LIZ: Bill Throws Us A Bone

Finally! LIZ announced an 8% headcount cut, which I think is huge. With margins going up and capex coming down, I think this is the near-term bottom for EPS revisions. More strategic call-options remain.
To put this into perspective, assuming $125k/yr per employee on average (including benefits, and the suspension of bonuses for remaining employees), this equates to $90mm in EBIT, 2.2 operating margin points (off a base of 4.0%), and about $0.60 per share in earnings. In addition, this can fund LIZ’s entire maintenance capex budget for each of the next 3 years.

My view on this name has been, and continues to be, that it is not going bankrupt – which a $2 stock suggests is quite possible. The company has secured new lines of financing to mitigate default risk, is cutting capex net year in half, and is now FINALLY cutting into what has consistently been one of the fattest SG&A structures in apparel (43% SG&A ratio???).

We’ve seen the near-term bottom of estimate revisions for LIZ, and with what I believe is minimal balance sheet risk, and a call option on monetizing Juicy, Lucky, and Kate Spade while selling the legacy Liz Claiborne brand to a major retailer (like Wal*Mart?), it is not tough for me to build to a net value 2-3x where the stock is trading today.