Liz Claiborne Inc. Reports 2nd Quarter and First Six Months Results

2008-08-13 06:14:00

 - Reports Q2 Fiscal 2008 GAAP Loss per Share from Continuing Operations of

        ($0.17) and Adjusted EPS from Continuing Operations of $0.09

                 - Completes Bank Credit Facility Amendment

           - Drives Inventory Decrease of 26% Compared to Q2 2007

- Narrows Full Year 2008 Adjusted EPS Guidance to a Range of $1.40 to $1.50

                       from a Range of $1.40 to $1.60



    NEW YORK, Aug. 13 /EMWPresswire/ -- Liz Claiborne Inc. (NYSE:

LIZ) today announced earnings for the second quarter and first six months

of 2008. For the first six months of 2008 and on a GAAP basis, the loss per

share from continuing operations was ($0.32) compared to diluted earnings

per share ("EPS") from continuing operations of $0.20 for the first six

months of 2007. Adjusted diluted EPS from continuing operations for the

first six months of 2008 were $0.37 compared to adjusted diluted EPS from

continuing operations of $0.40 for the first six months of 2007. Net sales

from continuing operations for the first six months of 2008 were $2.088

billion, a decrease of $24 million, or 1.2% from 2007, inclusive of an $81

million decrease associated with brands or certain brand activities that

have been closed / exited and have not been presented as part of

discontinued operations.



    For the second quarter of 2008 and on a GAAP basis, the loss per share

from continuing operations was ($0.17) compared to diluted earnings per

share from continuing operations of $0.10 for the second quarter of 2007.

Adjusted diluted EPS from continuing operations for the second quarter of

2008 were $0.09 compared to adjusted diluted EPS from continuing operations

of $0.23 for the second quarter of 2007. Net sales from continuing

operations for the second quarter of 2008 were $974 million, a decrease of

$75 million, or 7.1% from 2007, inclusive of a $47 million decrease

associated with brands or certain brand activities that have been closed /

exited and have not been presented as part of discontinued operations.



    The adjusted results for the second quarter and first six months of

2008 and 2007 on a continuing operations basis exclude the impact of

expenses incurred in connection with the Company's streamlining and

brand-exiting activities.



    The Company believes that the adjusted results for the second quarter

and first six months of 2008 and 2007 and the adjusted projected results

for fiscal 2008 represent a more meaningful presentation of its historical

and estimated operations and financial performance since these results

provide period to period comparisons that are consistent and more easily

understood. The attached tables, captioned "Reconciliation of Non-GAAP

Financial Information", provide a full reconciliation of actual results to

the adjusted results.



    William L. McComb, Chief Executive Officer of Liz Claiborne Inc., said:

"Second quarter adjusted EPS from continuing operations were $0.09 in what

remains a very challenging macroeconomic environment. Although expected,

our Partnered Brands net sales and total company operating margin results

were disappointing. This was offset by demonstrated progress on a number of

fronts. In particular, we generated an 18% net sales increase in our

retail-based Direct Brands segment, driven by a 13% comp store sales

increase in Juicy Couture and a 5% comp store sales increase in Lucky

Brand. We realized tangible benefits from our streamlining activities in

the second quarter, as evidenced by the $22 million year over year

reduction in adjusted SG&A. We also reaped the benefits of our focus on

working capital, as evidenced by the 26% reduction in inventory compared to

last year. This enables a clean transition into the second half and begins

to position us well for the 2009 re-launch of our flagship Liz Claiborne

brand under the design direction of Isaac Mizrahi and the re-launch of our

Claiborne men's business with John Bartlett as well."



    Mr. McComb added, "While our second quarter results exceeded our

conservative expectations, the difficult macroeconomic environment causes

us to be cautious in our outlook as we proceed through the second half of

the year. Accordingly, we are narrowing our fiscal 2008 adjusted EPS

guidance range, resulting in a new range of $1.40 to $1.50, compared to the

previous range of $1.40 to $1.60. For the third quarter of 2008, we expect

adjusted EPS to be in the range of $0.37 to $0.42."



    Mr. McComb concluded, "We are currently in the execution phase of our

turnaround. We have built strong brand teams and are accelerating

initiatives that we believe will result in a solid and consistently

profitable company. Our focus on improving cash management, productivity

and operating margin represent big opportunities for us as we move forward.

We are not expecting a significant macroeconomic recovery in the near

future, but will continue to prudently execute our plans, implementing very

meaningful product initiatives and driving operating margin expansion."



    The Company will sponsor a conference call today at 10:00 am EDT to

discuss its results for the second quarter and first six months of 2008.

The dial-in number is 1-888-694-4676 with pass code 58108610. The webcast

and slides accompanying the prepared remarks can be accessed via the

Investor Relations section of the Liz Claiborne website at

http://www.lizclaiborneinc.com . An archive of the webcast will be available

through September 3, 2008. Additional information on the results of the

Company's operations is available in the Company's Form 10-Q for the second

quarter of 2008, which is being filed today with the Securities and

Exchange Commission.



    OPERATING SUMMARY



    * The Company aggregates its brand-based activities into two reporting

segments as follows:



    -- The Direct Brands segment - consists of the specialty retail,

outlet, wholesale apparel, wholesale non-apparel (including accessories,

jewelry and handbags), e-commerce and licensing operations of the Company's

four retail-based brands: Mexx, Juicy Couture, Lucky Brand and Kate Spade.



    -- The Partnered Brands segment - consists of the wholesale apparel,

wholesale non-apparel, outlet, specialty retail, e-commerce and licensing

operations for the Company's owned and licensed wholesale-based brands.



