An article published on January
14, 2009 in Wall Street Journal reported that apparel maker Liz Claiborne Inc.
warned of a fourth-quarter loss, signaling that suppliers to many
retail chains will be sharing the pain of deep discounts triggered by the worst
consumer spending slump in decades.
Claiborne, which also operates
its own stores, said its fourth-quarter loss could be as much as 15 cents a
share because of markdowns and sluggish sales. It had previously forecast
earnings of 19 cents to 24 cents a share. Analysts were expecting profit of 19
cents a share, according to Thomson Reuters.
Claiborne's warning comes as
retailers and their suppliers are engaged in tense negotiations over
"markdown money," or the amount that suppliers provide to help
retailers cover their shortfall in profits resulting from discounting.
"It was a very promotional
season," Claiborne Chief Executive William McComb said, describing the
discounting atmosphere as "a strange game of Russian roulette." Once
department stores marked things down, he said, Claiborne also cut prices at
some of its own retail stores. Mr. McComb declined to comment on his
negotiations with retailers.
Susan Kellogg, chief executive at
designer Elie Tahari, contended that some retailers slashed prices too early.
She said monthly sales at the brand's own retail stores remained positive early
in the season even though they didn't discount as much as other stores that
sell the label.
Investors on Tuesday initially
were cheered by news that Claiborne had successfully renegotiated its credit
facility, reducing its size to $600 million from $750 million and extending it
to May 2011. Claiborne's new credit agreement came at a steep cost. It will pay
lenders Libor plus 500 basis points, compared with the old rate of Libor plus
95 basis points.
"The market had an
unreasonable fear that we wouldn't get [the deal] done," said Mr. McComb,
citing analysts' reports that highlighted the risk of non-renewal amid the credit
crunch.
Another factor hurting apparel makers is that off-price retailers, such as TJX Cos., that typically buy excess inventory from apparel makers are offering much
lower prices and even turning away goods amid a glut in supply. Jerry Politzer,
chief executive officer of retailer Loehmann's, for instance, said it has
negotiated better prices and has declined merchandise over the past three
months.
"Even discounters are asking for markdown money," said Antony
Karabus, chief executive of consultant Karabus Management. The price
discounters will pay is now significantly less than 90% to 100% of an apparel
maker's production costs, he said.
Source: Dodes, Rachel, “Liz Claiborne Warns of Loss” Wall Street Journal, January 14, 2009.