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Original Source: FD (FAIR DISCLOSURE) WIRE
. Paul Charron, Liz Claiborne, Chairman and CEO . Mike Scarpa, Liz Claiborne, CFO and SVP of Finance and Distribution . Trudy Sullivan, Liz Claiborne, President . Jeffrey Edelman, UBS, Analyst . Margaret Mager, Goldman Sachs, Analyst . Jennifer Black, Jennifer Black & Associates, Analyst . Bob Drbul, Lehman Brothers, Analyst . Kate McShane, Citigroup, Analyst . Liz Dunn, Prudential Securities, Analyst
LIZ announced 2Q06 EPS of $0.38 on sales of $1.1b. Expect 3Q06 EPS of $0.90-0.94, and 2005 EPS of $2.58-2.73.
A. Key Data From Call 1. 1H06 sales = $2.3b. 2. 2Q06 net sales = $1.1b. 3. 2Q06 GAAP EPS = $0.38. 4. 2Q06 end inventory = $598m.
5. 2Q06 end net debt = $471m. 6. YTD stock repurchases = 3.5m shares for $131m. 7. 2Q06 stock repurchases = 1.5m shares for $56m. 8. 2006 GAAP EPS guidance = $2.58-2.73. 9. 3Q06 GAAP EPS guidance = $0.90-0.94.
S1. 2Q06 Review (P.C.) 1. 2Q06 Highlights: 1. EPS was $0.38.
1. Reflects net impact of expenses associated with streamlining
initiatives. 2. Anticipated net sales up slightly during 2Q06 at $1.1b. 1. Co. pleased, but believes it can do better.
2. Launching initiatives to enhance profitability, drive long-term growth, and strengthen competitive edge. 3. Taking steps to leverage multi-brand, multi-channel, multi-geography platform. 1. Includes shifting investment focus to best capitalize on most compelling growth opportunities. 2. Particular emphasis on high growth opportunities in specialty retail and international businesses.
4. Transforming supply chain process to markedly improve turnaround times in future. 2. Operating Environment: 1. Higher interest rates, climbing energy prices, and geopolitical unrest weigh on consumer spending. 2. Progress on Federated/May integration on plan, but retail partners operating conservatively as consolidation plays out. 1. Retailers investing in private-label brands and turn and productivity initiatives gaining traction. 2. Good for long-term health of segment, but require managerial dexterity on part of suppliers. 3. Portfolio of brand holding its own.
1. Appeals to variety of international and domestic customers.
2. Addresses range of style preferences and price points across
multiple channels of distribution, mitigating risk. 4. Co. hurt in recent months by fashion missteps on several brands:
1. Dana Buchman and Ellen Tracy in bridge sector, and Sigrid Olsen in better. 2. Co. thinks Ellen Tracy is back on track as new design initiatives have been well received. 3. Enyce and C&C California were problematic in 2005, making great progress recently behind product evolution and new management, and poised for excellent years in 2006. 5. Encouragement on core Liz Claiborne brand in 2Q06. 1. Down in sales and profits, but declines moderating QoverQ.
2. Outperformed internal plans. 6. Co. sees meaningful growth opportunities in portfolio. 1. Of approx. 100 specialty retail stores planned to open in 2006, have opened 35 through end 2Q06.
2. Opened 2,400 square-foot Juicy Couture store in Manhattan in June, with results well above expectation. 3. To be Juicy Couture's breakout year at retail, with 16-20 new retail stores in U.S. in 2006, and flagships in Milan and Tokyo. 4. Expect stores opening in NYC and San Francisco in 3Q06 and expect pace of store openings to continue for near future. 7. Retail sales up approx. 15% YoverY for 2Q06, representing 30% of revenues. 1. Goal to drive number to about 28% for full year vs. 25% in 2005.
