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Executives

Bill McComb - CEO

Andy Warren - CFO

Jill Granoff - EVP, Direct Brands

Dave McTague - EVP, Partnered Brands

Analysts

Kate Mcshane - Citigroup

Robert Drbul - Lehman Brothers

Omar Saad - Credit Suisse

David Glick - Buckingham Research

Liz Claiborne Inc. (LIZ) Q4 2007 Earnings Call March 14, 2008 10:00 AM ET

Operator

Good morning, everyone, and welcome to the Liz Claiborne fourth quarter conference call, hosted by Chief Executive Officer Bill McComb. After the opening remarks, we will be taking questions. This call is being recorded, and is copyrighted material. Therefore, please note that it cannot be recorded, transcribed or rebroadcasted without Liz Claiborne's permission. Your participation implies compliance with these requirements. If you do not agree, simply drop off the line.

Please note there will be a slide presentation accompanying the prepared remarks. The slides and earnings release can be accessed at www.LizClaiborneInc.com in the Investor Relations section. There are separate links to the slides for webcast and phone participants.

Please note that statements made during this call that relate to the company's future performance and future events are forward-looking statements within the Private Securities Litigation Reform Act. These forward-looking statements are based on current expectations, and are subject to the qualifications set out in this morning's press release, as well as the company's 2007 annual report on Form 10-K under the heading "Risk Factors", which Form-10K was filed yesterday with the SEC.

Also please note that during this call and in the accompanying slides and press release, net sales, EPS, net income, operating income, operating margin, gross profit, gross margin, SG&A and SG&A percent of sales are presented on both a GAAP and a non-GAAP basis. A reconciliation of adjusted results to the actual results is available in the tables attached to the earnings release and slides, captioned "Reconciliation of Non-GAAP Financial Information".

The company believes that the adjusted results for the fourth quarter and full year 2007 and 2006 are the adjusted projected results for fiscal 2008 represent a more meaningful presentation of its historical and estimated operations and financial performance, since it provides period-to-period comparisons that are consistent and more easily understood.

Now, I would like to turn the call over to your host, Mr. McComb. Please go ahead, sir.

Bill McComb

Thank you, Pam. Good morning. Welcome to our fourth quarter and year-end 2007 Earnings Call. Today's call will be a little different than others we've done recently. As you know, we preannounced earnings back on February 14th. The results we filed and posted yesterday evening are consistent with those preannounced results. And the press release and 10-K, which you now have access to thoroughly reviews the financial results in these periods.

In addition to amplifying those results again here, we will be discussing the year in totality from a strategic perspective and we will provide our views on what it all means, going forward. We will show you how our July 11th, view has evolved, for both 2008 and 2010.

Our journey in 2007 has been well documented as you all know, on these calls and analyst reports and in the news. The financial performance in 2007 has been very disappointing, since we first reported Q1 results on May 1st last year right up to today's announcements on asset impairment charges. But from the beginning, we've been very committed to reengineering this company from the bottom up for a sustainable success.

And as I pointed out at our investor conference, last July, that reengineering needed to address increasingly difficult issues with our company's strategy, structure, complexity and fundamental resource deployment. The strategy that we announced and that we vigorously have been pursuing is very simply, a strategy based on branding. Every action we’ve taken has been aimed at more successfully funding and executing outstanding fashion brands. As painful as a public invisible restructuring like this can be, we are convinced our actions will serve our shareholders well.

As the economy has taken its own direction, popping bubbles in the credit and real estate markets, and significantly impacting consumer confidence and spending patterns, we're focused on doing what's right to prepare our company to participate in the inevitable rebound, with sales and earnings growth and enviable brand strength.

So now, let me first turn the call over to Andy Warren, our CFO, to take you through a summary of our results before looking again at the turnaround initiatives and discussing our 2008 and 2010 outlooks. Andy?

Andy Warren

Thanks you Bill and good morning everyone. As you saw in our press release last night we reported adjusted diluted EPS for 2007 of $1.30, right at the mid point of our last months preannouncement range. Our fourth quarter GAAP EPS pre-goodwill impairment and our cash flow from operations were also inline with our preannouncement estimates.

As we informed you in our February 14th, release the preannouncement projections were subject to the completion of our year end goodwill and trademark impairment analysis. Our GAAP earnings now reflect a pre-tax non-cash goodwill impairment charge of $451 million in our partnered brand segment. We had accumulated significant goodwill balances in this segment in the recent years, resulting from our previous acquisition strategy.

