Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

liz claiborne AR_2004

  • Be the first to comment

  • Be the first to like this

liz claiborne AR_2004

  1. 1. Ellen Tracy © 2005 Liz Claiborne Inc. Liz Claiborne Inc. Liz Claiborne Inc. 1441 Broadway, New York, NY 10018
  2. 2. Senior Management Liz Claiborne C O N S O L I D AT E D F I N A N C I A L H I G H L I G H T S LIZ CLAIBORNE INC. AND SUBSIDIARIES 2004 Liz Claiborne Inc. designs and markets an extensive range of fashion apparel and accessories appropriate to wearing C O R P O R AT E S E C R E TA RY Theo v.d. Aardweg Edward Goepp Gail Onorato occasions ranging from casual to dressy. Although they offer a wide array of styles, all Liz Claiborne Inc. brands share the Diane Abbate-Fox Helene Goldberg Perry Oosting Nicholas Rubino common characteristics of innovative fashion and exceptionally high quality and value. Products are manufactured to the Lynn Ambrose Victoria Goldshtein-Graham Lori O’Rourke Company’s specifications in the United States and abroad and are marketed through leading retailers in the United States, Asia, I N V E S T O R R E L AT I O N S Jeffrey Ansell Lynda Greenblatt Richard Ostell Australia, Canada, the Carribean, Central America, Europe, Mexico, Middle East and South America. Cynthia Ashey Kelly Gvildys Hans Ouwendijk Robert J.Vill Jodie Austin Cami Hayduk Pericles Papayannis (All dollar amounts in thousands REGISTRAR & TRANSFER AGENT Stanley Austin Amy Hennisch Keelan Kenneth Pratt 2004 2003 2002 2001*** 2000*** except per common share data) Tina Au-Yeung Marc Hershkin Mary Ellen Prentis The Bank of New York Kirkor Balci Shareholder Relations Department William Higley Anurup Pruthi P.O. Box 11258 $ 4,632,828 $ 4,241,115 $ 3,717,503 $ 3,448,522 $ 3,104,141 NET SALES David Baron David Hirschler Jane Randel Church Street Station Aaron Battista Suzanne Hochman Tom Reeve 2,142,562 1,889,791 1,619,635 1,427,250 1,233,872 GROSS PROFIT New York, NY 10286 Kent Bisgaard Rene Holguin Mary Julia Ripperger 313,569** 279,693** 231,165** 192,057** 184,595** NET INCOME 1-800-524-4458 Laura Bjurstrom Louise Howson Tony Ronayne 1-610-382-7833 (Outside the U.S.) 871,540 836,911 618,490 638,281 535,811 WORKING CAPITAL Rebecca L. Blair Steven Hurwitz Rosana Rosales Thedford 1-888-269-5221 (Hearing Impaired – 3,029,752 2,606,999 2,268,357 1,951,255 1,512,159 TOTAL ASSETS TDD Phone) Amy Blumberg Leonard Jacaruso Howard Rosenberger 1,811,789 1,577,971 1,286,361 1,056,161 834,285 STOCKHOLDERS’ EQUITY Kevin Bollbach Mary Lisa Jacobson Gary Ross E-Mail Address: Daryl Brown Peggi Jewell Nicholas Rubino PER COMMON SHARE DATA*: Lori Buchbinder Michael Jones Allison Rupprecht The Bank of New York’s Stock Transfer Basic earnings 2.90** 2.60** 2.19** 1.85** 1.73** Website: Dana Buchman Anna Jorgensen Diana Ryan-Assatly Diluted earnings 2.85** 2.55** 2.16** 1.83** 1.72** Ann Bukawyn Ingo Jost Micheline Savarin Book value at year end 16.66 14.40 12.02 10.04 8.15 Matthew Burris Emily Kam Boudewijn Schipper Send Certificates for Transfer and Address Dividends paid 0.23 0.23 0.23 0.23 0.23 Dennis Butler Francis Kelly Margaret Schneider Maclay Changes To: Leo Cantagalli Michelle Kessler-Sanders Alphons Schouten 108,128,172 107,451,157 105,592,062 103,993,824 106,813,198 Receive and Deliver Department BASIC SHARES OUTSTANDING* Robert Cardascia Lori Keurian Andrea Scoli P.O. Box 11002 109,886,352 109,619,241 107,195,872 105,051,035 107,494,886 DILUTED SHARES OUTSTANDING* Church Street Station Benedetta Casamento Adelle Kirk Elizabeth Selleck Hall New York, NY 10286 Anne Cashill Steffie Kirschner Ashish Sen Sarma N E T S A L E S (in millions of $) Kevin Castanheiro Josephina Ko Tony Shellman INDEPENDENT REGISTERED Eric Champagne John Kovac Glenn Shepard 2000 PUBLIC ACCOUNTING FIRM 3,104 Chris Chan Ron Kropp Kathryn Shipman Deloitte & Touche LLP 2001 3,449 Janie Chang Judith Kuipers Shawna Smith 2 World Financial Center Kristin Clifford Yogi Laijawalla Willie Smith New York, New York 10281 2002 3,718 Christine Conforte Jacqueline Laipply Toni Sotelo 2003 4,241 Claudia Cordic Barry Landau Thomas Speight FORM 10-K Anne Cosini Betty Lee Olivia Spence A copy of the Company’s Annual 2004 4,633 Report on Form 10-K, as filed with Prakash Damodar Kwila Lee Ashod Spendjian the Securities and Exchange O