Trademark Impairment - 12,300 12,300
Streamlining Initiatives
and Brand-Exiting
Activities 13,810 47,951 61,761
Adjusted Operating Income $180,680 $11,302 $191,982
% of Adjusted Net Sales 11.2% 0.7% 5.9%
LIZ CLAIBORNE INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
SEGMENT REPORTING
(All amounts in thousands)
(Unaudited)
The following tables provide reconciliations of Net Sales to Adjusted Net
Sales, which excludes Store Closure and Brand-Exiting Activities and of
Operating (Loss) Income to Adjusted Operating Income, which excludes
Streamlining Initiatives and Brand-Exiting Activities and Trademark
Impairment.
Three Months Ended
October 4, 2008 (13 weeks)
Domestic International Total
Net Sales:
As Reported $625,989 $388,980 $1,014,969
Store Closure and
Brand-Exiting Activities 5,465 (1,820) 3,645
Adjusted Net Sales $631,454 $387,160 $1,018,614
Operating (Loss) Income:
As Reported $(5,976) $22,169 $16,193
Trademark Impairment 10,046 - 10,046
Streamlining Initiatives
and Brand-Exiting
Activities 19,106 16,427 35,533
Adjusted Operating Income $23,176 $38,596 $61,772
% of Adjusted Net Sales 3.7% 10.0% 6.1%
Three Months Ended
September 29, 2007 (13 weeks)
Domestic International Total
Net Sales:
As Reported $788,058 $418,661 $1,206,719
Store Closure and
Brand-Exiting Activities (1,930) - (1,930)
Adjusted Net Sales $786,128 $418,661 $1,204,789
Operating Income:
As Reported $27,793 $43,080 $70,873
Trademark Impairment 12,300 - 12,300
Streamlining Initiatives
and Brand-Exiting
Activities 21,984 9,029 31,013
Adjusted Operating Income $62,077 $52,109 $114,186
% of Adjusted Net Sales 7.9% 12.4% 9.5%
LIZ CLAIBORNE INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
SEGMENT REPORTING
(All amounts in thousands)
(Unaudited)
The following tables provide reconciliations of Net Sales to Adjusted Net
Sales, which excludes Store Closure and Brand-Exiting Activities and of
Operating (Loss) Income to Adjusted Operating Income, which excludes
Streamlining Initiatives and Brand-Exiting Activities and Trademark
Impairment.
Nine Months Ended
October 4, 2008 (40 weeks)
Domestic International Total
Net Sales:
As Reported $1,940,050 $1,133,723 $3,073,773
Store Closure and
Brand-Exiting Activities (19,526) (8,777) (28,303)
Adjusted Net Sales $1,920,524 $1,124,946 $3,045,470
Operating (Loss) Income:
As Reported $(54,821) $36,910 $(17,911)
Trademark Impairment 10,046 - 10,046
Streamlining Initiatives
and Brand-Exiting
Activities 114,763 29,707 144,470
.
Adjusted Operating Income $69,988 $66,617 $136,605
% of Adjusted Net Sales 3.6% 5.9% 4.5%
Nine Months Ended
September 29, 2007 (39 weeks)
Domestic International Total
Net Sales:
As Reported $2,184,873 $1,085,026 $3,269,899
Store Closure and
Brand-Exiting Activities (12,959) - (12,959)
Adjusted Net Sales $2,171,914 $1,085,026 $3,256,940
Operating Income:
As Reported $51,055 $66,866 $117,921
Trademark Impairment 12,300 - 12,300
Streamlining Initiatives
and Brand-Exiting
Activities 45,739 16,022 61,761
Adjusted Operating Income $109,094 $82,888 $191,982
% of Adjusted Net Sales 5.0% 7.6% 5.9%
SOURCE Liz Claiborne Inc.
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