    * The results of the Company's former Emma James, Intuitions, J.H.

Collectibles, Tapemeasure, C&C California, Laundry by Design and Prana

brands in addition to the retail operations of the Company's former Ellen

Tracy brand and certain of the retail operations of the Sigrid Olsen brands

are shown as discontinued operations. In the second quarter of 2008, the

Company entered into an exclusive long-term global licensing agreement for

the manufacture, distribution and marketing of its fragrance brands.



    * Net sales from continuing operations for the second quarter of 2008

were $974 million, a decrease of $75 million, or 7.1% from 2007, inclusive

of a $47 million decrease associated with brands or certain brand

activities that have been closed / exited and have not been presented as

part of discontinued operations. The impact of changes in foreign currency

exchange rates in our international businesses increased net sales by

approximately $43 million, or 4.1%, during the quarter. Net sales for our

segments are provided below:



    -- Direct Brands segment net sales increased 18.2% in the second

quarter to $584 million.



    -- Partnered Brands segment net sales decreased $165 million, or 29.7%,

in the second quarter to $390 million, inclusive of a $47 million decrease

associated with brands or certain brand activities that have been closed /

exited and have not been presented as part of discontinued operations.



    * Net sales for our Direct Brands segment in the second quarter were as

follows:



    -- Mexx - $289 million, an 8.8% increase compared to last year.

Excluding the impact of changes in foreign currency exchange rates, net

sales for Mexx were $253 million, a 4.9% decrease compared to last year.



    -- Juicy Couture - $148 million, a 47.4% increase compared to last

year.



    -- Lucky Brand - $118 million, a 9.3% increase compared to last year.



    -- Kate Spade - $30 million, a 44.5% increase compared to last year.



    * Operating loss in the second quarter was ($26) million ((2.6)% of net

sales) compared to an operating profit of $25 million (2.4% of net sales)

in 2007. Adjusted operating income in the second quarter was $21 million

(2.2% of adjusted net sales) compared to $45 million (4.4% of adjusted net

sales) in 2007. Operating income for our business segments are provided

below:



    -- Direct Brands segment operating income in the second quarter was $13

million (2.2% of net sales), compared to $30 million (6.1% of net sales) in

2007. Direct Brands segment adjusted operating income in the second quarter

was $27 million (4.7% of adjusted net sales) compared to $36 million (7.3%

of adjusted net sales) in 2007.



    -- Partnered Brands segment operating loss in the second quarter was

($38) million ((9.9)% of net sales), compared to an operating loss of ($5)

million ((0.9)% of net sales) in 2007. Partnered Brands segment adjusted

operating loss in the second quarter was ($6) million ((1.6)% of adjusted

net sales) compared to an adjusted operating profit of $10 million (1.7% of

adjusted net sales) in 2007.



    * Expenses associated with our streamlining and brand-exiting

activities were $47 million in the second quarter of 2008 compared to $21

million in the second quarter of 2007. For the first six months of 2008,

expenses associated with our streamlining and brand-exiting activities were

$110 million compared to $31 million in the first six months of 2007.



    * Inventories decreased 26.0% to $497 million compared to the second

quarter of 2007, primarily reflecting decreases in our Partnered Brands

segment, including the impact of brands sold, discontinued, or licensed,

partially offset by increases in our Direct Brands segment. Inventories of

ongoing Partnered Brands decreased 41.4% compared to the second quarter of

2007. The impact of changes in foreign currency exchange rates increased

inventories by $22 million, or 3.2%, in the second quarter of 2008 compared

to the second quarter of 2007.



    * Cash flow from continuing operating activities for the last twelve

months was $254 million.



    * We ended the quarter with $100 million in cash and with $898 million

of debt outstanding. Our total debt to total capital ratio was 38.6% in the

second quarter compared to 25.4% in 2007, primarily reflecting the impact

of the 2007 goodwill impairment in addition to share repurchases, capital

expenditures and acquisition-related payments over the last 12 months.