P E R A T I N G I N C O M E (in millions of $) Cheryl Dapolito John Legg David Stiffman Commission, is available to stock- Kerry Davenport Ronnie Lemmens Janice Sullivan holders without charge upon written 2000 304 Lois Davis D. Bradley Lenz Carol Sweitzer request to Liz Claiborne Inc., John DeFalco Diane Long David Towers 2001 Investor Relations Department, One 332 Claiborne Avenue, North Bergen, Michele Digenova Gina Lo Presti Larry Tronco 2002 390 New Jersey 07047, or by visiting Sara Dennis Melanie Lyons Parker Vaughey Katherine Devereux Kymberly Maas-Lahr Robert Vill 2003 471 Denise DiNoia Joelle Maher Erich Walker 2004 503 C E RT I F I C AT I O N S Patricia Dipette Gerard Malmont Dionne Walsh Liz Claiborne Inc. has filed with the John Doherty Marie Mamone Nina Weigner DILUTED EARNINGS PER SHARE* United States Securities and Exchange Mark Donatiello Debbie Martin Chaka Wilson Commission all required certifications of 1.72 2000 Ronald Donchez Joseph Martorana Nancy Yao the Chief Executive Officer (CEO) and Claude Doré Annette Mathieu Doreen Zaldivar-Burns Chief Financial Officer regarding the 1.83 2001 quality of Liz Claiborne Inc.’s public Robin Droescher Jan Matthey Barry Zelman disclosure for each of the periods ended 2.16 2002 Evan Drucker Beth Mayer Adam Zuckerman January 1, 2005. In addition, Liz Claiborne Steven Duva Laura Mays-Scuderi Paula Zusi 2.55 2003 Inc.’s CEO provided to the New York Brian Dwan Henry McGuire Stock Exchange (NYSE) the annual CEO 2.85 2004 Christine Emmons Robert McKean certification regarding Liz Claiborne Inc.’s compliance with the NYSE’s corporate Paul Engelsman Andrew McLean A S S E T I N V E S T M E N T * * * * (in millions of $) governance listing standards. Stephen Fairchild Ellen Meiner Rolando Felix Trent Merrill 2000 493 ANNUAL MEETING Barbara Fevelo Hoad Carol Miller 2001 599 The Annual Meeting of Stockholders Pam Flynn Jacques Mitterand will be held at 10:00 a.m., local Scott Formby Catherine Moellering 2002 688 time, on Thursday, May 19, 2005 Sandra Foushee Cathy Morales at the offices of Liz Claiborne Inc., 2003 795 Sandra Francisco John Moroz One Claiborne Avenue, Nancy Fritze Nigel Moss North Bergen, New Jersey. 2004 941 Stephanie Garbarini Elizabeth Munoz Printed on recycled Gail Garramone Marianne Naberhaus-Smith paper. Please recycle this * Adjusted for a two-for-one stock split of our common stock, payable in the form of a 100% stock dividend paid on January 16, 2002 to shareholders of record as of the close of business on December 31, 2001. document and help to Raffaele Angelo Rosario Germano Elaine Nedder ** Includes the after tax effects of a net restructuring charge of $6,472 ($9,694 pretax) or $0.06 per share and a one time gain on sale of an equity investment of $7,965 ($11,934 pretax) or $0.07 per common share in 2004, a restructuring gain of $429 ($672 pretax) or $0.004 per share in 2003, a restructuring charge of $4,547 ($7,130 pretax) or $0.04 per common share in 2002, a restructuring charge of $9,632 preserve our environment. Joseph Giudice Maria Odee ($15,050 pretax) or $0.09 per common share in 2001, and restructuring charges of $13,466 ($21,041 pretax) or $0.13 per common share and a special investment gain of $5,606 ($8,760 pretax) or $0.05 Design: Pentagram Shaun Glazier Sigrid Olsen per common share in 2000. *** On May 23, 2001, the Company acquired 100% of the equity interest in MEXX Group BV. The following unaudited pro forma information assumes the acquisition occurred on January 2, 2000: for 2001 and 2000 respectively, net sales of $3,591,273 and $3,456,863, net income of $180,297 and $177,063, basic earnings per share of $1.73 and $1.66, and diluted earnings per share of $1.72 and $1.65. The pro forma information presented is not indicative of actual or future results. **** Includes capital expenditures and in-store merchandise shops.
  3. 3. Everyone, Every Style Our Company achieved its 36th Women and men… girls and consecutive quarter of sales growth boys…apparel and non-apparel… with sales up 9.2 percent for modern and and the full year. Our balance sheet casual… for the home and at remains healthy, our cash flow the beach…our 38 brands fit all strong, and in 2004 we delivered facets of consumers’ lives. an 11.8 percent increase in diluted earnings per share.
