bank of america & merrill lynch consumer conference...
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Bank of America & Merrill Lynch Consumer ConferenceMarch 11, 2009
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Statements contained in this presentation that relate to future events or the Company's future performance, including, without limitation, statements with respect to the Company's anticipated results of operations or level of business for 2008 or any other future period, are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on current expectations only and are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions. These forward looking statements are based on current expectations and are subject to the qualifications set out in the Company’s 2008 Annual Report on Form 10-K for the period ended January 3 2009, including, without limitation, those set forth under the headings "Risk Factors" and "Statement Regarding Forward-Looking Disclosure."
Please note that in this presentation, projected SG&A for 2009 is presented on an adjusted basis.
The Company believes that the adjusted guidance provided in this presentation provides a more meaningful representation of its projected operations and financial performance and will allow for a more meaningful comparison with historical results.
Adjusted guidance excludes the impact of expenses incurred in connection with the Company’s streamlining activities, the loss on disposal of discontinued operations and the results of discontinued operations as well as the impact of any acquisitions, divestitures or share repurchases.
Safe Harbor Statement
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Mexx WholesaleApparel
Jewelry Handbags Retail Outlet Licensing Int'l Sourcing Cosmetics
* For illustrative purposes only. Not drawn to scale.
Lucky
Juicy
Lucky Lucky
Kate
Liz Brand
DKNY Jeans
Monet MonetMonet
Monet
Monet
Monet Monet Monet
LuckyLucky Lucky Lucky Lucky
Juicy Juicy
Juicy Juicy Juicy JuicyJuicy
Kate Kate
Kate Kate KateKate
KateLiz Brand Liz Brand
Liz Brand
Liz Brand
Liz Brand Liz Brand Liz Brand
DKNY Jeans DKNY Jeans
DKNY Jeans
DKNY Jeans
DKNY Jeans DKNY Jeans DKNY Jeans
KensieKensie
Kensie
SigridSigrid
Sigrid
Sigrid
Sigrid
Sigrid Sigrid Sigrid
OtherBrands
OtherBrands
OtherBrands
OtherBrands
OtherBrands
OtherBrands Other
BrandsOtherBrandsDana
BuchmanDana
BuchmanDana
Buchman
DanaBuchman
DanaBuchman
EllenTracy
EllenTracy
EllenTracy
EllenTracy
EllenTracy
Prana Prana
Enyce
LaundryLaundry
LaundryLaundry
EnyceEnyce
C&CC&C
C&C
Emma James Emma James
Lucky
Liz Brand
DKNY Jeans
Monet
Juicy
Kate
Kensie
Sigrid
OtherBrandsDana
Buchman
EllenTracy
Prana
Enyce
Laundry
C&C
Emma James
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From a Channel-Focused Structure to a…
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LuckyBrand
JuicyCouture
KateSpade
Mexx LizClaiborne
DKNYJeans
Monet Kensie Mid-Tier
* For illustrative purposes only. Not drawn to scale.
Domestic-BasedDirect Brands
WholesaleApparel
WholesaleApparel
WholesaleApparel
WholesaleApparel
WholesaleApparel
WholesaleApparel
WholesaleApparel
WholesaleApparel
WholesaleApparelNon-
ApparelNon-
ApparelNon-
ApparelNon-
ApparelNon-
ApparelNon-
ApparelNon-
Apparel
Non-Apparel
Non-Apparel
Retail Retail Retail Retail Retail Retail Retail
Outlet
Licensing
Sourcing
Outlet Outlet Outlet Outlet Outlet Outlet
Licensing Licensing Licensing Licensing Licensing Licensing
Int’l Int’l Int’l Int’l Int’l Int’l Int’l
Sourcing Sourcing Sourcing Sourcing Sourcing Sourcing
Sourcing Sourcing
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Int’l-BasedDirect Brands Partnered Brands
…Brand-Centric, Monobrand Organization
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2009 Operating Priorities
•Cash Flow and Liquidity
•Brand Execution
•Cost Management
•Mexx Turnaround
•Liz Claiborne New York
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Cash Flow and LiquidityExtended bank facility through May 2011
Reduced FY09 capex to $60 - $70M
Suspended $21M annual dividend
Received $90M tax refund
Signed $75M Li & Fung sourcing deal
Converted $40M of trade LCs to open account to expandrevolver availability
Exceeded $265M committed cost reduction plan
Pursue additional cost reduction initiatives
Improve inventory/working capital turns
Monetize owned real estate portfolio
Synchronize payment terms with manufacturing vendorsfrom 15 to 30 days
Completed
Completed
Completed
Completed
Completed
Completed
Completed
Ongoing
Ongoing
In-process
In-process
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Brand Execution
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• Juicy: Expand role of intimates and loungewear; discontinue men’s
• Lucky: Nearly double tops assortment; new entry price T-shirt programs
• Kate: Launch apparel in Fall and further expand jewelry
Assortment andMix Shifts
Price PointRecalibration
InventoryManagement
“Capital Light”Growth
Traffic-DrivingPromotions
• Juicy: Increase opening price fashion items by 40% this Fall
• Lucky: Increase $99 opening price point denim offering to 25% of denim inventory
• Kate: Grow concentration of key price point items between $195 and $395
• Conservative planning for Summer and Fall
• Teams incentivized to manage inventory turns