SECOND QUARTER RESULTS Overall Results Net sales from continuing operations for the second quarter of 2008 were $974 million, a decrease of $75 million, or 7.1% from the second quarter of 2007, due to decreases in our Partnered Brands segment, offset by increases in our Direct Brands segment. Net sales were inclusive of a $47 million decrease associated with brands or certain brand activities that have been closed / exited and have not been presented as part of discontinued operations. The impact of changes in foreign currency exchange rates in our international businesses increased net sales by approximately $43 million, or 4.1%, during the quarter. Gross profit as a percent of net sales was 47.4% in 2008 compared to 49.3% in the second quarter of 2007, principally reflecting decreased gross profit rates in our Direct and Partnered Brands segments, partially offset by an increased proportion of sales from our Direct Brands segment, which runs at a higher gross profit rate than the company average. Selling, General & Administrative expenses ("SG&A") were $487 million, or 50.1% of net sales in 2008, compared to $492 million, or 46.9% of net sales in the second quarter of 2007, primarily reflecting the following: * a $26 million increase due to the impact of changes in foreign currency exchange rates in our international operations; * a $17 million increase associated with retail expansion in our Direct Brands segment; * a $16 million increase in Direct Brands SG&A; * a $13 million year over year increase in expenses associated with our streamlining and brand-exiting activities; and * a ($78) million decrease in Partnered Brands and corporate SG&A. Operating loss was ($26) million ((2.6)% of net sales) in the second quarter of 2008 compared to operating income of $25 million (2.4% of net sales) in the second quarter of 2007. Adjusted operating income in the second quarter was $21 million (2.2% of adjusted net sales) compared to $45 million (4.4% of adjusted net sales) in 2007. The impact of changes in foreign currency exchange rates in our international businesses was immaterial during the quarter. Income taxes in the second quarter of 2008 decreased by $25 million to a tax benefit of $20 million compared to a tax expense of $5 million in the second quarter of 2007. The tax benefit increased by $2 million as a result of discrete items which along with changes to the mix and amounts of pre-tax earnings increased our tax rate in the second quarter of 2008 to a benefit of 55.2% from a tax rate of 35.2% in the second quarter of 2007. Loss from Continuing Operations in the second quarter of 2008 was ($16) million, or ($0.17) per share, compared to income from continuing operations in the second quarter of 2007 of $10 million, or $0.10 per share. Adjusted diluted EPS from continuing operations in the second quarter of 2008 were $0.09 compared to adjusted diluted EPS from continuing operations of $0.23 in the second quarter of 2007. Net loss in the second quarter of 2008 was ($23) million, inclusive of losses related to discontinued operations of ($7) million, compared to net income of $14 million in the second quarter of 2007, inclusive of income from discontinued operations of $4 million. Loss per share was ($0.25) in the second quarter of 2008 compared to diluted EPS of $0.13 in the second quarter of 2007.
Segment Highlights Direct Brands Net sales in our Direct Brands segment in the second quarter were $584 million, increasing $90 million, or 18.2%. Net sales for Mexx were $289 million, an 8.8% increase compared to 2007. Excluding the impact of changes in foreign currency exchange rates, net sales for Mexx were $253 million, a 4.9% decrease compared to last year. -- We ended the quarter with 133 specialty stores, 95 outlets and 284 concessions, reflecting the net addition over the last 12 months of 10 outlet stores and the net closure of 22 concessions; -- Average retail square footage in the second quarter was approximately 1.446 million square feet, a 9% increase compared to 2007; -- Sales per square foot for comparable stores over the latest twelve months was $467; and -- Comparable store sales decreased 2% in the second quarter, reflecting comparable store sales decreases in our Mexx Europe business, partially offset by increases in our Mexx Canada business. Net sales for Juicy Couture were $148 million, a 47.4% increase compared to 2007, primarily driven by increases in retail, outlet, wholesale apparel and non-apparel. -- We ended the quarter with 48 specialty stores and 25 outlet stores, reflecting the net addition over the last 12 months of 22 specialty stores and 12 outlet stores; -- Average retail square footage in the second quarter was approximately 235 thousand square feet, a 126% increase compared to 2007; -- Sales per square foot for comparable stores over the latest twelve months was $1,278; and -- Comparable store sales increased 13% in the second quarter. Net sales for Lucky Brand were $118 million, a 9.3% increase compared to 2007, primarily driven by increases in retail and outlet, partially offset by decreases in wholesale apparel and wholesale non-apparel. -- We ended the quarter with 179 specialty stores and 29 outlet stores, reflecting the net addition over the last 12 months of 32 specialty stores and 22 outlet stores; -- Average retail square footage in the second quarter was approximately 457 thousand square feet, a 29% increase compared to 2007; -- Sales per square foot for comparable stores over the latest twelve months was $620; and -- Comparable store sales increased 5% in the second quarter. Net sales for Kate Spade were $30 million, a 