LIZ: Completing Deals and Marching On…

 

LIZ just completed the last of five deals that yielded the company $471mm over the last 3-months as planned. In addition, the company also reaffirmed its outlook for year-end net debt of $270-$290mm. The transformation from a battered stock to a solid growth story is clearly underway. Moreover, there appears to be little to interrupt current stock momentum when the company reports earnings next Wednesday.

 

Here are a couple of the key highlights headed into the quarter:

  • It’s the first earnings call since the close of $471mm in asset sales.
  • Key update on the quarter is going to be the inclusion of the first pro-forma financial statements for “NewCo” – additional clarity is a big positive relative to the legacy model.
  • As a non-cash tax payer and with the Mexx deal now completed, we should get an update re the current amount of NOLs. 
  • We expect additional clarity regarding the potential inclusion of a corporate expense line due to some residual overhead expenses that was suggested on the most recent call. While we are building in nearly $25mm in Partnered Brand related SG&A, this is one of the key questions heading into earnings on November 9th as management looks to reduce costs. Ideally, all costs associated with the sold off assets would have been eliminated along with them, but it sounds like we might see at least a few quarters of further ‘streamlining’ as NewCo takes shape.

With near-term noise expected given all of the moving pieces, our focus remains squarely on how we see 2012 shaping up for “The Company Formerly Known As LIZ” and beyond. The company’s current guidance of $130-$150mm in EBITDA in 2012 assuming $10mm of EBIT from Partnered Brands and ~$75mm in D&A implies $45-$65mm in EBIT from Direct Brands – we’re shaking out closer to ~$85mm with less than heroic assumptions. Looking out to 2013 EBITDA of $225-$235mm and using a blended 8x multiple, we’re looking at a mid-teens stock. This remains one of our favorite longs despite the recent run.

 

 

For greater detail on what the financials of “NewCo” are going to look like, see our post from 10/17 titled, “LIZ: NewCo Just Getting Started.” For clients interested in running through the numbers before the call, I can be reached at .

 

 

Casey Flavin

Director

 

 


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