• Juicy: Tracksuit promotions to drive traffic
• Lucky: Cross-ruff product categories for added value
• Juicy: Greece, Mexico, and travel retail
• Lucky: Launch footwear at wholesale via license
• Kate: Expansion in Japan and travel retail
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Li & Fung Partnership
• Entered into a long-term, exclusive Buying Agency Agreement
• Li & Fung will act as the primary global sourcing agent for all brands in the LCI portfolio with the exception of jewelry
• Liz Far East will close 5 offices
• Approximately 250 positions will transfer to Li & Fung and 225 will be eliminated
• Li & Fung pays to LCI at closing $75 million in cash and an additional payment of $8 million to offset the restructuring expenses associated with the transaction
• Going forward, LCI will pay a buying agency commission based on the cost of its product purchases through Li & Fung
• Best-in-class systems, management and talent
• Access to a broader network of more global manufacturing partners
• Improved speed-to-market models
• Enhanced going-in gross margins beginning Holiday 2009 and beyond
• G&A cost neutral ex restructuring costs
• Cash positive
Overview Strategic Rationale
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Two-Year Cost Management Trend
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2007 2009
$1,886M
$1,630M
($19M)
($342M)
Corporate and Partnered
Brands SG&A Actions
Domestic-BasedDirect Brands
Retail Expansion
& Investment• Eliminated 2,675 global positions
• Delayered management
• Closed 6 DCs
• Fragrance licensing deal
• 140+ new stores
• Retail infrastructure
• Marketing
$200M
FX Effect
($95M)
International-Based
Direct Brands
ExceedingExpectation
of $265M
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•Mexx historically operated at mid-single digit operating margin
•Cost structure out of line
•Product value declined
Quest for higher margins to offset volume declines
Styling shifted from “twisted” to “minimalist”
•Undisciplined distribution growth
•Outdated sourcing capabilities
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Update on Turnaround2009 OutlookUpdate on Turnaround
• Another year of transition Operating profit at breakeven Rationalization of distributionExtensive inventory clearance in 1H09Additional cost reductions
• Clarify and elevate brand position by 2H09
• New product to hit in Fall 2009European, contemporary “Twisted”More emotional – forever young and sexy
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• Building talent Key hires include Chief Merchandise Officer, Chief Financial Officer, VP Sourcing, VP Eastern Europe and VP Retail OperationsSearch underway for CEO and Chief Marketing Officer
• Building capabilitiesImproved costing, speed to market and calendar adherence with Li & Fung
• Reduced approximately 250 positions in the past two years
• Eliminated sub-scale businessesClosed UK retail storesShut down Wellbeing (sports/yoga category)Rationalized retail partner store formats
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Shops
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Shops
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2009 Operating Assumptions
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• Challenging 4Q08 conditions continue through FY09
Comp Store Sales
―1Q – 3Q: Down 15 – 25% for all brands
―4Q: Comps flatten as we anniversary the sharp downturn that began in September 2008
Operating Margin
―1Q: Extremely difficult operating loss
―2Q – 4Q: Improvement in each successive quarter as cost reductions flow through
―2H09: Modest margin expansion from improving sell-through rates on Liz Claiborne New York and adapted assortments, pricing and promotional strategies in all brands
―Gross margin accretion from Li & Fung deal beginning Holiday 2009
• Carefully manage our liquidity position and focus on maximizing our availability under our bank credit facility
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Q&A
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Appendix
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Sales by Brand
$4.0B
Mexx30%
Juicy15%
Lucky12%
Kate 3%
Liz ClaiborneBrand1
17%
Other Liz Family Brands2 9%
Other Partnered
Brands3
10%
Sales by Channel
1 Liz Claiborne Brand includes: wholesale apparel, accessories, jewelry, outlet, international and e-commerce2 Other Liz Family Brands include: Liz&Co., Concepts, Claiborne, Axcess, Tint (incorporated into Liz&Co.) and Stamp 10 (incorporated into Axcess) 3 Other Partnered Brands include: DKNY Jeans Group, Monet Family, mac & jac, and kensie 4 Sold/exited brands not included in discontinued operations
Partnered BrandsDomesticWholesale
29%
DomesticRetail19%
InternationalRetail18%
InternationalWholesale
17% Licensing2%
Domestic-Based Direct
Brands DomesticWholesale
15%
$4.0B
Sold/Exited Brands4
4%
2008 Sales Breakdown
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4Q08 Retail Key Performance Indicators
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Traffic (4%) (10%) (10%)
Conversion 7% 22% 7%
UPT 11% 6% 7%
AUR (27%) (26%) (18%)
ADT (19%) (21%) (12%)
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Bank of America & Merrill Lynch Consumer ConferenceMarch 11, 2009