44.5% increase compared to 2007, primarily driven by increases in retail and outlet. -- We ended the quarter with 33 specialty stores and 23 outlet stores, reflecting the net addition over the last 12 months of 13 specialty stores and 19 outlet stores; -- Average retail square footage in the second quarter was approximately 102 thousand square feet, a 97% increase compared to 2007; -- Sales per square foot for comparable stores over the latest twelve months was $752; and -- Comparable store sales decreased 7% in the second quarter. Direct Brands segment operating income in the second quarter was $13 million (2.2% of net sales), compared to $30 million (6.1% of net sales) in 2007. Direct Brands segment adjusted operating income in the second quarter was $27 million (4.7% of adjusted net sales) compared to $36 million (7.3% of adjusted net sales) in 2007. Partnered Brands Net sales from continuing operations in our Partnered Brands segment decreased $165 million, or 29.7%, in the second quarter to $390 million, inclusive of a $47 million decrease associated with brands or certain brand activities that have been closed / exited and have not been presented as part of discontinued operations. -- The $165 million decrease in net sales in our Partnered Brands segment was primarily due to decreases in our Liz Claiborne, Claiborne, Enyce, Monet, Ellen Tracy and Sigrid Olsen brands, partially offset by increases in our Liz & Co., licensed DKNY Jeans and Kensie brands. Partnered Brands segment operating loss in the second quarter was ($38) million ((9.9)% of net sales), compared to an operating loss of ($5) million ((0.9)% of net sales) in 2007. Partnered Brands segment adjusted operating loss in the second quarter was ($6) million ((1.6%) of adjusted net sales) compared to an operating profit of $10 million (1.7% of adjusted net sales) in 2007. FIRST SIX MONTHS RESULTS Overall Results Net sales from continuing operations for the first six months of 2008 were $2.088 billion, a decrease of $24 million, or 1.2% from the first six months of 2007, primarily due to decreases in our Partnered Brands segment, offset by increases in our Direct Brands segment. Net sales were inclusive of an $81 million decrease associated with brands or certain brand activities that have been closed / exited and have not been presented as part of discontinued operations. The impact of changes in foreign currency exchange rates in our international businesses increased net sales by approximately $95 million, or 4.5%, in the first six months of 2008. Net sales for our Direct Brands segment in the first six months of 2008 were as follows: -- Mexx - $631 million, a 14.4% increase compared to last year. Excluding the impact of changes in foreign currency exchange rates, net sales for Mexx were $550 million, a 0.3% decrease compared to last year.
-- Juicy Couture - $288 million, a 52.2% increase compared to last year. -- Lucky Brand - $228 million, a 14.7% increase compared to last year. -- Kate Spade - $57 million, a 44.3% increase compared to last year. Operating loss was ($47) million ((2.3)% of net sales) in the first six months of 2008 compared to an operating profit of $55 million (2.6% of net sales) in 2007. Adjusted operating income in the first six months of 2008 was $63 million (3.0% of adjusted net sales) compared to $86 million (4.1% of adjusted net sales) in 2007. The impact of changes in foreign currency exchange rates in our international businesses increased operating income by approximately $2 million in the first six months of 2008. Direct Brands segment operating income in the first six months of 2008 was $40 million (3.3% of net sales) compared to $80 million (8.2% of net sales) in 2007. Direct Brands segment adjusted operating income in the first six months of 2008 was $66 million (5.5% of net sales) compared to $86 million (8.8% of net sales) in 2007. Partnered Brands segment operating loss in the first six months of 2008 was ($87) million ((9.9)% of net sales) compared to an operating loss of ($25) million ((2.2)% of net sales) in 2007. Partnered Brands segment adjusted operating loss in the first six months of 2008 was ($4) million ((0.4)% of adjusted net sales) compared to adjusted operating income of $0.4 million in 2007. Income taxes in the first half of 2008 decreased by $59 million to a tax benefit of $43 million compared to a tax expense of $16 million in the first half of 2007. The tax benefit increased by $14 million as a result of discrete items which along with changes to the mix and amounts of pre-tax earnings increased our tax rate in the first half of 2008 to a benefit of 59.3% from a tax rate of 42.9% in the second quarter of 2007. Net loss in the first six months of 2008 was ($54) million compared to net income of $30 million in 2007. Loss per share was ($0.58) in the first six months of 2008 compared to diluted EPS of $0.29 in 2007. Adjusted diluted EPS in 2008 were $0.37 compared to adjusted diluted EPS of $0.40 in 2007. Bank Credit Facility Amendment On August 12, 2008, the Company entered into a second amendment to its revolving credit facility, whereby it modified certain existing financial and other covenants, added an additional financial covenant relating to asset coverage, modified the facility's fee structure and agreed to provide its banks with security in substantially all of its assets in the event it fails to achieve a specified leverage ratio. The amendment also provides for the exclusion of additional cash restructuring charges in the calculation of certain financial covenants. A copy of such amendment will be filed with today's Quarterly Report on Form 10-Q.

