NEW YORK — The road to turnaround continues to be a bumpy one for Liz Claiborne Inc.
The firm said Monday that it plans to phase out its money-losing First Issue retail chain and take a $20 million to $30 million writeoff. It also reported that fourth-quarter earnings — apart from the writeoff — are expected to come in sharply below Wall Street expectations.
After taxes, the First Issue charge will come to 16 cents to 24 cents a share against fourth-quarter earnings. The charge will be primarily to cover the conversion or sale of the 77 First Issue stores over the next 18 months.
In addition, Claiborne, citing “the highly promotional environment at retail,” reported fourth-quarter earnings per share, excluding the First Issue charge, “are expected to only marginally exceed those of the 1993 period.” In the 1993 quarter, the company posted depressed earnings of 19 cents a share. In the 1992 quarter, Claiborne earned 69 cents a share.
Shares of Claiborne fell 1 7/8 Monday to close at 20 on the New York Stock Exchange.
Analysts said Claiborne assured them only three weeks ago that profits in the current quarter would come in around 35 cents to 37 cents a share.
First Issue, which had been touted as Claiborne’s major growth vehicle into retail, has never turned a profit since the first store opened in February 1988. The chain, which dos about 3 percent of sales, sells casual apparel, accessories and jewelry under the First Issue label, with prices generally lower than Claiborne’s sportswear lines.
First Issue is expected to show an operating loss of $18 million on sales of $64 million this year, Claiborne said.
“I think it was just a matter of time,” said Brenda J. Gall, apparel analyst at Merrill Lynch. “It’s been a major drain on earnings for seven years.”
Said Jerome A. Chazen, Claiborne’s chairman: “Given the intense competition within a difficult retail environment and First Issue’s continuing lack of profitability, we concluded that the additional investment required to support First Issue on a competitive basis could not be justified.”
Most of the First Issue stores will be converted to different Claiborne retail formats, but some will be sold, said Samuel M. Miller, Claiborne’s senior vice president of finance. Claiborne also operates 22 Liz Claiborne stores, 13 Elisabeth stores, and 1 Dana Buchman store.
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Most of the charge will cover estimated losses on the phaseout of First Issue stores, the write-off of certain assets as well as severance and contract termination costs. The charge also covers costs to streamline operating and administrative functions, and the previously announced consolidation of its three moderate-price brands — Russ, Villager and Crazy Horse.
Looking ahead, Chazen said Claiborne’s “profitability is expected to improve as a result of the elimination of the losses at First Issue, expense reductions achieved through the restructurings and other efficiencies realized through streamlining operating and administrative functions. In addition, we will be able to better focus our time and resources on the company’s core business.”
Analysts said that Claiborne never found the right customer for First Issue, pointing out that it changed its merchandising approach on the chain four to five times in its seven-year existence. The chain was also hurt by heavy product development costs in building a new brand, and never was able to drive sales-per-square-foot in the stores anywhere near what it gets on its established Claiborne brand.
“I think the bottom line is that America doesn’t need another women’s sportswear label out there,” said Josephine Esquivel, analyst at Lehman Bros.
What surprised analysts was the weak earnings forecast. Besides heavy markdowns at department stores this Christmas, Claiborne is getting stung by weakness at its retail stores and a soft outlet-store business.
— Fairchild News Service