Which Debts Should You Pay Off First
October 14, 2011 by staff
Which Debts Should You Pay Off First, Liz Claiborne (LIZ), after being crushed beneath its huge debtload, sold most of its business throughout this year to pay most of your debt. Liz did do a good business for their companies, or sell it out of desperation and not get fair value? I would assume the latter.
Mr. Market liked this move, as the action ended the day 33% to the press on Wednesday.
William McComb, who has served as CEO since November 2006, said the company is not planning any significant divestitures.
“There’s really nothing available for sale to the left in the closet,” he said.
LIZ sold off its international base segment-segment and Trademark Associates. These include Mexx, Liz Claiborne brands, DKNY Jeans, Axcess and Monet brands, and output operations.
Only keeps your home based direct brands, which include Juicy Couture, Lucky Brand, Kate Spade and brands. These are the brands that sell high end clothing and clothing (accessories, jewelry and handbags).
From the report Q2 2011 earnings, Liz had an operating loss in all segments. The segment-based national policy framework had an operating loss of 42.5M and the first half of 2011, compared to 23.0M and the first half of 2010. In Q2 2011, operating loss was 23.6 million, compared with an operating loss of 13.1 and Q2 2010. These losses may continue.
Q3 loss will probably be worse compared to last year, holiday sales for depression. This article from the Wall Street Journal shows that port shipments are much lower this year so far.
Much of the additional expenses in the first half of 2011 was associated with streamlining initiatives such as completion rates and such. However, there was also an increase in payroll expenses. Since the company is now much smaller, operators should pay less. Although the company is now reduced by half, there has been no indication that the board of directors or managers will have a pay cut.
Interest expense decreased to 29.8M and for the six months ended July 2, 2011, compared to 34.5M and for the six months ended July 3, 2010. This will also be reduced in Q3 2011 as debt paydowns have been happening throughout the year. This is a good thing for Liz.
Liz recently sold its lower-end brands, including Liz Claiborne brand at JC Penny (JCP), and 328M cash. McComb said the company expects net debt of 2,011 to a total of 270 million and 290 million following the closure of its operations. The company had 548 million more just and long-term debt at the end of its second fiscal quarter. This means that virtually all the benefits of sales by business segment will be used to pay the debt, and almost none of this will be used for the growth of other brands. Not sure if this is a smart move. To ensure that your home based on direct brands come out with stronger growth, the money has to be launched in that direction. In business, it is important to spend money to make money.
As indicated in the Q2 earnings report is here, April 7, 2011, Liz completed an offering of senior notes with an annual interest rate of 10.5%. Liz also notes with an interest rate of 6%. Since most of this will be paid, we can predict LIZ pay an average of an interest rate of 7% for the rest, 270 million in debt. This comes to 18.9M and interest costs per year. Much less than in the past, but still a significant expense.
Growth opportunities for national brands based on direct
The hope is that longs LIZ-based national policy framework becomes a growing company that is valued at up to P / S as LULU and COH with P / S ratios of 9.3 and 4, 25, respectively.
Here are the 2010 sales figures of each segment, taken from the 2010 annual report here:
Juicy Couture: 566.8M and a 5% increase from 2009. Lucky Brand: 386.9M to 12% and December 2009, reflecting the decline in specialty retail operations.
Kate Spade: and 184.3M, 30.5% from 2009 inc.
Here are the numbers of sales in the first half of 2011 cited in the report Q2:
“Net sales for Juicy Couture and were 232.5 million, an increase of 1.7% compared to 2010. Finished the first half of 2011 with 79 shops, 49 retail shops and concessions of 5, reflecting the net increase in the last 12 months of 11 specialty retail stores, 14 outlet stores and concessions 5.
Net sales for Lucky Brand and were 180.6 million, an increase of 1.4% compared to 2010.
We ended the first half of 2011 with 180 specialty stores and 40 outlet stores, reflecting the net closing in the last 12 months of 10 specialty stores.
Net sales for Kate Spade and were 127.4 million, an increase of 67.4% compared to 2010.
We ended the first half of 2011 with 44 specialty stores and 29 outlet stores, reflecting the net increase in the last 12 months of 5 specialty stores. ”
“Bill saved the company,” said Wall Street Strategiesanlyst Brian Sozzi. “Liz would have been bankrupt.”
“The Lucky Brand has seen a remarkable change in its business in denim, Juicy Couture brand remains a viable and Kate Spade is a power,” said Sozzi.
Although Kate Spade currently generates income the lowest of the three, is the one with the greatest potential. Since the Q2 2011 report:
“Our plans to substantially grow our business in Asia through Kate Spade joint venture with E-Land Fashion Holdings, China, Kate Spade Limited and reacquisition of certain distribution rights (i) the People’s Republic of China through partnership venture and some (ii) territories in Southeast Asia “(p. 3)
“In June 2011, the Company signed an agreement with Kate Spade Globalluxe HK Limited (” Globalluxe “) to, among other things, acquire new business today KATE shovel in Southeast Asia since Globalluxe”. (Pg 19)
Liz will become a successful growing company, or fade into oblivion? I think it is unlikely that the Kate Spade brand to grow very quickly. Analysts crazy because many stores have expanded into Asian countries like China and Japan, but even China is having difficulty. There are a lot of enthusiasm for the changes has made Liz, but once the excitement fades and reality sets, especially after what will certainly be a sad Q3 2011, the report comes, action could easily drop back down unless and 6 to share.
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