(Updates throughout.)
By James Covert
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Liz Claiborne Inc. (NYSE:LIZ) (LIZ) reported a 65% plunge in first-quarter net income as sales declined, and warned this year's earnings will sorely miss Wall Street's forecasts as department stores have begun to spurn the company's declining clothing brands.
Executives at the New York-based apparel maker said department stores during the past few months have begun to "raise the bar" on demands that merchandise sell quickly and at a profit. With markdowns on spring fashions steeper than expected, department stores have cut fall orders for aging staples like Liz Claiborne (NYSE:LIZ) , Sigrid Olsen, Ellen Tracy and Dana Buchman.
The department stores' strategy shift - which Liz Claiborne (NYSE:LIZ) executives said marks a sharp turn in negotiations that had been held as recently as the holidays - will spur an operational "sea change" that will downsize the manufacturer's wholesale business in the near term, said William McComb, a former Johnson & Johnson (NYSE:JNJ) (JNJ) executive who was tapped in October to succeed longtime CEO Paul Charron.
The news was a wallop for investors who had grown accustomed to steady growth over the past several years under Charron, and who had long contrasted the company's fortunes with those of its less-successful rival, Jones Apparel Group Inc. (NYSE:JNY) (JNY). Liz Claiborne (NYSE:LIZ) shares recently were off $8.26, or 18.5%, at $36.46 in midday trades on the New York Stock Exchange.
The company said its strategic review will mean "right-sizing" the declining Liz Claiborne (NYSE:LIZ) line, as well as the company's other mature brands. Having dominated sales floors in the 1980s and 1990s, these brands have faced increasingly stiff competition from the higher-margin private-label fashions being pushed by big mall anchors like Federated Department Stores Inc. (NYSE:FD) (FD). Department stores also are demanding more exclusive lines from manufacturers, and focusing on newer, smaller designers to differentiate themselves from other stores in the mall.
First-quarter results reflected "an acceleration of many of the negative trends that have impacted our wholesale business over the past few years," the company said. Liz Claiborne (NYSE:LIZ) said its wholesale business also was hit by a calendar shift that pushed about $45 million in shipments into the second quarter.
In a Tuesday conference call, Liz Claiborne (NYSE:LIZ) executives said the company's older brands will soon exit "a small number" of Federated's Macy's stores where they are performing poorly.
