Liz Claiborne Inc. surged the most since 1987 after the apparel seller announced a plan to sell its namesake brand to J.C. Penney Co. and rename the company to focus on its Juicy Couture, Kate Spade and Lucky Brand lines.
Liz Claiborne rose 39 percent to $7.07 at 11:45 a.m. in New York, after earlier reaching $7.25 in the biggest intraday percentage gain since Oct. 21, 1987. The shares had slid 29 percent this year before today.
Chief Executive Officer William L. McComb has been shedding brands to focus on its so-called global lifestyle brands. The New York-based apparel retailer said last month it will sell a majority stake in its Mexx business to the Gores Group LLC. Today’s announcement would also reduce Liz Claiborne’s debt load, it said in a statement.
“This is a smart response and shows the challenges of being an older brand and having to change with the times,” said Robin Murchison, a Nashville, Tennessee-based analyst at SunTrust Banks Inc., in a telephone interview. “The retail world is littered with strong brand names and Liz needed to go where the consumer would appreciate it.” She rates the shares “neutral.”
The company disclosed its plan to change the company name within 12 months in a slide presentation on its website, but said it has yet to decide on a new identity.
‘Global Lifestyle Brands’
“We are exploring options for a new corporate name that will better reflect our keen focus on building and growing our three global lifestyle brands Juicy Couture, Lucky Brand and Kate Spade,” McComb said in the slide. “We will share the new name for the corporation at the appropriate time.”
Liz Claiborne also said today it would sell its Kensie line to Bluestar Alliance. The J.C. Penney and Bluestar Alliance transactions as well as the completion of the sale of Dana Buchman brand to Kohl’s Corp. are valued at a total of $328 million in cash, the retailer said in the statement. The transactions are expected to be completed in the fourth quarter, the company said.
“At the close of these transactions, at a time when most economists in the world are now agreeing that major European and the U.S. markets are facing significant risks of another recession, we will be a more appropriately levered, more capital efficient, growth-oriented company,” McComb said.
The proceeds from the latest sales will be used to reduce debt, with net debt expected to be $270 million to $290 million at the end of the year, it said.
The company also lowered its profit forecasts to eliminate the profits and losses associated with the changes in its portfolio. Adjusted earnings before interest, taxes, depreciation and amortization will be as much as $90 million this year, down from a previous forecast of as much as $120 million. Profit on that basis next year will be as much as $150 million, less than an earlier projection of as much as $220 million.
Liz Claiborne’s namesake sale is a “positive surprise” for the brand because there is more value in the Lucky Brand and Juicy Couture lines, Edward Yruma, a New York-based analyst at KeyBanc Capital Markets, said in a note today. He recommends buying the shares.
The company was founded by Liz Claiborne in New York in 1976 and went on to produce billions in sales at stores such as Macy’s Inc. and Dillard’s Inc.. The brand suffered after Claiborne died of cancer in 2007 and a line by designer Issac Mizrahi failed to garner interest.
J.C. Penney, based in Plano, Texas, has been exclusive licensee for all Liz Claiborne and Claiborne-brand merchandise in the U.S. since August 2010. Under that earlier agreement, J.C. Penney had the right to purchase the Liz Claiborne brands after the fifth year of the deal or again after year 10. Today’s announcement accelerates that sale.
“J.C. Penney benefits from this because they won’t have to pay licensing fees anymore,” Murchison said. “The Liz line has been doing well for them, where at other retailers it wasn’t so successful.”
J.C. Penney rose 2 percent to $30.55 in New York.
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