Actual and projected performance and cash flows in this segment as well as the impact of the sale or plant sale, licensing or closure of the brands under statistic review, no longer supported the significant goodwill balance. Therefore process impairment charge we've reported a full year GAAP loss per share of $3.74.

Despite this non-cash charge our cash flow and liquidity remained strong, with fiscal 2007 cash flow from operations of $274 million. Also before we launch into a more detailed review of our 2007 financials, I would like to take a minute to clarify the components of our company's adjusted results.

These results are adjusted to exclude; one the non-cash charges associated with goodwill impairment and our partnered brand segment, two, non-cash charges associated with the impairment of the Ellen Tracy trademark, three, the impact of the expenses resulting from our previously announced plans to streamline operations in both 2007 and 2006, four, expenses associated with the elimination of several of our cosmetics brands and five, the loss related to the disposition of several of our previously announced brands on a statistic review.

These results do however include the performance of our discontinuing operations, since we owned and operated them throughout the majority of the year. We believe that these adjusted results for the fourth quarter and full year 2007 provide a much more meaningful perspective on our operational and financial performance.

I'll now take you through our fourth quarter and full year financial results. Slide five, title adjusted G&A bridge. One critical element of our turnaround plan includes a significant deployment of resources to support long-term growth. This means achieving real cost productivity in some areas and redistributing those savings to meaningful growth opportunities.

On the right-hand side of the page, you see our SG&A bridge from 2006 to 2007, highlighting the cost reductions and our reinvestment levels. We have reduced costs in both our partnered brand segment and corporate overhead. 2007 cost reduction initiatives in these two areas totaled $90 million. To support the build out of our direct brands, we redeployed over $100 million in marketing, retail expansion, and critical people in retail infrastructure.

The acquisitions of Kate Spade, Narciso Rodriquez the launch licensed Usher fragrance, as well as foreign currency exchange rates, all contributed to our increased SG&A spend across the company. We are extremely focused on right sizing our general and administrative costs for investing in the future growth drivers. Bill, will elaborate more on our cost initiatives later in the presentation.

Trained as [5, 6] and titled 4Q '07 adjusted P&L summary. Moving onto our fourth quarter results, here is a snap shot of our adjusted P&L. We achieved significant sales increases and gross margin improvement across our Direct Brand segment. At the same time, we had very disappointing sales and gross margin erosion in our Partnered Brand segment.

The next two slides provide deeper dives into these segment results. At the bottom of the slide, adjusted operating income for the fourth quarter was $58 million compared to $116 million last year. Adjusted diluted EPS was $0.20 compared to $0.94 in the fourth quarter of 2006.

Slide seven, titled Direct Brands Q4 summary. We are very pleased with the performance of our Direct Brands in the fourth quarter, especially given the challenging consumer retail environment, total sales for the quarter of 18% versus last year. Our realized significant gross margin expansion across all our Direct Brands, our SG&A investment in this segment led to a decrease in operating margin.

As we outlined on slide five, these critical brand building investments and retail expansion, marketing and infrastructure will continue to support and fuel future growth for this segment.

Juicy Couture had an exceptional fourth quarter, exceeding our already robust expectations. Total sales across channels and categories were up 49%. Comp store sales were up 25% with strong holiday performance across both full price and outlet stores. Lucky retail comps were a bit soft in the quarter but improved versus their quarter comps and in line with other specialty retailers.

Our retail business was clearly negatively impacted by the overall decline in mall traffic. Similarly our wholesale business was down in the quarter primarily reflecting planned declines at The Buckle. Kate Spade which we will begin copying in the first quarter 2008 had a successful fourth quarter and it continued progress to expand its business. We opened 10 stores and were particularly pleased with their outlet and international results.

Net sales were up 11.8% for the quarter down 1.2% as foreign exchange with comps down 3%. While Mexx Europe had a challenging quarter retail, Mexx Canada continued to perform well. Mexx Europe did however make significant progress in restructuring its business for long-term operating margin improvements.

Slide eight, titled Partnered Brands Q3 summary. Now it's important to take a minute to fully understand exactly what happened in the fourth quarter in our Partnered Brand segment. While we anticipated a tough retail environment when we reported our third quarter results back in October.

