I continue to like LIZ - a lot. Not the brand. Not the competitive positioning. Not the industry. But the tools at this management team's disposal to create shareholder value over the next 18 months. I outline these in depth in my 5/13 posting, but the crux is that with accelerated cliff vesting of (underwater) options in 2009, and just about the biggest SG&A lever in the industry, I think that over the next 12 months we'll see either a) SG&A investments pay off (unlikely), b) management rescind the invested capital and print as margin (more likely), or c) LIZ do nothing and we see some major corporate action. All of these would probably be good for the stock.
But I'd be remiss to not at least acknowledge that the company has a base business in the interim. After all, when all is said and done, the company is still in the business of selling clothes. That's where I picked up an incrementally positive trend.
Even though LIZ is a portfolio of over 40 apparel brands, the core Liz Claiborne brand still accounts for about a third of cash flow. As such, it is not a shocker that the stock still trades in line with this business. I don't like to look at aggregate sales numbers, but rather what I call the price-adjusted sell-thru rate. What this refers to is the merchandise price change needed to push a given sell-thru rate through the channel. The chart below shows that LIZ has traded spot-on with this rate over the past year. That is - until March, when this ratio inflected positively, though the stock wants to do nothing but go down. The price action does not smell right to me.
For a company with $3 in EPS power, this price action does not make much sense to me. Again, I'm not saying that LIZ SHOULD print a $3 EPS number, but simply that it CAN, and the incentives are aligned for this to come to fruition.
Exhibit Source: NPD Fashionworld and Research Edge, LLC