2. Long-term goal of 35-40% of total sales. 8. Appointed Jill Granoff as group president, DTC. 9. Identifying opportunities to expand product offerings internationally. 1. Currently 38 brands distributed outside U.S., some of which are most successful in co. 2. Introducing other power brands to overseas markets using European platform. 1. Particularly excited about growth opportunities for Lucky Brand and Juicy Couture outside U.S. 10. Continued growth in Canadian retail business. 1. Solid comp store sales growth in 2Q06. 11. Total international sales up approx. 13%, representing 27% of revenues vs. 25% in 2Q05. 1. Aim to increase number to about 28% by end 2006, up from 26% in 2005. 2. Long-term goal to grow this to 35% of total sales. 12. Extending existing brands into new categories, driving significant organic growth in non-apparel segments. 1. Continue to seek out opportunities to extend brands. 2. In August, will launch Juicy Couture fragrance.
3. Operational Initiatives: 1. Taking costs out of business and streamlining operations to manage brand portfolio and align business with customer and consumer needs. 1. Efforts well underway. 2. Good progress, on target to recognize $60-65m in annual savings previously projected, $30m in 2006. 3. By end 2Q06, achieved $8m of cost savings, and have begun to reinvest a portion of savings into marketing and in-store support. 2. Transforming supply chain: 1. Time lost as ideas move from U.S. to Asia and back through design and production can have meaningful impact on sell-in and sell-through rates, impacting volume and profit.
2. Establishing new process models to help teams work more quickly across time zones. 3. Implementation varies from brand to brand. 4. All to be grounded on same underlying principles.
5. Inaugurated new design resource center in Hong Kong. 1. Supported by cutting-edge technology, replacing legacy systems for business planning and product development. 2. Will enable less paperwork and global access to products at every stage in life cycle. 6. Launched pilot program with Sigrid Olsen, which has been executed on time and on plan. 7. Will move forward on each brand to determine how best to determine individual supply chain needs. 8. Anticipate implementation of supply chain transformation will take approx. two years, dramatically reduce cycle time, and optimize processes.
9. Seeking attractive additions that fit portfolio domestically
and internationally. 3. Operating in competitive M&A environment.
1. Seeing ask and bid prices at very high multiples in many situations. 2. Focused on purchases in areas of strategic relevance where co. possesses intimate category knowledge or can attract and
incentivize management teams with which it can collaborate within a certain risk tolerance. 3. Will not change risk profile by overpaying for a property. 4. Robust balance sheet, strong cash flow, and debt to total cap ratio of 23%. 1. More than ample financial flexibility. 5. Extended previously announced stock repurchase program. 6. Repurchased 1.5m shares, or $56m in 2Q06.
7. Repurchased 3.5m shares YTD for $131m. 8. Remaining authorization of $272m. 9. Issued new seven-year EUR350m bond at 5% to replace existing five-year EUR350m bond scheduled to mature in August which had rate of 6.625%. 1. Further strengthens capital structure. 4. Succession Planning: 1. Board conducting comprehensive selection process to identify CEO successor and complete process prior to year end. 2. Looking at executives inside and outside co. 3. Process has been thoughtful and comprehensive, and is
progressing well. 4. Will make announcement regarding board decision as soon as possible.
S2. 2Q06 Financial Details (M.S.) 1. 2Q06 Highlights: 1. Net sales were $1.1b. 2. GAAP EPS was $0.38. 3. Adjusted diluted EPS was $0.46 vs. $0.51 last year, down 9.8%. 1. 2Q06 adjustments exclude net costs of $0.05, including $0.07 of costs, $0.04 of savings, and $0.02 of reinvestment of savings associated with streamlined operations plans. 2. Also $0.03 reduction associated with equity accounting. 3. 2Q05 adjustments exclude $0.01 reduction associated with equity accounting. 4. Initiatives: 1. To date, savings anticipated realized on slightly lower than expected costs. 2. Working to achieve objectives at accelerated pace. 3. 2Q06 results reflect significant growth in sales and operating margins in retail and international businesses. 4. Starting to see benefit of strategic investment. 2. 2Q06 Results: 1. Wholesale apparel sales were $623m, down $30m or 4.6% from 2Q05, in line with guidance. 2. Wholesale non-apparel sales were $153m, up 8.5% from 2Q05. 1. Increase …