  4. 4. Our Brands Axcess Bora Bora C&C California Candie’s ® City DKNY ® Claiborne Crazy Horse Curve Dana Buchman DKNY Active ® DKNY Jeans ® Elisabeth Ellen Tracy Emma James Enyce First Issue Intuitions Jane Street J.H. Collectibles Juicy Couture Kenneth Cole New York Lady Enyce Laundry by Shelli Segal LIZ Liz Claiborne Lucky Brand Jeans Mambo Marvella Mexx Monet Monet 2 Reaction Kenneth Cole Realities Sigrid Olsen Spark Swé Trifari Villager
  5. 5. Our Markets United States Asia Australia Canada Caribbean Central America Europe Mexico Middle East South America Our Channels Upscale Department Stores Mainstream Department Stores Owned and Operated Specialty Stores Independent Specialty Stores E-Commerce Mid-tier Department Stores Mass Merchandisers Factory Outlets
  6. 6. Everywhere From Main Street to the mall… department stores to specialty stores… luxury to discount… New York to Moscow… in stores and online… our 38 brands reach consumers wherever and whenever they shop. PA U L R . C H A R R O N Chairman of the Board and Chief Executive Officer
  7. 7. D E A R S T O C K H O L D E R S , A S S O C I AT E S , B U S I N E S S PA R T N E R S A N D F R I E N D S : I am pleased to report our Company again successfully navigated a volatile and unpredictable year.We ended 2004 with our 36th consecutive quarter of sales growth and sales up 9.2 percent. Our balance sheet remains healthy, our cash flow strong, and we delivered an 11.8 percent increase in diluted earnings per share for the full year. It is particularly gratifying that we were able to achieve these results in a world that was in flux, from the situation in Iraq to the U.S. presidential campaign to an uneven global economy. In our own industry, we faced a domestic apparel market that was flat in unit sales and a business environment defined by a challenging economy, increasing competition, department store consolidation and changing consumer shopping patterns and lifestyles. It is our ability to anticipate and adapt to change, to innovate and to evolve, that underscores our success in 2004 and is central to our future growth.That is evident throughout our Company, from the uniqueness of our distinctive brands to the consistency with which we manage a portfolio as diverse as the consumers who buy our products. This is a complex undertaking, but one where we have considerable experience and a relatively high degree of success. Our Portfolio Strategy Our multi-brand portfolio is central to our strategy, not simply because it consists of many brands, but because of the quality of those brands and the way they are managed. It is true that a basket of brands has the potential to mitigate the inherent volatility of the fashion business, but not all portfolios are created equal. Our competitive advantage is derived from the strength of our brands: well defined, widely recognized, tailored to the needs of distinct constituencies and spanning a wide range of categories, channels and geographies.These characteristics, combined with consistency of execution, are what distinguish our portfolio and our Company. Our ability to identify and interpret changing market dynamics, and to address them with consumer-relevant, trend- right fashion apparel and accessories, is exemplified by many of our brands. Juicy Couture anticipates demand for luxurious, sexy and sophisticated basics and today is one of the hottest brands in the thriving contemporary category. Lucky Brand Jeans taps the potential of distinctively styled premium denim. Sold in department stores and in our own specialty stores, the brand is now four times larger than when we acquired it. Sigrid Olsen knows how color and art can provide an emotional connection to apparel and is now poised to become a true lifestyle brand, going beyond clothing to include accessories and, in 2005, bed, bath and table products. Ellen Tracy and Dana Buchman capitalize on the trend toward luxury and are leading brands in upscale department and select specialty stores. Axcess, our mid-tier brand for men and women, gained 30 percent over 2003 sales at Kohl’s, attesting to the growing appeal of its contemporary styling.
  8. 8. Enyce’s success speaks to the extension of what was once urban streetwear to a new, less traditional mainstream offering for young men. Monet jewelry is proving that a 75-year-old brand can be made vital and relevant to today’s consumer, resulting in another robust year in the U.S. and abroad. Mexx, based in Amsterdam, has nearly doubled in size since the beginning of 2001 by offering unique styling and exceptional value to modern, sophisticated European consumers. While we are often seen as a women’s apparel company, it is worth noting that ten of our 27 apparel lines offer mens- wear, either as stand-alone brands like Claiborne and Enyce or as part of dual gender names like Mexx, Lucky Brand and Axcess. Our growth has been notable in this sector, with further opportunity under new or existing labels. Liz Claiborne, Enduring Brand Preference Yet even among these successes, the core Liz Claiborne brand is our single biggest contributor to sales and profits. Products sold under this label account for 28 percent of revenues. It is a true lifestyle brand, offering apparel, accessories, shoes, jewelry, eyewear and an increasing array of home products. Now in its third decade, Liz Claiborne remains an icon to both retail customers and the ultimate consumer, and one of the top brands in the Women’s Wear Daily 100, a leading fashion industry survey highlighting brands with the greatest consumer recall. Sharper Focus on the Moderate Consumer We operate selectively (and we believe more profitably) in the moderate price arena by understanding and adapting to the distinct needs of our retail partners and the consumers they serve.The knowledge and experience we possess in this sector is manifested in a unique value chain that allows us to increase flexibility, speed decision- making and provide the styles and value demanded by these discerning consumers.Whether Emma James or J.H. Collectibles among traditional department stores or Crazy Horse in JC Penney, Axcess and Villager in Kohl’s or First Issue in Sears, these are all brands which translate on-trend fashion at moderate prices, the appropriate mix of both aspiration and value. Global Coverage Thirty of our brands are now sold in countries outside the United States, up from just 16 four years ago, with sales representing 24 percent of the total in 2004 compared with 4 percent in 2000. Our most substantial international presence is in Europe, propelled by Mexx. This brand leads our portfolio in diversity of distribution, in particular direct-to-consumer specialty stores, concessions and franchises, which give us greater control over our own destiny. Now we are evolving the single-brand Mexx organization into a multi-brand platform that will apply Mexx’s European market expertise to other brands in our portfolio. During 2004 we moved the headquarters of Liz Claiborne Europe from the U.K. to Amsterdam, preparing to expand this brand into untapped markets like the Benelux region and Germany. The Mexx group is also launching Lucky Brand and Ellen Tracy and supporting Enyce on the Continent. We took a similar approach in Canada, consolidating the Liz Claiborne and Mexx offices and converting Mexx in that country to a multi-brand platform that provides operating efficiencies by supporting many of our businesses.
