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Topic: Growth Stocks

Liz Claiborne Inc. $42 – New York symbol LIZ

LIZ CLAIBORNE INC. $42 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) designs and markets women’s clothing and accessories under numerous brands, including Liz Claiborne, Mexx and Ellen Tracy.

It sells its products through major department stores as well as roughly 660 company-owned specialty stores. It also makes men’s clothing, and licenses its many brands to non-apparel manufacturers.

The company’s revenue grew from $3.45 billion in 2001 to $4.85 billion in 2005, partly due to acquisitions. Earnings rose from $1.92 a share (total $201.7 million) in 2001 to $2.94 a share ($317.4 million) in 2005.

When making acquisitions, Liz Claiborne looks for smaller apparel companies that can expand its share of certain niche markets, such as teenagers. That cuts its reliance on products for businesswomen and other professionals.

For example, the company recently paid $22.7 million for Westcoast Contempo Fashions Limited and Mac and Jac Holdings Limited, which together make and market premium apparel for men and women under the mac & jac, kenzie and kenziegirl labels.

Liz Claiborne plans to open about 135 new company- owned stores and outlets in 2006. These stores should help cut its exposure to department stores, which are expanding their own in-house apparel brands, on which they earn higher profits. Consolidation in department stores has also cut the number of outlets that Liz Claiborne can sell to.

The company is also doing a good job expanding its brand licensing business. Although licensing accounts for just 1% of Liz Claiborne’s total revenue, licensing profits are rising at a faster rate than its core wholesale division. New deals to put the Liz Claiborne name on area rugs and legwear (socks and tights) should add to its earnings in 2007.

The stock fell to $34 in July, as investors feared that higher fuel prices would hurt consumer spending. But it has moved up due to signs that consumer confidence is still strong. The appointment of a new chief executive also removes some of the uncertainty over the stock.

A restructuring plan will cut Liz Claiborne’s 2006 profits by $0.36 a share. Excluding these costs, the company will probably earn $2.92 a share, and the stock trades at 14.4 times that estimate. It also trades for less than its sales per share of $45.80. The $0.225 dividend yields 0.5%.

Liz Claiborne is a buy.

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