Few areas came in significantly below our forecast. First the level of markdown support required to ensure stable distribution in 2008 was more than anticipated particularly for the Liz Claiborne and Claiborne brands. Second the brands under strategic review eroded more significantly than planned.

There is no question that the uncertainty of the strategic review process, uncertainty about the outcome impacted these results. But it is important to note that most of these brands had been trending down or experiencing inconsistent performance for sometime independent of the review process. We still strongly believe that the reduction of complexity and resource fragmentation resulting from the large portfolio had to be addressed and the waiting for better M&A market was not in the company’s or shareholders best interest.

Third, the Cosmetics business also delivered a very tough quarter with year end cancellations resulting from inventory build up at retail. This business segment has historically realized a highly variable operating margin tied to the lifecycle of our fragrance lines and experienced a real profit downturn in the fourth quarter. As a result of this downturn our management team is working on inventory management, cost reduction and additional revenue opportunities to improve our 2008 outlook.

Fourth, our aggressive liquidation of excess inventories across all brands negatively impacted gross margin. I will provide greater inventory insights later in my remarks. It's important to note that we did however have a few bright spots in this segment, like Liz & Co., the DKNY men's Jeans business and from a commercial perspective the Usher fragrance launch.

Looking forward, we have very expandable businesses in Monet and DKNY. In fact we announced this morning that we assigned a license to market a men's better sportswear line for DKNY, leveraging the same team that successfully built the DKNY denim line.

The areas that were weak this year have been weak for many years. Our Claiborne men's product line for example has lacked in innovation and evolution. Hiring John Bartlett to reinspire and redefine this line is clearly the right action, but it will not impact our results till the spring of 2009. Same is true for Isaac Mizrahi on the core Liz Claiborne brand.

Also we announced in January that we are launching Dana Buchman line at Kohl's in the spring of 2009. We are very excited about these product initiatives and launches. It was essential that we deliver the appropriate fourth quarter 2007 margins for our retail partners, in order to ensure a continuous floor presence in 2008 and 2009.

Moving onto slide nine; titled fully year 2007 adjusted P&L summary. We again achieved significant sales increases and gross margin improvements across our Direct Brand segment. While still clearly realizing disappointing sales and gross margin erosion in our Partnered Brand segment. Adjusted operating income for the full year was $277 million compared to $522 million last year. Adjusted diluted EPS for the full year was $1.30 compared to last year's adjusted EPS of $2.99.

Moving to our cash flow summary, our business remains a cash rich operation. Although after tax cash from operating income was down $165 million last year, our successful management of working capital provided $110 million offset against this decline. As indicated in our press release, we’re projecting cash flow from operating activities of approximately $350 million in fiscal 2008. Our cash flows allow us to continue to execute our turnaround planned even in this tight credit market.

Slide 11 titled 2007 year end inventory. On our third quarter earnings conference call, we discussed actions for the remainder of 2007 to thoughtfully and aggressively liquidate inventories, and had forecasted flat balances by year end. We're pleased that we are able to exceed that goal, and have put in place, tight controls to manage inventories throughout 2008. We ended the year with inventories down 9% compared to 2006, despite foreign currency exchange increasing inventories by approximately $21 million.

Slide 12 titled full year ’07 balance sheet. Here’s a snapshot of our year end balance sheet. I just discussed cash flows and inventories in detail, so I’ll now focus on the bottom three lines. We repurchased approximately 4.6 million shares for $119 million during the fourth quarter. We have approximately $29 million remaining in our share repurchase authorization. This took our total stock repurchase for the year to $300 million or approximately 9.9 million shares.

Capital expenditures were $180 million in 2007, flat to 2006. Most of this capital spend was dedicated to the net addition of 71 specialty and 25 outlet stores through out the year. Our total debt to capital ratio was 36.9% at year end compared to 21.8% in 2006 primarily reflecting; one the impact of the goodwill impairment which added approximately 500 basis points, two our share repurchases and three capital expenditures and acquisitions related payments over the past 12 months.

Slide 13 title 2007 sales breakdown. The purpose of next two slides really is to provide some clarity on the changing composition of our portfolio. Since our sales of all significantly in 2007 we want to rebase line the global mix of our sales by brand on the left and by channel on the right. We are clearly becoming a more retail centric company. With 32% being direct sales to consumer, compared to 27% last year.