  9. 9. Looking beyond Europe and Canada, our international business has more than doubled in Latin America, Asia and Australia since 2001, including sales from Liz Claiborne, Emma James, Claiborne, DKNY Jeans, Lucky Brand, Monet, Dana Buchman and Ellen Tracy. Here again, the flexibility inherent in our portfolio enables us to focus on the brands best suited to the market conditions in each country or region while mitigating fashion risk. Direct-to-Consumer In 2004 we continued to grow our own retail businesses, ending the year with 554 Company-owned stores worldwide.These include 269 specialty stores in nine different formats and 285 outlet stores in the United States, Europe and Canada. Because direct-to-consumer retailing allows us to control every aspect of brand management, we are committed to supporting its growth with substantial investments of capital, sophisticated data-based marketing and, importantly, value chain modifications that address the unique needs of a vertical retail structure. The results from our retail businesses are encouraging. In Europe, Mexx scored 9 percent comp store increases and expanded its retail store presence. Domestically, Lucky Brand had an outstanding year, with comp store revenues up 18 percent over 2003 and 13 new stores. Juicy Couture had a terrific store opening in Las Vegas, with results that to date have exceeded even our most optimistic expectations, giving us reason to aggressively, but selectively, add new locations. Sigrid Olsen retail also grew rapidly, increasing its count to 25 specialty stores with more to come in 2005. Elisabeth stores now carry large-size apparel from Emma James, Liz Claiborne, Sigrid Olsen, Dana Buchman and Ellen Tracy as appropriate to the location and consumer tastes. This “boutique” approach has been well received and will be extended. The introduction of Mexx into the U.S. via seven specialty stores in the Northeast fared well, with strong productivity and good conversion rates, though we can do better. As we refine this concept in the U.S. in 2005, we are taking advantage of the success the brand has had in freestanding retail stores abroad and in Canada, and are working closely with our colleagues in these areas to help shape the product mix that works best in the U.S. E-commerce is an as yet small but important and growing component of our direct-to-consumer business. Our Lucky Brand, Liz Claiborne and Elisabeth sites, the latter mirroring the boutique store concept, all realized modest revenue gains in 2004. Importantly, our experience with these sites increases our knowledge of this emerging channel, facilitating the introduction of additional brands to online consumers as appropriate. Portfolio Microcosms: Accessories and Licenses Increasingly, our accessories portfolio is a mirror of our core strategy, growing in 2004 to 19 brands available across multiple channels and geographies. Our licensed lines too have become an extension of our diversified portfolio, having grown from eight licenses in 1999 to 56 today. Overall, both our accessories and licensee portfolios had significant accomplishments in 2004, even exceeding the impressive gains made in 2002 and 2003, despite an unforgiving retail environment. The key to such consistently excellent results is understanding what makes each brand different, relevant and special, then faithfully translating this appeal across a broad number of product classifications and lifestyle categories. In this way, our accessories, jewelry and licensing operations are able to extend each brand’s presence in the market without compromising its essence.
  10. 10. The Liz Claiborne Home licenses provide an excellent example of such lifestyle branding, building on the awareness of and preference for Liz Claiborne apparel to include bed and bath, blankets and throws, flooring, table linens, furniture, home storage and fabric. Staying Close to the Consumer Managing multiple brands across channels and geographies is highly demanding, and no company, no matter how talented and dedicated its people, can anticipate every market change or trend.That is why we use a variety of formal research methodologies to stay continually in touch with our consumers. And it is why we are making major capital expenditures in Customer Relationship Management (CRM) systems for our retail stores.This point-of-sale, register-linked technology is a state-of-the-art tool for gathering relevant consumer data as transactions occur. As a result, we know what consumers are buying in real time, and armed with that information, we can tailor our merchandising and marketing for greater efficiency. Technology as a Competitive Tool CRM is simply one example of our Company-wide commitment to technology as a powerful means of gaining competitive advantage. From product development to distribution, virtually every process in our supply chain has been enhanced by our long-term commitment to relevant technology. Proprietary software and systems enable us to more quickly and cost-efficiently get the right product to the right stores at the right time. For instance, automated distribution results in more productive warehousing and enables us to mitigate disruptions in deliveries owing to slowdowns or undercapacity in ports.Technology allows us to be more responsive to our retail partners as they push vendors to assume responsibility for assortment and merchandising functions traditionally handled at the store level. Applications such as LizPlanning allow us to collaborate with customers to a greater degree, better enabling us to meet retailers’ need for differentiation and tighter inventory control. And the globalization of our enterprise would be much more difficult and costly without the proprietary technology that allows our associates worldwide to speak and act in lock-step. Managing Complexity We are 38 brands but one Company when it comes to sharing information and leveraging our infrastructure – sourcing, logistics, finance, information technology and marketing – across our corporation. Doing so demands a Company-wide culture of true and consistent collaboration, and above all a commitment to organizational development and managerial excellence. Our decentralized management structure, in which essentially each of our businesses has a general manager and dedicated staff to ensure the realization of a brand’s financial and strategic objectives, enables us to more effectively manage complexity and rapid change across many fronts.Via common systems and lots of corporate contact and control points, we communicate constantly and share the learnings from the successes we have enjoyed as well as the mistakes we have made.This makes us all smarter and better prepared to face the challenges of doing business in the apparel industry today. Sourcing in a Quota-Free World The elimination of quota for apparel and textiles puts a premium on superior sourcing, logistics and distribution. Never before have speed, accuracy, flexibility and reliability been so critical. Here again, our investments in
