JCPenney (NYSE: JCP) bought the Liz Claiborne brand from Liz Claiborne (NYSE: LIZ), along with other, smaller brand assets. The deal did not excite anyone on Wall St. JCPenney traded flat at just above $30. Investors quickly realized Liz Claiborne is a brand no one else wants. Its shares rose 55% after the announcement. JCPenney paid $267.5 million to complete the deal.
Liz Claiborne already has sold assets to reduce its debt. That is no reason for JCPenney to agree to the transaction. Liz Claiborne’s earnings are a sign that the brand is crippled. When the company announced its most recent numbers management said, “a decline in sales of our Partnered Brands segment, including a $37 million decrease in sales of brands that have been licensed or exited, a significant portion of which was associated with our Liz Claiborne family of brands as we transitioned to the licensing model under the JCPenney and QVC arrangements.”
Liz Claiborne had a loss of $90 million in the period that ended on July 2. Its “hot” brands, which include Lucky Brand and Kate Spade, were the reason Liz Claiborne had any sign of life at all.
If Liz Claiborne believed it could turnaround its flagship brand, it would not have set its exclusive license deal with JCPenney. Further, it would not then have agreed to the sale of the brand.
Perhaps JCPenney has decided to buy a weak brand because it cannot afford more expensive ones. If so, it should not shop for brands at all.
Douglas A. McIntyre
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