(Updates throughout with stock prices, further details and analyst comment.)

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 it warned that this year's earnings will sorely miss Wall Street's forecasts as department stores have begun to spurn the company's declining clothing brands. Shares were recently down about 19%.

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.

Liz Claiborne (NYSE:LIZ) shares recently were down $8.41 at $36.31 on the New York Stock Exchange.

The department stores' strategy shift became apparent in recent weeks as their orders for the fall were lukewarm, Chief Executive William McComb said in a Tuesday conference call. The surprising about-face came despite other, more upbeat "signals" that the retailers' merchants had given at Liz Claiborne's (NYSE:LIZ) merchandise showrooms as recently as the holidays, said 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).

In response to the shift, Liz is initiating a long-term, operational "sea change" that will downsize the wholesale business in the near term, McComb said. The company will now focus on becoming more nimble and "chasing winners" among seasonal fashions, rather than dangling incentives before retailers to accept more inventory and maximize revenue, which McComb said "would be the wrong leading metric" for judging its business in the future.

Liz Claiborne (NYSE:LIZ) 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).