Liz Claiborne (LIZ) Reports Wider-Than-Expected Q1 Loss

May 13, 2009 7:22 AM EDT

Liz Claiborne (NYSE: LIZ) reports Q1 loss of $0.37 per share, ex-items, below the consensus of a $0.23 loss. Revenues came in at $779.7 million, versus the consensus of $884.3 million.

CEO William L. McComb, said: "As indicated on the March earnings call, our operating performance in the first quarter which represents the seasonal low point of the year was further challenged as consumer spending and mall traffic remained at depressed levels. These factors, coupled with a highly promotional retail environment, resulted in comparable store sales decreases of 22% at Juicy Couture, 18% at Lucky Brand, 27% at Kate Spade and 7% at Mexx, while negatively impacting margins in both our retail and wholesale businesses. Despite these operating challenges, we continued our exceptional expense, balance sheet and cash flow management in the quarter as we recorded total debt of $754 million, a $235 million decrease compared to the first quarter of 2008, inclusive of an $81 million decrease due to changes in foreign currency exchange rates. We generated a 17% reduction in inventory compared to last year, including the impact of brands sold, discontinued, or licensed. Cash flow from operating activities was very strong at $401 million for the last twelve months, including the receipt of $126 million in net income tax refunds and $75 million associated with our sourcing agreement with Li & Fung, resulting in availability of $166 million in our bank credit facility at the end of the quarter."

Liz Claiborne said the outlook for the balance of the year remains unchanged. They expect comp store sales declines in the 15-25% range in our Juicy Couture, Lucky Brand and Kate Spade brands and a high single digit comp store sales decline in our Mexx brand through the third quarter of 2009, with fourth quarter comps flattening as we anniversary the sharp downturn that began in September 2008.

On May 12, 2009, Liz Claiborne completed a second amendment to our revolving credit facility, which (i) provides that, through the end of the second quarter of 2010, the fixed charge coverage covenant will be in effect only when availability under the credit agreement fails to exceed an agreed upon level; (ii) reduces the minimum required fixed charge coverage ratio (only if in effect) for the period from December 2009 through the end of the second quarter of 2010; (iii) adds a minimum availability covenant which requires us to maintain availability in excess of an agreed upon level (set at a level below the availability level in (i)); (iv) sets a minimum LIBOR interest rate and adjusts certain interest rate spreads based upon availability; (v) requires the application of substantially all cash collected to reduce outstanding borrowings under the agreement; and (vi) extends the inclusion of an intangible asset value of $30 million in the borrowing base through the maturity of the agreement.

UPDATE: Click here to see a summary of some highlights from the company's Q1 conference call.

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