    About Liz Claiborne Inc.



    Liz Claiborne Inc. designs and markets a global portfolio of

retail-based premium brands including Kate Spade, Juicy Couture, Lucky

Brand and Mexx. The Company also has a refined group of department

store-based brands with strong consumer franchises including the Liz

Claiborne and Monet families of brands, Enyce, Kensie, Kensiegirl, Mac &

Jac, Narciso Rodriguez and the licensed DKNY Jeans Group. For more

information visit http://www.lizclaiborneinc.com .



    Forward-Looking Statement



    Statements contained herein 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. The Company may

change its intentions, belief or expectations at any time and without

notice, based upon any change in the Company's assumptions or otherwise.

Should one or more of these risks or uncertainties materialize, or should

underlying assumptions prove incorrect, actual results may vary materially

from those anticipated, estimated or projected. In addition, some factors

are beyond the Company's control. Among the factors that could cause actual

results to materially differ include: risks associated with the current

macroeconomic conditions, including the possibility of a recession in the

United States and the rising price of fuel; risks related to the

reorganization of the Company into two segments and the related realignment

of the Company's management structure; risks associated with the Company's

ability to attract and retain talented, highly qualified executives and

other key personnel; risks associated with providing for the succession of

senior management; risks associated with the Company's ability to execute

successfully on its previously announced long-term growth plan; risks

associated with the Company's recently completed strategic review of

brands, including whether the Company identified the appropriate brands for

review or appropriately valued assets related to brands sold or licensed to

third parties; risks associated with the Company's operation and expansion

of its specialty retail business, including the ability to successfully

expand the specialty retail store base of its Direct Brands segment and to

develop best-in-class retail capabilities; risks associated with the

Company's ability to achieve greater collaboration with its wholesale

customers; risks associated with the Company's ability to achieve projected

cost savings; the Company's ability to continue to have the liquidity

necessary, through cash flow from operations and financing, to fund its

plans may be adversely impacted by a number of factors, including

maintenance of financial covenants (as amended) of our debt and credit

facilities, interest rate and exchange rate fluctuations, and the further

downgrading of the Company's credit rating; risks associated with the

continuing challenging retail conditions, including the levels of consumer

confidence and discretionary spending and the levels of customer traffic

within department stores, malls and other shopping and selling

environments; risks related to the Company's ability to successfully

continue to evolve its supply chain system, including its product

development, sourcing, logistics and technology functions, to, among other

things, reduce product cycle-time and costs and meet customer demands and

the requirements of the projected growth in the Company's specialty retail

business; risks associated with selling the Company's Liz & Co. and

Concepts by Claiborne brands outside of better department stores; risks

associated with the Company's Liz Claiborne and Claiborne branded products

association with known designers and customer acceptance of the resulting

products; risks associated with the Company's dependence on sales to a

limited number of large United States department store customers; the

impact of consolidation, restructurings and other ownership changes, and,

financial difficulties, including bankruptcies, in the retail industry; the

Company's ability to respond to constantly changing consumer demands and

tastes and fashion trends, across multiple product lines, shopping channels

and geographies; risks related to retailer and consumer acceptance of the

Company's products; risks associated with the possible failure of the

Company's unaffiliated manufacturers to manufacture and deliver products in

a timely manner, to meet quality or safety standards or to comply with

Company policies regarding labor practices or applicable laws or

regulations; risks related to the Company's ability to adapt to and compete

effectively in the current quota environment, including changes in sourcing

patterns resulting from the elimination of quota on apparel products as

well as lowered barriers to entry; risks associated with the Company's

ability to maintain and enhance favorable brand recognition; risks

associated with the Company's ability to correctly balance the level of its

commitments with actual orders; risks associated with the Company's ability

to identify appropriate business development opportunities and risks

associated with acquisitions and new product lines, product categories and

markets, including risks relating to integration of acquisitions, retaining

and motivating key personnel of acquired businesses and achieving projected

or satisfactory levels of sales, profits and/or return on investment, and

risks inherent in licensing arrangements such as the Company's license of

the DKNY Jeans and DKNY Active brands and the license with Elizabeth Arden;

risks associated with any significant disruptions in the Company's

relationship with its employees or with its relationship with the unions

which represent certain Company employees; risks associated with changes in

social, political, economic, legal and other conditions affecting foreign

operations, sourcing or international trade, including the impact of

foreign currency exchange rates, and currency devaluations in countries in

which the Company sources product and risks associated with the importation

and exportation of product; risks associated with war, the threat of war

and terrorist activities; work stoppages or slowdowns by suppliers or

service providers; risks relating to protecting and managing the Company's

intellectual property rights; and such other economic, competitive,

governmental and technological factors affecting the Company's operations,

markets, products, services and prices and such other factors as are set

forth in the Company's Quarterly Report on Form 10-Q for the quarter ended

July 5, 2008, including under the section captioned "Item 1A. Risk

Factors", and in the Company's 2007 Annual Report on Form 10-K, including,

without limitation, those set forth under the headings "Risk Factors" and

"Statement Regarding Forward-Looking Disclosure." The Company undertakes no

obligation to publicly update or revise any forward-looking statements,

whether as a result of new information, future events or otherwise.