  11. 11. technology give us competitive advantage, linking and supporting our associates around the world and enabling us to understand and respond more quickly to any challenge, whether it be meeting department store needs for differentiation or moving product more quickly to market. There has been a great deal in the news about the end of quota, which officially expired on December 31, 2004. While much remains in flux, one thing that is clear is that we are not likely to be operating in a truly unrestricted trade environment in the near future. Currently, there are numerous efforts to replace quotas with restrictive trade barriers and other means of limiting exports, principally from China.While we do not claim to know the eventual outcome of this turmoil, we will continue to prepare for dramatic change, concentrating in the short term on our proven competencies in supply chain management. How We Will Grow We will grow as we have in the past, both organically and via strategic acquisitions, seeking to gain market leverage from the opportunities presented by a changing environment. In acquiring brands, we will look to quality names that compete at the upper ends of their respective price zones and occupy unique niches in the marketplace by virtue of their allure and distinctiveness. Our development efforts will span the bridge, better and moderate price sectors, and will include wholesale and retail business models, apparel and non-apparel, domestic and international and consumers of both genders and all ages. Whether newly acquired or now part of our portfolio, we acknowledge that one brand can no longer be all things to all people. Simply put, those brands that are sold primarily in one country, essentially via one channel and in one major category, will be extremely difficult to sustain in this highly competitive environment.We see ourselves operating in the era of the “power brand”– a global, multi-channel, multi-category brand that reaches consumers when, where and how they shop. Not surprisingly, we see brands like these as a key path to growth.We are building them organically with Liz Claiborne, Sigrid Olsen, Juicy Couture, Lucky Brand and Mexx, and we will look for power brand potential in acquisition candidates. As an example, we believe that our acquisition of C&C California in January 2005 has such promise. While it is small compared with many of our divisions, this brand in just two years has become one of the most successful in the contemporary zone.With its chic California-inspired basics, C&C appeals to fashion-conscious women between 18 and 45 and can evolve into multiple classifications that reflect the relaxed California lifestyle in both apparel and non-apparel. The Road Ahead As we contemplate the future, we welcome Mary Kay Haben to our Board of Directors. An accomplished packaged goods marketer and general manager with Kraft Foods Inc., Mary Kay has spent her career managing brands in complex consumer-products environments.That experience is particularly relevant to our portfolio approach and makes her an excellent resource for the Company and its stockholders. Finally, as we look ahead, we must acknowledge that the one constant in our business is change and that it is happening at an accelerated pace. New fashion trends come to market faster. More than ever, consumers manifest declining channel loyalty and demand greater value, even as they spend less of their discretionary income on
  12. 12. apparel and accessories. Our retail partners are aggressively seeking to evolve their businesses.The elimination of quota will change our supply chain practices.The international sector is rapidly being transformed as new market opportunities emerge. Nevertheless, we believe that we can prosper. It will require inspired design and responsive product, thoughtful planning, diligent leveraging of infrastructure and consistently superior execution.We acknowledge that this is a tall order; and that to live up to our promise we cannot yield to complacency and accept the status quo, but instead must strive to better manage the complexity inherent in a growing fashion business.We will continue to learn from our mistakes and profit from the virtues of collaboration that are now so much a part of this Company’s culture. Above all, we must nurture and empower the more than 14,000 talented associates who together will move our Company forward. If we do this, we will grow and succeed in this business of change and constant evolution. My associates and I thank you for your support. Sincerely, Paul R. Charron Chairman of the Board and Chief Executive Officer
  13. 13. Mexx Giving Back Giving back to the communities that help make us successful is part of the culture of Liz Claiborne Inc. Community involvement is integral to our way of life, be it through contributions from the Liz Claiborne Foundation,direct service via our Liz Acts Our Brands employee volunteer program or by generating awareness of domestic violence through our award-winning “Love Is Not Abuse” education and prevention program.
  14. 14. T H E B R A N D S O F L I Z C L A I B O R N E I N C.* ATTITUDE & STYLE PRICE RANGES PRODUCTS MARKETS DISTRIBUTION Owned and Operated Specialty Stores Mainstream Department Stores Independent Specialty Stores Mid-Tier Department Stores Upscale Department Stores Cosmetics and Fragrances Denim and Streetwear Our Brands Mass Merchandisers Children’s Apparel Women’s Apparel Central America Factory Outlets South America Men’s Apparel United States E-Commerce Middle East Accessories Caribbean Australia Canada Relaxed Modern Popular Mexico Europe Classic Bridge Better Asia Axcess Bora Bora C & C California Candie’s** City DKNY** Claiborne Crazy Horse Curve Dana Buchman DKNY Jeans /DKNY Active** Elisabeth Ellen Tracy Emma James Enyce/Lady Enyce First Issue Intuitions Jane Street J.H. Collectibles Juicy Couture Kenneth Cole New York /Reaction Kenneth Cole** Laundry by Shelli Segal LIZ Liz Claiborne Lucky Brand Jeans Mambo Marvella Mexx Monet Monet 2 Realities Sigrid Olsen Spark Swé Trifari Villager *As of March 2005 **Licensed to Liz Claiborne Inc.