Slide 14 titled '07 sales to Macy's. Because we often get the question from investors and analysts about the relative size of our business in Macy's, we want to clarify the answer. In 2007 approximately 9% of our total company sales were in Macy's doors nationwide, 2% of which were in our Liz Claiborne brand complex. 11% of our total company sales were attributable to the Macy's Inc. stores which includes Bloomingdale's.

There is no question that the designer led relaunches of Liz Claiborne and Claiborne brands in 2009 will give us real opportunities to start growing again at Macy's. In addition DKNY and Enyce are exciting growth platforms for us both. Both companies clearly to the opportunity that are highly differentiated line with real consumer attraction and marketing can offer.

Slide 15, titled new baseline, adjusted continuing operations. Lastly, given that we've now concluded the statistic review process. We're providing this chart to show our new EPS baseline by quarter for 2007. This will be the basis for comparing our adjusted EPS results from continuing operations going forward. These restated continuing adjusted results exclude Emma James, Intuitions, JH Collectibles, Tapemeasure, prAna, C&C California, and Laundry.

Now we'll provide an update on our turnaround initiatives.

Bill McComb

Okay, Andy, before I jump into that I thought it would be helpful for the listeners for you to answer a question that I anticipate them asking, which is with regard to the balance sheet and the preannouncement back on [2-14], could you talk to the whether or not our bank covenants were under pressure from the earnings pressure, and what we've done since February.

Andy Warren

Sure. We had a covenant where there is an EBITDA coverage ratio that we had for the debt, and we had unanimous support from the banks to lower that EBITDA, while walking through our profile, our projections, our cash flows and there is unanimous support for us to -- we do those covenants, so that issue is now behind us.

Bill McComb

Okay, all right. So we got the amendments that we needed there.

Andy Warren

Correct.

Bill McComb

Alright, great, thanks Andy. Excellent overview, again I think that us using this PowerPoint deck for those of you that are on the call, but don't have the visual aid, you really should take a look at it, because these are very clear charts and provide some clarity.

The chart that you should have in front of you now is titled LCI turnaround initiatives. You should recognize it. It's been our financial and structural roadmap, guiding much of our activity over the past nine months. This is just an overview slide and rather than have me walk you through the details on it, I'd rather reflect on what it says about our plan from 30,000 feet.

We had to narrow the portfolio in order to redirect resources to drive results. You know, we were funding way too many product lines, we had too many layers of management and we weren’t really focused on building the power of any of our brands. The businesses with the most consumer traction were suffering from our lack of focus in our organizational complexity. And this includes our most important and promising partnered brands, not just our direct brands.

So we embarked on significant cost cutting and simultaneous investments as a critical step towards achieving our strategy goals of building very strong brands. These investments are aimed at addressing capability gaps in our businesses like, better design and merchandising, planning and allocation, distribution for vertical retailing and enhanced supply chain performance. We put in motion a structure and resource plan to drive sales in direct brands to 65% of our total in 2010, while bringing stability and health to the partnered brands portfolio.

What we didn’t tell you back in July was how dramatically we were thinking about the Liz Claiborne brand restage. Our research last spring showed us that this brand has tremendous potential, still even after years of challenges. The notion that we can return that brand to a predictable and healthy source of earnings can only be understood in terms of the execution that we have in mind. And in the coming months, Dave McTague will be sharing more details of our plans with Macy's, and Dillard's and Belks and Bon-Tons, to re-launch this brand and it's men's counterpart in 2009.

Let's move on from this page by saying that we are in fact on track or ahead on each of these initiatives. So, the next chart summarizes the outcome of the strategic review. We are announcing here that we are officially finished with the review, with a plan to retain and grow the Mac & Jac business, which houses the Kensie brand. Kensie has shown traction with both the consumer and its retail partners, and the brand team presented a plan, a compelling plan; that is smart, achievable and non-dilutive to our overall portfolio.

At the beginning of the process, we said the outcomes could include licensing, selling, discontinuing or keeping these brands and the results reflect that we, in fact, ended up doing every one of those considered actions. While some of our critics have challenged our decision to publicly review these brands and continue the process in the face of what became a bad M&A environment. We would say, our ability to right size the total organization, including corporate infrastructure to reduce complexity and management distraction and to reduce or contain the ongoing earnings drag on our P&L, all required that we continued and completed the process expeditiously and so we did.

In addition, we believe that holding on to those assets and waiting for a more robust M&A environment would not have led to better outcomes. So, we're pleased to have this chapter in the turnaround complete and we're vigorously pursuing the elimination of the stranded costs across the system.

