Liz Claiborne: The Worst Retail Earnings This Quarter (LIZ)

Liz Claiborne Inc. (LIZ-NYSE) is indicated down 20% now in pre-market activity after a severe earnings blunder, and this is so bad that it really looks like perhaps the worst earnings release of any fashion and apparel companies so far this quarter.  The company posted $0.22 EPS on an adjusted basis versus $0.60 estimates.  It also sees a substantial earnings shortfall for 2007 to $1.90 to $2.05 EPS versus estimates of $3.12. The company also posted even lower net results of $0.16 EPS if you include items.  The lowered guidance also excludes the impact of expenses associated with its streamlining initiatives and also excludes additional streamlining and other expenses related to its strategic review.

The CEO statement starts with problems and ends with problems. William L. McComb, CEO: "Clearly, we wish we could have reported better first quarter earnings and provided a stronger outlook for the year. Our first quarter results reflect significant challenges in our domestic wholesale business, partially offset by improved direct to consumer performance. Results were driven by lower than anticipated domestic wholesale re-orders, higher levels of markdowns across the domestic wholesale channel and changes in the retail calendar that shifted some shipments into the second quarter. Beyond these first quarter results, we have seen an acceleration of many of the negative trends that have impacted our wholesale business over the past few years, resulting in Fall orders that are substantially below those levels originally discussed with several of our major retail partners. Due to this increasing pressure in our domestic wholesale business, we now expect a significant shortfall in projected 2007 earnings compared to both our internal plan and last year’s results."

To make matters worse, this was also representative of a 1.6% drop in year over year sales with wholesale apparel falling 7.4%.  Its own retail sales rose 15.6% to $305 million. This just goes to show what can happen to companies when they rely heavily on wholesale third party department stores to sell their merchandise.  This is the worst miss of its kind in recent quarters out of any major men’s and women’s retailers that comes to mind.   The March short interest of 2.62 million shares fell to 2.349 million shares in April, so this was kept under wraps until it was too late.

Jon C. Ogg
May 1, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.