  15. 15. Liz Claiborne Coats and Shoes PRODUCTS THE LICENSES OF LIZ CLAIBORNE INC. Laundry by Shelli Segal Our Licenses Lucky Brand Jeans Dana Buchman Juicy Couture Liz Claiborne Crazy Horse Sigrid Olsen Ellen Tracy Claiborne First Issue Villager Axcess Mexx A P PA R E L Bridesmaid Dresses /Suits Dress Shirts Formalwear Intimate Apparel Kids Mainfloor Pants Outerwear Sleepwear/Loungewear Swimwear Tailored Clothing N O N - A P PA R E L Belts Cosmetics and Fragrances Footwear Jewelry Legwear /Socks Luggage Men’s Accessories Neckwear /Scarves Optics Slippers Sunglasses Umbrellas Watches HOME Bed and Bath Blankets Decorative Fabrics Flooring Furniture Games and Toys Home Storage Tabletop
  16. 16. Dana Buchman Liz Claiborne Home Our Licenses Liz Claiborne Accessories Classic Crazy Horse Dana Buchman Elisabeth Ellen Tracy Emma James
  17. 17. Crazy Horse First Issue Liz Claiborne Villager
  18. 18. Emma James Classic Crazy Horse Dana Buchman Elisabeth Ellen Tracy Emma James
  19. 19. Villager First Issue Liz Claiborne Villager
  20. 20. Intuitions Modern Axcess C & C California City DKNY Claiborne Curve Intuitions Jane Street
  21. 21. Juicy Couture Juicy Couture Kenneth Cole New York Laundry by Shelli Segal LIZ Mexx Realities Swé
  22. 22. Laundry by Shelli Segal Modern Axcess C & C California City DKNY Claiborne Curve Intuitions Jane Street
  23. 23. Axcess Juicy Couture Kenneth Cole New York Laundry by Shelli Segal LIZ Mexx Realities Swé
  24. 24. J.H. Collectibles Relaxed J.H. Collectibles Sigrid Olsen
  25. 25. Sigrid Olsen
  26. 26. DKNY Jeans Lucky Brand Jeans Denim & Streetwear DKNY Jeans Enyce Lady Enyce
  27. 27. Lucky Brand Jeans
  28. 28. Claiborne Menswear Axcess C & C California Claiborne Crazy Horse Curve
  29. 29. Enyce DKNY Jeans Enyce Juicy Couture Lucky Brand Jeans Mexx
  30. 30. Fashion Accessories Axcess Claiborne Crazy Horse Ellen Tracy Emma James
  31. 31. Juicy Couture Liz Claiborne Lucky Brand Jeans Mexx Villager
  32. 32. Jewelry Crazy Horse Ellen Tracy Emma James First Issue Juicy Couture Kenneth Cole New York Liz Claiborne Lucky Brand Jeans Marvella Mexx Monet Realities Monet 2 Reaction Kenneth Cole Trifari Villager
  33. 33. Handbags Crazy Horse Ellen Tracy Emma James First Issue Juicy Couture Liz Claiborne Lucky Brand Jeans Mexx Realities Sigrid Olsen Villager
  34. 34. Kim Cattrall. P r o d u c e r. A c t r e s s . S e d u c t r e s s . A new fragrance for women and men. Candie’s Fragrances Bora Bora Curve Curve Crush Ellen Tracy
  35. 35. Spark LIZ Lucky You Mambo Mexx Realities Spark Seduction
  36. 36. Mexx
  37. 37. Liz Claiborne Inc. 2004 Financial Statements
  38. 38. Management’s Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Business/Segments We operate the following business segments:Wholesale Apparel,Wholesale Non-Apparel and Retail. Wholesale Apparel consists of women’s and men’s apparel designed and marketed worldwide under various trademarks owned by the Company or licensed by the Company from third-party owners. This segment includes our businesses in our LIZ CLAIBORNE and LIZ brands along with our better apparel (CLAIBORNE (men’s), INTUITIONS, REALITIES, SIGRID OLSEN and SWE), bridge priced (DANA BUCHMAN and ELLEN TRACY), Special Markets (which is comprised of our mid-tier brands (AXCESS, CRAZY HORSE, FIRST ISSUE and VILLAGER) and moderate department store brands (EMMA JAMES and J.H. COLLECTIBLES)), denim/street wear (ENYCE and LUCKY BRAND DUNGAREES) and contemporary sportswear (JUICY COUTURE and LAUNDRY BY SHELLI SEGAL) businesses, as well as our licensed DKNY JEANS, DKNY ACTIVE, and CITY ® ® DKNY businesses and our licensed KENNETH COLE NEW YORK and REACTION KENNETH COLE businesses (as previously ® announced, our KENNETH COLE apparel license expired at the end of 2004).The Wholesale Apparel segment also includes wholesale sales of women’s, men’s and children’s apparel designed and marketed in Europe, Canada, the Asia-Pacific region and the Middle East under our MEXX brand names. Wholesale Non-Apparel consists of handbags, small leather goods, fashion accessories, jewelry and cosmetics designed and marketed worldwide under certain of the above listed and other owned or licensed trademarks, including our MONET, TRIFARI and MARVELLA labels. Retail consists of our worldwide retail operations that sell most of these apparel and non-apparel products to the public through our 285 outlet stores, 269 specialty retail stores and 622 international concession stores (where the retail selling space is either owned and operated by the department store in which the retail selling space is located, or leased and operated by a third party, while, in each case, the Company owns the inventory), and our e-commerce sites.This segment includes specialty retail and outlet stores operating under the following formats: MEXX, LUCKY BRAND DUNGAREES, LIZ CLAIBORNE, ELISABETH, DKNY JEANS, DANA BUCHMAN, ELLEN TRACY, SIGRID OLSEN, MONET and JUICY COUTURE, as well as our Special ® Brands Outlets which include products from our Special Markets divisions. In the first half of 2003, we completed the closure of our 22 LIZ CLAIBORNE domestic Specialty Retail stores (see Note 14 of Notes to Consolidated Financial Statements). The Company, as licensor, also licenses to third parties the right to produce and market products bearing certain Company- owned trademarks. The resulting royalty income is not allocated to any of the specified operating segments, but is rather included in the line “Sales from external customers” under the caption “Corporate/Eliminations” in Note 21 of Notes to Consolidated Financial Statements. Competitive Profile We operate in global fashion markets that are intensely competitive. Our ability to continuously evaluate and respond to changing consumer demands and tastes, across multiple market segments, distribution channels and geographies, is critical to our success. Although our brand portfolio approach is aimed at diversifying our risks in this regard, misjudging shifts in consumer preferences could have a negative effect. Other key aspects of competition include quality, brand image, distribution methods, price, customer service and intellectual property protection. Our size and global operating strategies help us to compete successfully by positioning us to take advantage of synergies in product design, development, sourcing and distribution of our products throughout the world.We believe we owe much of our recent success to