Our over arching principle in executing a turnaround during the tough recession is a scene that we call, invest wisely and cut smartly and here are some numbers that dimensionalize that and where we are with that principle. Our cost reduction plans are on track as we reported before; we cut $150 million out of our run rate already, $25 million of which benefited the 2007 P&L and an incremental $125 million that will flow through the 2008 P&L.

This entails cutting approximately 25% of our executive staff and a total position count of 1,300. It also includes significantly restructuring in Europe at Mexx and a reduction in our DC network in line with volume reductions. We remained focused on ongoing rationalization as you can see on the chart throughout 2010.

In terms of the investments we are making to build strong brands, the right hand side of this, with outstanding execution. We're on track for a capital budget of $200 million this year. Our retail build-out accounts for half of that CapEx. We've revisited each and every door we planned to open in 2008. We will be proceeding with the plan based on the strength of the locations, the mall itself, the city or county, the adjacent tenants and the overall distribution plan in terms of points of distribution and where the consumers are for each of these brands.

You can see here how much we anticipate spending incrementally on marketing, G&A and retail infrastructure in 2008 versus 2007, that's an incremental number as well as the cumulative increment of 2008, 2009, 2010 added together. So, we're cutting non-value added expenses while reducing complexity in the organization and at the same time, we're building resources that will enhance our brands or contribute to our ability to execute their plans.

One area we haven't spent much time talking about is the structure and culture change that this strategy requires. We spent a lot of time restructuring this organization, implementing a radically different approach versus our recent history.

We became overtime a very centralized organization with product areas, licensing, international and even product channel run from separate centers. Brands didn't come together naturally under one management team or even one P&L. So, now we've aligned all activities of a given brand under one cross functional, fully accountable brand team. In this case, or in the case I should say of Direct Brand, they are really structured as mono-brand companies. The reward systems, the design and merchandising strategy and planning and the data and reporting systems are now aligned.

We are now tackling culture change head-on, addressing our need for a new kind of accountability, where what’s left in the corporate centre is highly service oriented to our brand companies or our brand teams, and the functions within the brands are truly working together. Another breakthrough here is the long range planning and goal setting that we’ve accomplished in the past five months. For the first time, our senior leaders have incentives for three year performance targets, for brand level P&L's and clearer goals for their annual targets as well.

And lastly, we're emphasizing real entrepreneurship by building brand companies or brand teams. We’re encouraging our people to think and behave like owners in their business, to be passionate, to dream and aspire, and to lead us rather than wait for top-down corporate directives. People respond very positively to that.

So now, with that background on our strategic initiatives complete, let’s focus in on our outlook for 2008. Andy already rebased 2008 adjusted EPS from a continuing operations standpoint, at $23 a share. In bridging to our guided range for 2008 of $50 to $70, here are the puts and takes you should think about.

We have implemented the cost reductions I just reviewed, which will be offset by the investments in G&A and marketing and infrastructure. We will see healthy growth in the Direct Brands in terms of sales and gross profit. We are no longer running the brands that were unprofitable from our strategic review, and Mexx will be delivering real operating profit margin initiatives. Working against us is a difficult and still unpredictable macroeconomic environment, which has changed our view of what we can expect in 2008 for profit margin recovery in Partnered Brands.

In addition, we anticipate that our department store partners will be managing their Open-to-Buy very conservatively and we're therefore likely to see volume reductions beyond our early 2008 projections last summer in Partnered Brands. But from our view of the business today we believe we can deliver in this range while still adequately funding the initiatives that are core to our strategy. I will say that with the economy performing as it is we will stay committed to doing what’s right for the business long-term. We will not stray from executing essential investments that will deliver the profitable growth for our key brands in the mid and long-term.

In addition, to the Direct Brand initiatives we need to spend this year preparing for the Isaac Mizrahi launch for the John Bartlett launch in men’s and for the Dana Buchman launch. All of which is 2008 work that will hit in 2009. So as we proceed through the year, our plans are aimed at delivering adjusted earnings within this range and they are equally aimed at keeping the agenda moving forward to strengthen our capabilities and our brands.

So now let's review briefly key themes for 2008 for the Direct Brands portfolio and the Partnered Brand segment. Let's start with Jill, on Direct Brands. Jill?

