Apparel retailer Liz Claiborne Inc. (LIZ) on Wednesday reported a net loss for the second quarter compared to a profit in the year-ago period, hurt by higher expenses related to the company's streamlining activities and a 7% decline in revenues. The latest quarter's results also include a loss from discontinued operations.
Adjusted earnings per share from continuing operations for the quarter dropped more than 60% from a year ago. In addition, the company provided adjusted earnings outlook for the third quarter below analysts' expectations and narrowed its fiscal year 2008 adjusted earnings per share forecast, citing the difficult macroeconomic environment. The company's stock is currently down more than 9% in the regular trading session.
Second Quarter Results
For the second quarter, the New York-based company reported a GAAP net loss of $23.16 million, or $0.25 per share, compared to net income of $13.63 million, or $0.13 per share in the year-ago quarter.
The latest quarter's results include loss from discontinued operations of $6.82 million, or $0.08 per share, compared to income from discontinued operations of $3.71 million, or $0.03 per share in the previous-year period.
Loss from continuing operations for the quarter totaled $16.34 million, or $0.17 per share, compared to profit from continuing operations of $9.92 million, or $0.10 per share, in the same quarter last year.
On an adjusted basis, income from continuing operations for the latest quarter declined to $8.28 million, or $0.09 per share, from $23.47 million, or $0.23 per share in the prior-year quarter. On average, seven analysts polled by First Call/Thomson Financial expected the company to report breakeven earnings per share for the quarter.
The adjusted results for both the quarters on a continuing operations basis exclude the impact of expenses incurred in connection with the company's streamlining and brand-exiting activities. The company incurred costs related to its streamlining initiatives and brand-exiting activities of $46.78 million in the latest quarter, compared to costs of $20.67 million a year ago.
In March, Liz Claiborne completed a ten-month strategic review that resulted in the sale of eight brands, including Ellen Tracy and Prana.
Quarterly net sales amounted to $973.77 million, down 7.1% from $1.05 billion in the same period last year. Wall Street analysts had a consensus revenue estimate of $970.41 million.
The company attributed the decline in net sales to decreases in its Partnered Brands segment, offset by increases in its Direct Brands segment. Net sales for the quarter were inclusive of a $47 million decrease associated with brands or certain brand activities that have been closed or exited and have not been presented as part of discontinued operations. The impact of changes in foreign currency exchange rates in the company's international businesses increased net sales by about 4.1% during the quarter.
Gross margin declined to 47.4% from 49.3% in the prior-year quarter. Operating loss for the quarter was $25.77 million, compared to operating income of $24.79 million in the corresponding quarter of the previous year. Adjusted operating income was $21 million compared to $45 million in the year-ago period.
Peer Performance
The company's peer, New York-based Jones Apparel Group, Inc. (JNY) reported a profit for the second quarter compared to a loss in the year-ago period. The company's net income for the second quarter was $10.6 million, or $0.13 per share, compared to a net loss of $47.1 million, or $0.44 per share, in the same period last year. Adjusted earnings from continuing operations for the latest quarter declined to $16.9 million, or $0.20 per share, from $18.1 million, or $0.17 per share for the same period last year. Total revenues for the quarter totaled $829.4 million, down from $903.9 million in the second quarter of 2007.
Segment Analysis
Direct Brands
Liz Claiborne's Direct Brands segment, which include Mexx, Lucky Brand, Juicy Couture and Kate Spade, reported an 18.2% increase in net sales from the prior-year quarter to $584 million, helped by higher sales in the company's four retail-based brands in addition to a 13% comp store sales increase in Juicy Couture and a 5% comp store sales increase in Lucky Brand. Operating income for the segment declined to $13 million from $30 million in the corresponding quarter of the previous year. Direct Brands segment adjusted operating income in the quarter was $27 million compared to $36 million in 2007.
