LIZ CLAIBORNE INC. $2.84 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 94.7 million; Market cap: $268.9 million; Price-to-sales ratio: 0.1; WSSF Rating: Extra Risk) designs and sells clothing and accessories for men and women under about 20 different brands, including Juicy Couture, Kate Spade, Lucky Brand and Mexx. It mainly sells its products through department stores, and its own 600-store chain.
The company expects that it lost up to $0.15 a share in the fourth quarter of 2008, because of heavy discounting by department stores. It had earlier forecast earnings of between $0.19 and $0.24 a share. Falling prices at department stores also forced Liz Claiborne to cut prices at its own stores to stay competitive.
Liz Claiborne continues to make progress with its restructuring, including selling or discontinuing lessprofitable brands. It has also hired prominent fashion designer Isaac Mizrahi to overhaul its main “Liz Claiborne” line of women’s sportswear and accessories.
The company recently renegotiated its main credit facility, reducing it to $600 million from $750 million and extending it to 2011. It now has to pay a higher interest rate on these borrowings, but the new arrangement should help it survive until the economy recovers. Total debt as of December 31, 2008, was $745 million, or 2.8 times its market cap.
Liz Claiborne will probably earn $0.60 a share in 2009, and the stock trades at 4.2 times that figure. However, the stock will likely remain under pressure until sales and earnings improve. As well, the company has suspended quarterly dividend payments of $0.05625 a share to conserve cash. Consequently, we’ve lowered Liz Claiborne’s WSSF Quality Rating, from Average to Extra Risk.
Liz Claiborne is a hold.
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