William L. McComb assumed his position as chief executive officer of Liz Claiborne Inc. a month ago, but analysts don’t expect to see what he is made of until the new year, when the company’s executive transition is complete. Longtime board member Kay Koplovitz will take over as Claiborne’s nonexecutive chair Jan. 1.
“Liz is going to be really interesting,” said Elizabeth Montgomery, analyst for Cowen & Co. “There is a lot of unknown because no one is really sure what Bill McComb will change in terms of the financial plan for 2007.”
The former Johnson & Johnson group chairman was chosen after a 16-month search. McComb, who has an MBA from the University of Chicago Graduate School of Business and a undergraduate degree in economics from Miami University of Ohio, spent 14 years at the pharmaceutical giant, but has no apparel experience.
“It’s hard to get an idea of what the new ceo will do at the company,” said Margaret Mager, retail analyst and managing director for Goldman Sachs & Co. “The apparel and retail industry is a business that is more than 50 percent art, whereas many consumer products tend to be more than 50 percent science. My question for a ceo outside the industry is whether he will get that.”
Mager does think McComb will bring his international strength, and she expects to see continued growth internationally in the new year.
Retail is another near-sure area of growth for the $4.85 billion firm. Juicy Couture, Lucky Brand Jeans, Sigrid Olsen, Mexx and now Kate Spade stores will likely continue to multiply, which analysts agree is a positive step.
But with retail branches comes increasing seasonality. Retailers typically end their fiscal years in January to smooth seasonal disparities, adding that month’s clearance sales to the robust holiday sales, instead of to sleepy February’s. Manufacturers, like Claiborne, do not have that adjusted schedule to cushion retail’s traditionally weak first quarter — part of why Claiborne’s first three months of 2006 ended its run of 40 consecutive quarters of growth.
Analysts also want to see growth through strategic acquisitions, like last month’s Kate Spade buy.
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Claiborne acquired Kate Spade LLC from Neiman Marcus Group for $124 million, including the retirement of debt at closing. When the deal is completed by the end of the year, Claiborne has said it will roll out up to 200 international and domestic boutiques, plus further penetrate retail accounts.
“Kate Spade was a business that wasn’t invested in, and I think it has a better shot at reaching its potential out of Liz,” Mager said. “But that’s all predicated on what the new ceo’s priorities are — when Neiman’s bought Kate Spade, I am sure that no one expected them to do anything with it.”
The 13-year-old, bridge-price accessories brand did $84 million in sales last year, but analysts project it could grow to $1 billion ultimately — although they want to see paced expansion.
“They need to move forward VF-style: Go slow in year one; understand what Kate Spade means to the end consumer,” said Brad A. Stephens, an analyst at Morgan Keegan & Co. Inc. “In the near term, I don’t want to see expansion. I want them to try to focus on what they do well and get profitable.”
A final black box going into the new year is whether Claiborne president Trudy Sullivan will stay with the firm, after being passed over for the top spot. Sullivan, who has been with the company since 2001, was the sole internal candidate considered, and the firm declined to raise her salary after tapping McComb to replace Paul Charron as ceo. Charron will step down as chairman on Dec. 31 to become a consultant and Claiborne’s chairman emeritus.