LIZ sold off some fragrance assets to Elizabeth Arden this morning for $58.4mm in cash marking the first of what we expect will be several asset sales in the coming months. One of the key factors is that despite market turmoil, LIZ has so many asymetric factors to generate an outsized longer-term term return for investors that can shoulder near-term liquidity risk.
As you can see in our sum-of-the-parts below, this sum is nearly double the value we attributed to this business. In fact, this deal represents less than half of the company's entire fragrance/ cosmetics assets with the ownership of the Juicy, Lucky, and Kate licenses still in-house.
Only a few weeks ago, the company confirmed it was in talks to sell its Mexx business in addition to several other possible sales in an effort to reduce debt by nearly $200mm to less than $580mm by year-end. While the timing and likelihood of that eventuality is now under question in light of recent European credit concerns, the company has a stable of other brands that it's currently evaluating. With the turn underway at Mexx along with an aggressive plan in place to reduce its underperforming store base, it's less about which brand is sold just as long as one is.
In addition, LIZ secured a distribution agreement with Li & Fung to ensure uninterrupted service as it shutters its Ohio distribution facility – a key element of its latest $25mm cost reduction initiative.
The bottom-line here is that this model has considerably better visibility than even a month ago and management is clearly driving change to improve liquidity. LIZ remains one of our top ideas.
Casey Flavin
Director