Jill Granoff

Thank you, Bill and good morning to everyone. Before I talk about 2008 initiatives for Juicy Couture, I thought I would spend just a minute talking about the great success of Juicy in 2007. Just in case you are wondering about the key drivers of the 49% growth. It was driven in large part by the continued evolution of our product assortment, specifically the growth of fashion apparel, accessories, fragrance and gifting; clearly moving Juicy beyond the track suit. In addition, we saw significant growth in our retail channel, both full price and outlet stores.

Now building on Juicy's greater success in 2007, and the projectability of these trends, we are planning double-digit growth for 2008. Juicy continues to be a shining star in our brands portfolio, and we are very optimistic about its future. To achieve projected growth targets.

We will be expanding our specialty retail business, opening approximately 40 stores in 2008. We will open 25 new full price stores including a fantastic 5th Avenue Flagship this fall, ending the year with 62 full price stores. We will also open 15 outlet stores ending the year with a total of 30 outlets. As you saw in an earlier slide, our full price and outlet stores operate at industry-leading productivity metrics, so we feel good about the projected returns on this capital investment. In addition, we plan to drive healthy comps in our existing stores. Although, we do project that our comps will decelerate as the store base grows.

Now switching to Juicy wholesale, while the overall market is currently challenging for early wholesale results or meeting our growth plans. Our goals are to increase penetration in existing doors, primarily through expanded assortment, and to remain a top-three contemporary vendor to Neiman Marcus, Sachs, Nordstrom and Bloomingdale. Another key initiative is to re-launch the Juicy website in the third quarter of '08, we will completely revamp the look and feel of juicy.com, and we expect sales to grow at very healthy levels.

From a product perspective, we just launched our first men's fragrance Dirty English to build upon the tremendous success we had in women's fragrance where we won three FiFi Awards in 2007. The men's fragrance was launched exclusively in Bloomingdale and we ranked number one for two weeks in a row. The fragrance will be rolled out to full distribution starting in mid April. We are very encouraged as the product has been well received by retailers and consumers and it is projected to rank in the top five for the year.

Additionally, we will be launching intimates for the fall season. Given Gucci's casual luxury position, we believe that we have a great opportunity to expand into an adjacent category with lounge wear, a broader panty assortment and sleepwear. The few intimates that we have featured thus far, such as Lollipop Boy Shorts performed very well.

Lastly, we will continue our international rollout via strategic partnerships. In 2008, we plan to open four new free-standing stores in Southeast Asia, bringing our total to 13 and two new stores in the Middle East based on the success of our one existing store in Dubai. We will also open several shop-in-shops in the UK, Russia, Turkey and Korea. Response to the fall product has been great and we plan on maintaining our market position as the top three vendor in all of our European shop-in-shops.

Now let's move onto Lucky. Lucky had 10% growth in 2007. To increase sales momentum, we are implementing several initiatives targeted at expanding the assortment, similar to what we have done in Juicy in order to broaden the brands' appeal.

First, we will increase the mix of fashion denim while refining the fit assortment. To achieve this, we will increase the penetration of fashion denim from less than 30% to 40% based on sell through rates as well as consumer feedback. We will also reduce the number of [fish and wash] combos based on test results to simplify and enhance the shopping experience. And we will leverage enhanced planning tools to minimize out-of-stocks on key fits and sizes, which has been an issue since December of last year impacting our comp performance.

Second, we are focused on improving our tops to bottoms ratio. We've talked about this in the past and our opportunity where today we sell at a one-to-one ratio and believe we have a real opportunity to push to a two-to-one and ultimately a three-to-one ratio, especially given the fact that tops on the floor are performing very well.

We are working to capture this opportunity by offering a different selection of tops, including solids and layering pieces to address a greater variety of wear occasions. We will also increase the mix of high gross category such as accessories and kids. We have a significant opportunity to increase our accessories business both at retail and wholesales and we plan on creating a more defined accessories destination within our retail space to drive purchases.

We're particularly encouraged by the success in the jewelry category. As mentioned in our last call, we rolled out jewelry in Lucky stores in 2007 and it was met with very high demand. This leads us to believe that we can grow its penetration by approximately 250 basis points in 2008. Our other growth vehicle is kids and given the response to the rollout of kids in Q4 '07 where we saw very high sales per square foot, we believe that we can double the size of our kids business at retail and at wholesale and kids will be in a 140 to a 154 price stores in '08. So it is our goal to achieve double-digit top line growth for Lucky in '08 and to achieve this goal, we will focus not only on expanding our assortment but growing our specialty business while maintaining our wholesale volume.