our ability to identify strategic acquisitions, our ability to grow our existing businesses, to our product designs and to our having successfully leveraged our competencies in technology and supply chain management for the benefit of existing and new (both acquired and internally developed) businesses. Our success in the future will depend on our ability to continue to design products that are acceptable to the marketplaces that we serve, to source the manufacture of our products on a competitive basis, particularly in light of the impact of the recent elimination of quota for apparel products, and to leverage our technology competencies. Reference is also made to the other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices as are set forth under “Statement Regarding Forward-Looking Disclosure” below and in our 2004 Annual Report on Form 10-K, including, without limitation, those set forth under the heading “Business-Competition; Certain Risks.” Operating Highlights Within the past five fiscal years, the Company’s revenues have grown to a record $4.633 billion in 2004 from $3.104 billion in 2000. This growth has been largely a result of our acquisitions made as part of our multi-brand, multi-channel, multi-geography diversification strategy, under which we strive to offer consumers apparel and non-apparel products across a range of styles, price points and channels of distribution. In implementing this strategy, we have acquired a number of businesses, most of which have experienced notable growth post-acquisition. Our revenue growth over the five-year period also reflects the growth of our Special Markets business, which sells products at prices lower than our better-priced offerings, and our non-apparel businesses. With our acquisitions and the growth in our bridge-priced, contemporary, moderate and non-apparel businesses, we have Liz Claiborne Inc. & Subsidiaries 38
  39. 39. Management’s Discussion and Analysis of Financial Condition and Results of Operations diversified our business by channels of distribution, price point and target consumer, as well as geographically. Within the five- year period, our gross profit rate has improved from 39.7% in 2000 to 46.2% in 2004. This rate improvement reflects the acquisitions of MEXX Europe and MEXX Canada, MONET, ELLEN TRACY, LUCKY BRAND DUNGAREES and JUICY COUTURE, all of which operate at rates higher than the Company’s better-priced businesses (see “Recent Acquisitions” below), as well as our efforts to better manage our inventories and a reduction in our manufacturing costs as a result of a consolidation in our supplier base. As a result, operating income has grown 66% to $502.7 million in 2004 from $303.7 million in 2000, and diluted EPS increased 66% to $2.85 in 2004 from $1.72 in 2000. 2004 Overall Results Net Sales Net sales in 2004 were a record $4.633 billion, an increase of $391.7 million, or 9.2%, over 2003 net sales. The sales result reflects the inclusion of $209.8 million of additional sales from our recently acquired ENYCE (acquired December 1, 2003) and JUICY COUTURE (acquired April 7, 2003) businesses. Approximately $95.4 million of the sales increase was due to the impact of foreign currency exchange rates, primarily as a result of the strengthening euro, on the reported results of our international businesses.We also experienced sales increases in our MEXX Europe, DKNY Jeans, LUCKY ® BRAND DUNGAREES, SIGRID OLSEN, and Cosmetics businesses. These increases more than offset expected sales decreases in our LIZ CLAIBORNE better-priced department store business and our Special Markets businesses. Our LIZ CLAIBORNE business has been challenged by increasingly conservative buying patterns of our retail store customers as they continue to focus on inventory productivity and seek to differentiate their offerings from those of their competitors, the growth in department store private label brands and increased competition in the department store channel as a result of the introduction of new offerings by our competitors. In addition, the department store channel has been challenged by migration of consumers away from malls to national chains and off-priced retailers, as well as a general decline in prices for non-luxury apparel products. Looking forward, we expect that our retail customers will continue a conservative approach to planning inventory levels, with continued focus on inventory productivity and an increasing emphasis on reorder (quick turn) business. Our technological capabilities, coupled with modern business models and an evolving supply chain, enable us to partner with our customers to quickly identify and replenish those items that are trending well with consumers.We have diversified geographically, with our international operations representing nearly 25% of our sales in 2004 as compared to 22% in 2003. We continue to view international as an important area of growth and are working to build the capability to launch brands from our domestic portfolio in markets outside the United States while continuing to evaluate growth opportunities available through business development efforts outside the United States.Also, as we discussed above, through our acquisitions and internal growth, we have diversified our business by channels of distribution, price point and target customer. We note that our 2004 fiscal year was comprised of 52 weeks, as compared to 53 weeks in 2003; however, we do not believe that this extra week had a material impact on our 2003 overall results. Gross Profit and Net Income Our gross profit improved in 2004 reflecting continued focus on inventory management and lower sourcing costs, offsetting gross margin pressure resulting from a highly promotional retail environment. Our gross profit also benefited from the inclusion of a full year’s activity for our JUICY COUTURE business and growth in our MEXX Europe business, as each of these businesses run at gross profit rates higher than the Company average. Overall net income increased to $313.6 million in 2004 from $279.7 million in 2003, reflecting the benefit received from our sales and gross profit rate improvements. Balance Sheet Our financial position continues to be strong.We ended 2004 with a net debt position of $147.2 million as compared to $115.3 million at 2003 year-end.We generated $457.3 million in cash from operations during fiscal 2004, which enabled us to fund our $116.8 million share repurchase in the second quarter, the final payment of $192.4 million (160 million euro) for MEXX Europe and our capital expenditures of $146.4 million, while increasing our net debt position by only $31.9 million. The increase in net debt was primarily due to the foreign currency exchange translation on our Eurobond, which added $33.9 million to our debt balance. Liz Claiborne Inc. & Subsidiaries 39