Mexx posted first quarter sales of $289 million, up 8.8% from the previous-year quarter. Excluding the impact of changes in foreign currency exchange rates, net sales for Mexx declined 4.6% from the prior-year quarter to $253 million. Lucky Brand fetched net sales of $118 million, up 9.3% from the previous year, and Juicy Couture witnessed quarterly sales of $148 million, 47.4% higher than the second quarter of 2007. Net sales at Kate Spade advanced 44.5% to $30 million year-over-year.
Partnered Brands
The Partnered Brands segment's quarterly sales fell 29.7% from a year ago to $390 million and is inclusive of a $47 million decrease associated with brands or certain brand activities that have been closed or exited and have not been presented as part of discontinued operations. The decrease in net sales was primarily due to decreases in the company's Liz Claiborne, Claiborne, Enyce, Monet, Ellen Tracy and Sigrid Olsen brands, partially offset by increases in Liz & Co., licensed DKNY Jeans and Kensie brands.
The segment incurred an operating loss for the quarter that widened to $38 million from a loss of $5 million in the comparable quarter of the previous year. Segment adjusted operating loss for the latest quarter was $6 million, compared to an adjusted operating profit of $10 million in the same quarter last year.
Region wise, domestic net sales declined to $627.92 million from $729.49 million in the year-ago quarter. Operating loss totaled $29.83 million, compared to operating income of $12.88 million in the previous-year quarter.
International operations fetched second quarter net sales of $345.85 million, higher than the previous year's sales of $319.06 million. However, operating income declined to $4.06 million from $11.90 million in the same period of the prior year.
Bank Credit Facility Amendment
On August 12, 2008, Liz Claiborne entered into a second amendment to its revolving credit facility, whereby it modified certain existing financial and other covenants, added an additional financial covenant relating to asset coverage, modified the facility's fee structure and agreed to provide its banks with security in substantially all of its assets in the event it fails to achieve a specified leverage ratio. The company noted that the amendment also provides for the exclusion of additional cash restructuring charges in the calculation of certain financial covenants.
Year-To-Date Results
For the first six months of 2008, the company reported a GAAP net loss of $54.18 million, or $0.58 per share, compared to GAAP net income of $29.83 million, or $0.29 per share in the year-ago period.
Loss from continuing operations for the six-month period was $29.58 million, or $0.32 per share, compared to earnings from continuing operations of $20.95 million, or $0.20 per share a year ago.
Adjusted earnings from continuing operations for the period declined to $34.11 million, or $0.37 per share, from $40.99 million, or $0.40 per share in the year-ago quarter.
Net sales from continuing operations for the half year declined 1.2% to $2.09 billion from $2.11 billion a year ago and is inclusive of an $81 million decrease associated with brands or certain brand activities that have been closed or exited and have not been presented as part of discontinued operations.
Outlook
Fro the third quarter, Liz Claiborne forecasts adjusted earnings in a range of $0.37-$0.42 per share. Analysts expect earnings of $0.58 per share for the quarter.
For fiscal year 2008, the company narrowed its adjusted earnings outlook to a range of $1.40-$1.50 per share from the prior range of $1.40-$1.60 per share. Analysts expect earnings of $1.39 per share for the year.
William McComb, Chief Executive Officer of Liz Claiborne, said, "While our second quarter results exceeded our conservative expectations, the difficult macroeconomic environment causes us to be cautious in our outlook as we proceed through the second half of the year."
The company said that it realized tangible benefits from its streamlining activities, as evidenced by the $22 million reduction in adjusted selling, general and administrative expenses in the second quarter and a 26% reduction in inventory compared to last year. The company added that this would enable a clean transition into the second half and position it well for the 2009 re-launch of its flagship Liz Claiborne brand under the design direction of Isaac Mizrahi and the re-launch of its Claiborne men's business with John Bartlett. Stock Movements
In Wednesday's regular trading session, LIZ is trading at $13.49, down $1.42 or 9.52% on a volume of 0.10 million shares. The stock has been trading in a range of $11.08-$35.85 in the past 52 weeks.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.