LIZ CLAIBORNE INC. CONSOLIDATED STATEMENTS OF OPERATIONS (All amounts in thousands, except per common share data) (Unaudited) Three Months Ended Three Months Ended July 5, 2008 % of June 30, 2007 % of (13 weeks) Sales (13 weeks) Sales Net Sales $973,766 100.0 % $1,048,545 100.0 % Cost of goods sold 512,054 52.6 % 531,678 50.7 % Gross Profit 461,712 47.4 % 516,867 49.3 % Selling, general & administrative expenses 487,479 50.1 % 492,081 46.9 % Operating (Loss) Income (25,767) (2.6)% 24,786 2.4 % Other (expense) income, net (925) (0.1)% 335 - Interest expense, net (9,770) (1.0)% (9,816) (0.9)% (Loss) Income Before (Benefit) Provision for Income Taxes (36,462) (3.7)% 15,305 1.5 % (Benefit) provision for income taxes (20,127) (2.1)% 5,386 0.5 % (Loss) Income from Continuing Operations (16,335) (1.7)% 9,919 0.9 % (Loss) income from discontinued operations, net of tax (5,134) 3,712 Loss on disposal of discontinued operations, net of tax (1,694) - Net (Loss) Income $(23,163) $13,631 Earnings per Share: Basic (Loss) Income from Continuing Operations $(0.17) $0.10 (Loss) Income from Discontinued Operations (0.06) 0.03 Loss on Disposal of Discontinued Operations (0.02) - Net (Loss) Income $(0.25) $0.13 Diluted (Loss) Income from Continuing Operations $(0.17) $0.10 (Loss) Income from Discontinued Operations (0.06) 0.03 Loss on Disposal of Discontinued Operations (0.02) - Net (Loss) Income $(0.25) $0.13 Weighted Average Shares, Basic (1) 93,638 101,855 Weighted Average Shares, Diluted (1) 93,638 102,828 Supplemental Information: Dividends Paid per Common Share (Rounded to the nearest penny) $0.06 $0.06 (1) Because the Company incurred a loss from continuing operations in 2008, all outstanding stock options and restricted shares are antidilutive. Accordingly, basic and diluted weighted average shares outstanding are equal for such period. LIZ CLAIBORNE INC. CONSOLIDATED STATEMENTS OF OPERATIONS (All amounts in thousands, except per common share data) (Unaudited) Six Months Ended Six Months Ended July 5, 2008 % of June 30, 2007 % of (27 weeks) Sales (26 weeks) Sales Net Sales $2,088,303 100.0 % $2,112,684 100.0 % Cost of goods sold 1,098,825 52.6 % 1,099,988 52.1 % Gross Profit 989,478 47.4 % 1,012,696 47.9 % Selling, general & administrative expenses 1,036,577 49.6 % 957,275 45.3 % Operating (Loss) Income (47,099) (2.3)% 55,421 2.6 % Other expense, net (3,672) (0.2)% (394) - Interest expense, net (21,873) (1.0)% (18,347) (0.9)% (Loss) Income Before (Benefit) Provision for Income Taxes (72,644) (3.5)% 36,680 1.7 % (Benefit) provision for income taxes (43,060) (2.1)% 15,734 0.7 % (Loss) Income from Continuing Operations (29,584) (1.4)% 20,946 1.0 % (Loss) income from discontinued operations, net of tax (10,703) 8,883 Loss on disposal of discontinued operations, net of tax (13,897) - Net (Loss) Income $(54,184) $29,829 Earnings per Share: Basic (Loss) Income from Continuing Operations $(0.32) $0.20 (Loss) Income from Discontinued Operations (0.11) 0.09 Loss on Disposal of Discontinued Operations (0.15) - Net (Loss) Income $(0.58) $0.29 Diluted (Loss) Income from Continuing Operations $(0.32) $0.20 (Loss) Income from Discontinued Operations (0.11) 0.09 Loss on Disposal of Discontinued Operations (0.15) - Net (Loss) Income $(0.58) $0.29 Weighted Average Shares, Basic (1) 93,202 101,825 Weighted Average Shares, Diluted (1) 93,202 102,978 Supplemental Information: Dividends Paid per Common Share (Rounded to the nearest penny) $0.11 $0.11 (1) Because the Company incurred a loss from continuing operations in 2008, all outstanding stock options and restricted shares are antidilutive. Accordingly, basic and diluted weighted average shares outstanding are equal for such period. LIZ CLAIBORNE INC. CONSOLIDATED BALANCE SHEETS (All dollar amounts in thousands) (Unaudited) July 5, 2008 June 30, 2007 Assets Current Assets: Cash and cash equivalents $100,380 $110,288 Accounts receivable - trade, net 439,459 500,295 Inventories, net 496,878 671,850 Deferred income taxes 100,603 78,594 Other current assets 301,670 161,586 Assets held for sale 5,273 - Total current assets 1,444,263 1,522,613 Property and Equipment, net 595,819 567,869 Goodwill and Intangibles, net 995,015 1,460,084 Other Assets 36,854 21,382 Total Assets $3,071,951 $3,571,948 Liabilities and Stockholders' Equity Current Liabilities $693,976 $609,559 Long-Term Debt 811,294 683,545 Other Non-Current Liabilities 114,550 104,131 Deferred Income Taxes 17,009 66,571 Minority Interest 3,873 3,489 Stockholders' Equity 1,431,249 2,104,653 Total Liabilities and Stockholders' Equity $3,071,951 $3,571,948 LIZ CLAIBORNE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (All dollar amounts in thousands) (Unaudited) Six Months Ended July 5, 2008 June 30, 2007 (27 Weeks) (26 Weeks) Cash Flows from Operating Activities: Net (loss) income $(54,184) $29,829 Adjustments to arrive at (loss) income from continuing operations 24,600 (8,883) (Loss) income from continuing operations (29,584) 20,946 Adjustments to reconcile (loss) income from continuing operations to net cash used in operating activities: Depreciation and amortization 81,757 75,825 Streamlining initiatives; asset write-down 2,805 - Loss on asset disposals 12,855 9,691 Share-based compensation 8,015 10,365 Tax benefit on exercise of stock options 7 4,615 Other, net (47) (784) Changes in assets and liabilities, exclusive of acquisitions: Decrease in accounts receivable - trade, net 9,343 3,577 Decrease (increase) in inventories, net 37,272 (70,930) Increase in other current and non-current assets (5,464) (9,379) Decrease in accounts payable (30,630) (2,513) Decrease in accrued expenses (58,941) (47,273) Net change in income tax assets and liabilities (71,245) (29,244) Net cash (used