NEW YORK — Wall Street hammered shares of Liz Claiborne Inc. because of second-quarter guidance that was below analysts’ expectations even though the company reported rising sales and earnings for the first quarter.
Analysts had anticipated earnings of about 50 cents per share in the second quarter, but company executives estimated earnings at 46 cents to 48 cents per share.
Shares of Liz Claiborne fell 7.4 percent to close at $35.87 in New York Stock Exchange trading.
For the three months ended April 2, the New York-based apparel and accessories giant reported an earnings gain of 3.9 percent to $71.4 million, or 65 cents a diluted share, in line with Wall Street analysts’ consensus estimate. Sales for the quarter rose 9.9 percent to $1.21 billion from $1.1 billion. The company earned $68.8 million, or 62 cents, in the same period a year ago.
However, a research report from Lizabeth Dunn, an analyst with Prudential Equity Group, said investors may have expected the company to outperform those first-quarter numbers. In addition, all three major stock indices were hit hard on Thursday, and by mid-afternoon Liz Claiborne shares had declined as much as 8 percent.
Paul Charron, Liz Claiborne’s chairman and chief executive officer, said during the company conference call that uncertainty caused by retail mergers, along with higher fuel prices, rising interest rates and concerns about inflation were cutting into consumer spending in the moderate channel. The key to surviving the turmoil is diversification, he said.
First-quarter results “[confirmed] our ability to more than offset shortfalls in some brands with gains in others, even in reasonably turbulent times,” Charron said.
Sales of wholesale apparel, which is the company’s largest segment and includes Juicy Couture, DKNY jeans and Lucky Brand, increased 4.5 percent to $809.6 million. The wholesale nonapparel segment posted the largest gains, rising 23.1 percent to $136.7 million from $111 million. The strong results stemmed primarily from the Juicy Couture accessories business and gains at Monet and Villager jewelry, and Crazy Horse and First Issue handbags.
Retail sales increased 8.4 percent to $255.5 million from $208 million, propelled by double-digit comparable-store sales gains at Lucky Brand and Mexx Europe, as well as the addition of 18 new Sigrid Olsen stores.
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While the company’s core Liz Claiborne brand continues to report falling sales, Charron said, “Companies like ours will have to proceed very gingerly to avoid getting hung out to dry by well-meaning but distracted merchants who may not be in total control of their own destinies.”
Charron said the company was committed to exploring acquisitions that would further diversify its portfolio.
“There will be combinations and conversations about combinations,” he said. “For lots of reasons, you should assume Liz Claiborne will be in the midst of these discussions.”
Charron acknowledged that the core Liz Claiborne brand would continue to struggle as it had during the first quarter, with net sales slipping 9.2 percent. Management now expects the brand to post a sales decline in the midteens for the year, which is attributed to increased competition and uncertainty over how Federated’s acquisition of May department stores will shake out. “We have concluded that when we get the space, attention and presentation we deserve, Liz apparel performs,” Charron said, adding that retail customers were “quite conservative with their buying plans.”
Analysts remain optimistic about the company’s future. Goldman Sachs’ Margaret Mager in a report previewing earnings, said, “We also recommend that investors trade out of [Jones] and into [Claiborne] as we believe [Claiborne] is better positioned to respond to challenges in the current retail environment should they arise.”