We plan to open a total of 35 to 40 stores in 2008. Given the success of product design for outlet; we believe there is a big opportunity for outlet store growth. In 2008, we will open a minimum of 20 outlets to end the year with approximately 35 outlets in total. Additionally we will open 15 to 20 full-price store in the US and Canada to bring our full-price store count to roughly 190 stores. We also planned to drive comps in existing stores by improved product and merchandising. The new product initiative, I just discussed should increase share of wallet and help drive top-line growth.

Lastly, we are looking to maintain the wholesale business. As I said earlier, accessories represent a growing category and are forecasted to grow double-digit in wholesale. However, these gains are planned to be offset by declines in the wholesale apparel market. We are cautious on the wholesale apparel business based on discussions with our wholesale partners which leads to our forecast of maintenance of the wholesale business in total.

I would like to wrap up with an initiative we are undertaking to improve our profitability. We will achieve gross margin improvement this year with a change in our sourcing strategy. We are increasing the number of denim units produced in Mexico by 50%. We tested offshore sourcing in the outlet segment in '07 with positive results. We will now begin sourcing a portion of our full-price denim for Mexico as well and this should lead to a 90 basis point improvement for the year.

Now, I'd like to turn it back to Bill who will talk about Kate Spade and Mexx.

Bill McComb

Thanks, Jill. Great job and there is a lot there in both of those brands and both of those companies. We see these teams, these companies coming together as I indicated in the structure and (inaudible) in a very powerful way. I think you hear it right there in the initiatives that Jill has lined up. Increasingly these calls will become more focused on the merchandising and product initiatives in each of these brands.

We announced earlier this week Kate Spade that we have hired Co-President and Chief Operating Officer of the business who along with Deborah Lloyd report directly to me and will be assuming the roll eminently. His name is Craig Leavitt and he joins us from Theory. Prior to three years at Theory, Craig had a 16 year run at Ralph Lauren Polo, where he had left for Theory as EVP of retail concepts. He brings a terrific operator’s perspective and a true brand guy combined with Debra’s incredible direction on product. We’re very excited.

The ’08 initiatives, I said I call this company a 'sleeping beauty', because the brand is pristine, it's completely untarnished and while it's a nearly 15 year old brand that didn’t grow wildly through the accessory era, it’s poised to do it now. In a few short months, literally, since early November, Debra has already brought significant upgrade to the fall and holiday product for 2008, and you’ll see Debra’s design team's work fully by spring of 2009.

The 2008 initiative is to grow top line double-digits. We’re going to be opening 30 stores this year. We’re increasing our international presence. We’re very strong in Japan right now. We will actually be strengthening throughout Asia, and increasing market share at top wholesale accounts. One of the things that we actually did when we took the brand over just a year ago was unwind some of the wholesale distribution while we got the product back together. While that resulted in a decline in revenue from a sales perspective, it was the right thing to do. We want to have the wholesale distribution be brand enhancing.

We’re also focusing, the team is focusing on improving their four-wall retail economics, and that means increasing the full price selling to improve merchandise layout and a better consumer experience. The boxes that we're opening are smaller and more efficient stores, and those that we opened in 2007 have scaled against their plans very effectively and we're very pleased with the economics there. And you will also see in our stores an increase mix of higher margin item.

On Mexx many initiatives for 2008 that we've talked about and I do look forward to providing more clarity on this very important company in our portfolio. It's our business that is not depended on the American economy, the American consumers or the American dollar. We've talked about a virtual re-launch of the brand all the way back since July 11 with a strong new positioning based on European contemporary and effortless, with a product line that launches in the fall of 2008.

So that's probably the most important initiative; the brand had lost its focus, its definition to the consumer had become unclear and its presence in both marketing and in retail had become defused and after a near 14 month initiative we're poised to move forward with that.

The company will be expanding its operating margin this year by a 150 basis points and that comes from exiting margin dilutive regions we announced a few weeks ago, that we're closing our UK business. We are also working to unwind or close unprofitable wholesale accounts through out different parts of Europe. We're completing the rationalization and restructuring of the organization which began in the middle of the year last year, and this year with the focus on Eastern Europe we'll be opening a 120 franchise stores in shop-and-shops.