in) provided by operating activities of discontinued operations (12,016) 12,281 Net cash used in operating activities (55,873) (22,823) Cash Flows from Investing Activities: Proceeds from disposition 21,252 - Purchases of property and equipment (86,853) (67,193) Purchases of businesses and payment of related debt (5,137) (48,262) Payments for in-store merchandise shops (3,133) (2,532) Proceeds from sales of securities - 9,616 Proceeds from sales of property and equipment - 1,410 Other, net (430) 153 Net cash provided by (used in) investing activities of discontinued operations 64,913 (672) Net cash used in investing activities (9,388) (107,480) LIZ CLAIBORNE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (All dollar amounts in thousands) (Unaudited) Six Months Ended July 5, 2008 June 30, 2007 (27 Weeks) (26 Weeks) Cash Flows from Financing Activities: Short term borrowings, net (27,005) 12,252 Principal payments under capital lease obligations (2,094) (3,188) Commercial paper, net - 104,313 Proceeds from exercise of common stock options 51 35,286 Purchase of common stock - (81,560) Dividends paid (10,525) (11,432) Excess tax benefit related to share-based compensation - 2,521 Other, net (1,110) (747) Net cash (used in) provided by financing activities (40,683) 57,445 Effect of exchange rate changes on cash and cash equivalents 923 (2,499) Net Change in Cash and Cash Equivalents (105,021) (75,357) Cash and Cash Equivalents at Beginning of Period 205,401 185,645 Cash and Cash Equivalents at End of Period $100,380 $110,288 LIZ CLAIBORNE INC. RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (All amounts in thousands, except per common share data) (Unaudited) The following tables provide reconciliations of (Loss) Income from Continuing Operations to Income from Continuing Operations Excluding Streamlining Initiatives and Brand-Exiting Activities and of Operating (Loss) Income to Income from Continuing Operations Excluding Streamlining Initiatives and Brand-Exiting Activities.
Three Months Ended Six Months Ended July 5, June 30, July 5, June 30, 2008 2007 2008 2007 (13 weeks)(13 weeks)(27 weeks)(26 weeks) (Loss) Income from Continuing Operations $(16,335) $9,919 $(29,584) $20,946 Streamlining initiatives and brand-exiting activities (1) 46,777 20,667 109,716 30,814 Provision for income taxes (22,162) (7,121) (46,020) (10,774) Income from Continuing Operations Excluding Streamlining Initiatives and Brand-Exiting Activities $8,280 $23,465 $34,112 $40,986 Operating (Loss) Income $(25,767) $24,786 $(47,099) $55,421 Streamlining initiatives and brand-exiting activities (1) 46,777 20,667 109,716 30,814 Operating Income Excluding Streamlining Initiatives and Brand-Exiting Activities 21,010 45,453 62,617 86,235 Interest expense, net 9,770 9,816 21,873 18,347 Other expense (income), net 925 (335) 3,672 394 Provision for income taxes (2,035) (12,507) (2,960) (26,508) Income from Continuing Operations Excluding Streamlining Initiatives and Brand-Exiting Activities $8,280 $23,465 $34,112 $40,986 Basic Earnings per Common Share from Continuing Operations Excluding Streamlining Initiatives and Brand-Exiting Activities $0.09 $0.23 $0.37 $0.40 Diluted Earnings per Common Share from Continuing Operations Excluding Streamlining Initiatives and Brand-Exiting Activities (2) $0.09 $0.23 $0.37 $0.40 (1) During the three and six months ended July 5, 2008 and June 30, 2007, the Company recorded expenses related to its streamlining initiatives and/or brand-exiting activities as follows: Three Months Ended Six Months Ended July 5, June 30, July 5, June 30, 2008 2007 2008 2007 (13 weeks)(13 weeks)(27 weeks)(26 weeks) Payroll, lease terminations and asset write-downs $21,550 $20,460 $59,669 $27,437 Store closure and other costs 25,227 207 50,047 3,377 $46,777 $20,667 $109,716 $30,814 (2) Amounts for the three and six months ended July 5, 2008 are based on 93,704 and 93,362 weighted average shares outstanding, respectively. LIZ CLAIBORNE INC. SEGMENT REPORTING (All dollar amounts in thousands) (Unaudited) Three Months Ended Three Months Ended July 5, 2008 % to June 30, 2007 % to (13 weeks) Total (13 weeks) Total NET SALES: Direct Brands $584,180 60.0 % $494,066 47.1 % Partnered Brands 389,586 40.0 % 554,479 52.9 % Total Net Sales $973,766 100.0 % $1,048,545 100.0 % Three Months Ended Three Months Ended July 5, 2008 % to June 30, 2007 % to (13 weeks) Sales (13 weeks) Sales OPERATING (LOSS) INCOME: Direct Brands $12,650 2.2 % $29,934 6.1 % Partnered Brands (38,417) (9.9)% (5,148) (0.9)% Total Operating (Loss) Income $(25,767) (2.6)% $24,786 2.4 % Three Months Ended Three Months Ended July 5, 2008 % to June 30, 2007 % to (13 weeks) Total (13 weeks) Total NET SALES: Domestic $627,918 64.5 % $729,490 69.6 % International 345,848 35.5 % 319,055 30.4 % Total Net Sales $973,766 100.0 % $1,048,545 100.0 % Three Months Ended Three Months Ended July 5, 2008 % to June 30, 2007 % to (13 weeks) Sales (13 weeks) Sales OPERATING (LOSS) INCOME: Domestic $(29,828) (4.8)% $12,883 1.8 % International 4,061 1.2 % 11,903 3.7 % Total Operating (Loss) Income $(25,767) (2.6)% $24,786 2.4 % LIZ CLAIBORNE INC. SEGMENT REPORTING (All dollar amounts in thousands) (Unaudited) Six Months Ended Six Months Ended July 5, 2008 % to June 30, 2007 % to (27 weeks) Total (26 weeks) Total NET SALES: Direct Brands $1,204,330 57.7 % $979,671 46.4 % Partnered Brands 883,973 42.3 % 1,133,013 53.6 % Total Net Sales $2,088,303 100.0 % $2,112,684 100.0 % Six Months Ended Six Months Ended July 5, 2008 % to June 30, 2007 % to (27 weeks) Sales (26 weeks) Sales OPERATING (LOSS) INCOME: Direct Brands $40,023 3.3 % $79,984 8.2 % Partnered Brands (87,122) (9.9)% (24,563) (2.2)% Total Operating (Loss) Income $(47,099) (2.3)% $55,421 2.6 % Six Months Ended Six Months Ended July 5, 2008 % to June 30, 2007 % to (27 weeks) Total (26 weeks) Total NET SALES: Domestic $1,343,558 64.3 % $1,449,162 68.6 % International 744,745 35.7 % 663,522 31.4 % Total Net Sales $2,088,303 100.0 % $2,112,684 100.0 % Six Months Ended Six Months Ended July 5, 2008 % to June 30, 2007 % to (27 weeks) Sales (26 weeks) Sales OPERATING (LOSS) INCOME: Domestic $(61,840) (4.6)% $30,795 2.1 % International 14,741 2.0 % 24,626 3.7 % Total Operating (Loss) Income $(47,099) (2.3)% $55,421 2.6 % LIZ CLAIBORNE INC. RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION SEGMENT REPORTING (All dollar amounts in thousands) (Unaudited) The following tables provide reconciliations of Net Sales to Adjusted Net Sales, which excludes Store Closure and Brand-Exiting Activities and of Operating Income (Loss) to Adjusted Operating Income (Loss), which excludes Streamlining Initiatives and Bran
Three Months Ended July 5, 2008 (13 weeks) Direct Partnered Brands Brands Total Net Sales: As Reported $584,180 $389,586 $973,766 Store Closure and Brand-Exiting Activities (5,731) (9,921) (15,652) Adjusted Net Sales $578,449 $379,665 $958,114 Operating Income (Loss): As Reported $12,650 $(38,417) $(25,767) Streamlining Initiatives and Brand-Exiting Activities 14,318 32,459 46,777 Adjusted Operating Income $26,968 $(5,958) $21,010 % of Adjusted Net Sales 4.7 % (1.6)% 2.2 % Three Months Ended June 30, 2007 (13 weeks) Direct Partnered Brands Brands Total Net Sales: As Reported $494,066 $554,479 $1,048,545 Store Closure Adjustments - (4,378) (4,378) Adjusted Net Sales $494,066 $550,101 $1,044,167 Operating Income (Loss): As Reported $29,934 $(5,148) $24,786 Streamlining Initiatives 5,899 14,768 20,667 Adjusted Operating Income (Loss) $35,833 $9,620 $45,453 % of Adjusted Net Sales 7.3 % 1.7 % 4.4 % LIZ CLAIBORNE INC. RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION SEGMENT REPORTING (All dollar amounts in thousands) (Unaudited) The following tables provide reconciliations of Net Sales to Adjusted Net Sales, which excludes Store Closure and Brand-Exiting Activities and of Operating Income (Loss) to Adjusted Operating Income (Loss), which excludes Streamlining Initiatives and Brand-Exiting Activities.
Six Months Ended July 5, 2008 (27 weeks) Direct Partnered Brands Brands Total Net Sales: As Reported $1,204,330 $883,973 $2,088,303 Store Closure and Brand-Exiting Activities (5,731) (26,218) (31,949) Adjusted Net Sales $1,198,599 $857,755 $2,056,354 Operating Income (Loss): As Reported $40,023 $(87,122) $(47,099) Streamlining Initiatives and Brand-Exiting Activities 26,274 83,442 109,716 Adjusted Operating Income $66,297 $(3,680) $62,617 % of Adjusted Net Sales 5.5 % (0.4)% 3.0 % Six Months Ended June 30, 2007 (26 weeks) Direct Partnered Brands Brands Total Net Sales: As Reported $979,671 $1,133,013 $2,112,684 Store Closure Adjustments - (11,029) (11,029) Adjusted Net Sales $979,671 $1,121,984 $2,101,655 Operating Income: As Reported $79,984 $(24,563) $55,421 Streamlining Initiatives 5,899 24,915 30,814 Adjusted Operating Income $85,883 $352 $86,235 % of Adjusted Net Sales 8.8 % - 4.1 % LIZ CLAIBORNE INC. RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION SEGMENT REPORTING (All dollar amounts in thousands) (Unaudited) The following tables provide reconciliations of Net Sales to Adjusted Net Sales, which excludes Store Closure and Brand-Exiting Activities and of Operating Income (Loss) to Adjusted Operating Income (Loss), which excludes Streamlining Initiatives and Bran
Three Months Ended July 5, 2008 (13 weeks) Domestic International Total Net Sales: As Reported $627,918 $345,848 $973,766 Store Closure and Brand-Exiting Activities (9,362) (6,290) (15,652) Adjusted Net Sales $618,556 $339,558 $958,114 Operating (Loss) Income: As Reported $(29,828) $4,061 $(25,767) Streamlining Initiatives and Brand-Exiting Activities 41,070 5,707 46,777 Adjusted Operating Income $11,242 $9,768 $21,010 % of Adjusted Net Sales 1.8 % 2.9 % 2.2 % Three Months Ended June 30, 2007 (13 weeks) Domestic International Total Net Sales: As Reported $729,490 $319,055 $1,048,545 Store Closure Adjustments (4,378) - (4,378) Adjusted Net Sales $725,112 $319,055 $1,044,167 Operating Income: As Reported $12,883 $11,903 $24,786 Streamlining Initiatives 14,439 6,228 20,667 Adjusted Operating Income $27,322 $18,131 $45,453 % of Adjusted Net Sales 3.8 % 5.7 % 4.4 % LIZ CLAIBORNE INC. RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION SEGMENT REPORTING (All dollar amounts in thousands) (Unaudited) The following tables provide reconciliations of Net Sales to Adjusted Net Sales, which excludes Store Closure and Brand-Exiting Activities and of Operating Income (Loss) to Adjusted Operating Income (Loss), which excludes Streamlining Initiatives and Bran
Six Months Ended July 5, 2008 (27 weeks) Domestic International Total Net Sales: As Reported $1,343,558 $744,745 $2,088,303 Store Closure and Brand-Exiting Activities (24,993) (6,956) (31,949) Adjusted Net Sales $1,318,565 $737,789 $2,056,354 Operating (Loss) Income: As Reported $(61,840) $14,741 $(47,099) Streamlining Initiatives and Brand-Exiting Activities 96,436 13,280 109,716 Adjusted Operating Income $34,596 $28,021 $62,617 % of Adjusted Net Sales 2.6 % 3.8 % 3.0 % Six Months Ended June 30, 2007 (26 weeks) Domestic International Total Net Sales: As Reported $1,449,162 $663,522 $2,112,684 Store Closure Adjustments (11,029) - (11,029) Adjusted Net Sales $1,438,133 $663,522 $2,101,655 Operating Income: As Reported $30,795 $24,626 $55,421 Streamlining Initiatives 23,821 6,993 30,814 Adjusted Operating Income $54,616 $31,619 $86,235 % of Adjusted Net Sales 3.8 % 4.8 % 4.1 %

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