Thursday, October 8, 2009

Brand handoff at Liz Claiborne Inc. (LIZ, JCP, JNY)

Cheers to management at Liz Claiborne Inc. (LIZ). In an admission of its failed stewardship of a portion of its brand portfolio, they have announced two deals in which partners will take over the production and operating side of previously in-house wholesale divisions.

From the release:

JCPenney will become the exclusive department store destination for all Liz Claiborne and Claiborne branded merchandise in the United States and Puerto Rico. The other important element of this strategy is moving the distribution of the Liz Claiborne New York brand designed by Isaac Mizrahi to QVC. As a result of these agreements, the company expects the Liz Claiborne wholesale brand franchise to swing from a meaningful adjusted operating loss in 2009 to a targeted adjusted operating profit in 2010.

The JCPenney model is good for Liz Claiborne, as it removes the (often devastating) risk associated with inventory markdowns, sourcing leadtimes and issues, and host of other wholesale apparel "operating model" challenges. That said, Liz will now lose some top line revenue in exchange for a portion of sales and a portion of gross profit - although the % breakdown was not provided in today's details:

The market cheered the news today, sending shares up 30% as this deal will reduce operating expenses for Liz, which run in the mid 40% range as a percent of sales, compared to about 30% for Jones Apparel (JNY).

Why are costs so out of control at Liz? Well, their smorgasboard of brands (and supporting each of them), combined with their widely disbursed operating locations aren't helping:

The JCPenney and QVC deals are positives for Liz Claiborne - while the stock might seem to be on a big run, if you back up the chart there's room for enourmous upside if the company can right the ship.

1 comment:

  1. Like JCP could do any better with the dying brand. I personally purchased LIZ years ago, but the brand got away from its core.

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    Marc Mattox