(Corrects incorrect spelling of designer’s name in 12th paragraph.)
Liz Claiborne Inc. (LIZ) surged the most since 1987 after announcing a plan to sell brands including its namesake to J.C. Penney Co. and rename the company to focus on the Juicy Couture, Kate Spade and Lucky Brand lines.
Liz Claiborne closed up 34 percent to $6.84 in New York, in the biggest percentage gain since Oct. 21, 1987. The shares had slid 29 percent this year before today.
The sale of Liz Claiborne, Monet and other brands will bring in a combined $328 million in cash, helping to further cut debt, the New York-based company said in a statement. Chief Executive Officer William L. McComb, who took over in 2006, has been refocusing the company on more expensive and contemporary lines, culminating in today’s plan to sell the Liz Claiborne brand created in 1976 for dressing women at work.
“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.”
Liz Claiborne plans to rename the company within 12 months, saying it has yet to decide on a new identity, according to a slide presentation on its website. Juicy Couture sells $325 black lace dresses and Kate Spade $695 short wool coats. Liz Claiborne offers dresses priced at $70 and coats at $225.
‘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. “We will share the new name for the corporation at the appropriate time.”
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, according to the statement.
“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.
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. (KSS) are valued at a total of $328 million in cash, the apparel seller said in the statement. The transactions are expected to be completed in the fourth quarter, the company said. The apparel retailer said last month it will sell a majority stake in its Mexx business to the Gores Group LLC.
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, compared with a prior 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 1976 and went on to produce billions in sales at stores such as Macy’s Inc. (M) and Dillard’s Inc. (DDS) The brand suffered after Claiborne died of cancer in 2007 and a line by designer Isaac 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 0.9 percent to $30.23 in New York.
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