  40. 40. Management’s Discussion and Analysis of Financial Condition and Results of Operations International Operations Revenues for the last five years are presented on a geographic basis as follows: 2004 2003 2002 2001 2000 IN THOUSANDS Domestic $ 3,502,565 $ 3,304,614 $ 3,037,325 $ 3,031,318 $ 2,984,927 International 1,130,263 936,501 680,178 417,204 119,214 Total Company $ 4,632,828 $ 4,241,115 $ 3,717,503 $ 3,448,522 $ 3,104,141 In 2004, sales from our international segment represented 24.4% of our overall sales, as opposed to 3.8% in 2000, primarily due to our acquisitions of MEXX Europe and MEXX Canada and, to a lesser extent, MONET.We expect our international sales to continue to represent an increasingly higher percentage of our overall sales volume as a result of further anticipated growth in our MEXX Europe business and from the recent launch of a number of our current domestic brands in Europe utilizing the MEXX corporate platform, including ENYCE, LIZ CLAIBORNE, MONET and LUCKY BRAND DUNGAREES as well as the introduction of our ELLEN TRACY brand in Europe.Accordingly, our overall results can be greatly impacted by changes in foreign currency exchange rates. For example, the impact of foreign currency exchange rates represented $95.4 million, or 49.2%, of the increase in international sales from 2003 to 2004. Over the past few years, the euro and the Canadian dollar have strengthened against the U.S. dollar. While this trend has benefited our sales results in light of the growth of our MEXX Europe and MEXX Canada businesses, these businesses’ inventory, accounts receivable and debt balances have likewise increased. Although we use foreign currency forward contracts and options to hedge against our exposure to exchange rate fluctuations affecting the actual cash flows associated with our international operations, unanticipated shifts in exchange rates could have an impact on our financial results. Recent Acquisitions On January 6, 2005, we acquired all of the equity interest of C&C California, Inc. (“C&C”). Based in California and founded in 2002, C&C is a designer, marketer and wholesaler of premium apparel for women, men and children through its C&C CALIFORNIA brand. C&C sells its products primarily through select specialty stores as well as through international distributors in Canada, Europe and Asia. The purchase price consisted of an initial payment of $29.5 million, including fees, plus contingent payments in fiscal years 2007, 2008 and 2009 that will be based upon a multiple of C&C’s earnings in each year. C&C generated net sales of approximately $21 million in fiscal 2004.An independent third party valuation of the trademarks, trade names and customer relationships of C&C is currently in process.We estimate that the aggregate of the contingent payments will be in the range of approximately $50-60 million. The contingent payments will be accounted for as additional purchase price. On December 1, 2003, we acquired 100 percent of the equity interest of Enyce Holding LLC (“Enyce”), a privately held fashion apparel company, for a purchase price at closing of approximately $121.9 million, including fees and the retirement of debt at closing, and an additional $9.7 million for certain post-closing adjustments and assumptions of liabilities that were accounted for as additional purchase price. Based upon an independent third-party valuation of the tangible and intangible assets acquired from Enyce, $27.0 million of purchase price has been allocated to the value of trademarks and trade names associated with the business, and $17.5 million has been allocated to the value of customer relationships. The trademarks and trade names have been classified as having indefinite lives and will be subject to an annual test for impairment as required by SFAS No. 142. The value of customer relationships is being amortized over periods ranging from 9 to 25 years. On April 7, 2003, we acquired 100 percent of the equity interest of Juicy Couture, Inc. (formerly,Travis Jeans, Inc.) (“Juicy Couture”), a privately held fashion apparel company. The total purchase price consisted of:(a) a payment, including the assumption of debt and fees, of $53.1 million, and (b) a contingent payment to be determined as a multiple of Juicy Couture’s earnings for one of the years ended 2005, 2006 or 2007. The selection of the measurement year for the contingent payment is at either party’s option. We estimate that, if the 2005 measurement year is selected, the contingent payment would be in the range of approximately $99-103 million. The contingent payment will be accounted for as additional purchase price. Based upon an independent third-party valuation of the tangible and intangible assets acquired from Juicy Couture, $27.3 million of purchase price has been allocated to the value of trademarks and trade names associated with the business. The trademarks and trade names have been classified as having indefinite lives and will be subject to an annual test for impairment as required by SFAS No. 142. On July 9, 2002, we acquired 100 percent of the equity interest of Mexx Canada, Inc., a privately held fashion apparel and accessories company (“Mexx Canada”). The total purchase price consisted of: (a) an initial cash payment made at the closing date of $15.2 million; (b) a second payment made at the end of the first quarter 2003 of 26.4 million Canadian dollars (or $17.9 million based on the exchange rate in effect as of April 5, 2003); and (c) a contingent payment to be determined as a multiple of Mexx Canada’s earnings and cash flow performance for the year ended 2004 or 2005. In December 2004, the 2004 measure- ment year was selected by the seller for the calculation of the contingent payment.This payment will be made in cash during the first half of 2005; we estimate that the payment will be in the range of 42-44 million Canadian dollars (or $35-37 million based on the exchange rate as of January 1, 2005). The contingent payment will be accounted for as additional purchase price. Liz Claiborne Inc. & Subsidiaries 40