Wednesday, September 9, 2009

LIZ Sees Trough in Margins

Speaking at a Gloldman Sachs conference today, Liz Claiborne (LIZ) CEO claimed that they've seen a trough in both gross and operating margins. This is a very encouraging sign that a turnaround is finally at hand. LIZ finally has inventories under control and can sell new items without huge discounts.

The CEO did throw in a nugget that the new Mizrahi line at the namesake line isn't selling that well at department stores. Would be nice to get more color on this as department sales have been weak everywhere. If the margins are increasing, then at least the concept as a whole is doing better. After all inventories and margins are sometimes more important then fashion. Still, Stone Fox Capital was looking for a homerun from this stock due to the Mizrahi refresh. If this doesn't materialize the stock will still soar, but not nearly as high.

The CEO also eliminated any fears over bankruptcy potential because of hiring a turnaround expert. Since the chart confirms the CEO statements we'll stand behind this stock. CEOs have a tendency to tell markets what they want to hear, but charts usually don't lie. With LIZ bouncing right off the 20EMA it looks very solid technically while the financials turn around.

Per the Dow Jones story linked in at E*Trade:

  • "For us, we are at a period of true trough performance in margin and I'm speaking about gross margin and overall operating profit margin," Chief Executive Bill McComb said Wednesday, adding that better margins are "very gettable" for the women's apparel retailer.
  • Still, products have to carry appeal, and McComb said the redesign of the namesake Liz Claiborne brand has proved to be somewhat of a disappointment in department stores.
  • The Isaac Mizrahi-designed line is lingering on shelves. Merchants have said it has too much emphasis on color and fashion, "stunning" feedback since the line has long been criticized as having gone stale, McComb said. Sales progress is better at lower-end department stores and at it own outlets, although at the latter there is still "a pile of excess inventory from the old line," McComb said.
Goldman Sachs analyst is bullish:
  • "While righting the ship will remain a challenge, we do see some light at the end of the tunnel which makes Liz's share a potentially attractive play," said Rowbotham. Improving fourth-quarter gross margins, aggressive cost-reduction efforts, better trends at Liz Claiborne outlet stores and easier same-store sales comparisons "all point to a potentially better 2010 outlook," he said.

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