We're also very focused on improving our retail operations, from visual and merchandising to pay for performance in stores and that flexible labor scheduling that we talked about at the investor conference in July and some of the meetings thereafter or some of the conference calls thereafter. We also are implementing now a vastly improved and effective outlet model.

And lastly, I would say, refining the product assortment under the new design team that [Red Godfrey] is a big part of supporting the new positioning and product launch this fall. So the team at Mexx will have more to say. Jeff Fardell will be on the call for the first quarter summary and so likely will be Craig Leavitt from Kate Spade.

Now, let me hand it over to Dave McTague to give you a summary on Partnered Brands.

Dave McTague

Thank you, Bill. As Bill and Andy have each described the Partnered Brands group has just gone through a significant reorganization. We have newly leaned teams that are very excited about clearly a new agenda. There are many steps and actions that we will take in these brands to perform more predictably and become better vendor resources to our retail partners.

Virtually everything we are doing is centered on putting design and merchandising in charge of these individual brands again. There is no question that 2008 is a repositioning year, meaning that we're working relentlessly for things you will see in 2009 that will be markedly different from our past.

In terms of product and brand initiatives, powerful product creation and clear differentiation across channels and brands is a primary focus. And as Andy outlined earlier Isaac Mizrahi is the Creative Director of the Liz Claiborne brand across all categories of business. This has not been done since Liz herself was the true Creative Director of the brand. John Bartlett is the Creative Director of our new men's business, again across all categories and for spring 2009 as well.

Dana Buchman, this brand will be positioned at Kohl's as a franchise brand for their consumer across all categories. And in addition, DKNY sportswear with our newly signed license extends our powerful franchise of this great brand and relationship with Donna Karan International to be positioned in department stores for this fall 2008. Also Monet, the premium leader in costume jewelry is a global brand in jewelry and accessories and will expand in fall holiday 2008, with our department store partners as well as new product initiatives for 2009.

Consistent with Bill's message of our focus on our consumer, we are executing specific merchandising and supply chain improvements in unprecedented collaboration with our retail partners. Style and skew efficiency, intelligent planning and attribute assorting to the door level, back-fill programs to feed doors that are selling and not ones that are turning more slowly in order to maximize profitability and raise AURs. Brand and churn rate items by class designed with all of the above improvements.

Finally, organizational and cultural change in creating dynamic cross functional and brand centered teams, including design merchandising planning and production to improve accuracy and execution to a higher standard for each individual brand. Simultaneously, we are aggressively focused on profitability across all of our brands and businesses.

As I stated a moment ago, having a clear creative point of view also enables us to be more efficient, as we take courage in our conviction to our consumer and for our brands. We will do this through efficiency in styles and skews, again in total collaboration with our retail partners, planning organizations, as well as our merchandize coordinator team, gaining better data about the customer desires and attributes at both the regional and dealer level. Extending our total collaboration to our other partners within the supply chain, to give clear direction of our brands also enables more dynamic and meaningful planning capability for our suppliers. This clearly will equate to better efficiency as well as deeper commitment to each others business profits and quality goals.

Taking cost out of the wholesale-retail model through better collaboration and logistics and product allocation, such as direct shipping capability is a win-win for both companies, wholesale and retail. Strategic inventory management in initial four steps and capability to flow back into sizes and colors by door, by key program is a significant profit opportunity for our retail partner giving the right product at the right time in the right location, as well as enhance sell through performance.

We've have already pivoted that's why the few of our partners already are working to expand this capability well into 2009. Additionally, collaborating to better integrate information to the retail selling associates to provide for consistent floor set in retail presentation as well as staff training about brand and selling information enables us to drive multiple sales and again raise AURs.

And finally, a constant review of innovative demand creation strategies drive consumers into stores and our in store shops working closely with our retailers to utilize multiple media options and not just traditional prints an ROP advertisers. Thanks you, Bill.

Bill McComb

That's excellent, Dave. Thank you very much. Andy, lets wrap it up now with our forward looking view of long range targets.

Andy Warren

Great. We're now on slide 27. We clearly owe you a revised look at our adjusted 2010 financial profile. Based in all the changes and trends we've called out in the past two quarters, as well as the current economic realities we're experiencing, since we announced our strategy at our July 2007 Analyst Meeting. We still very much believe that this strategy will drive significant improvements in our operating and financial performance in the long-term.

The financial framework we presented to you in July remains our guide for decisions around resource management, cost reductions, and capital allocations. However, given the challenging macroeconomic environment and our difficult 2007 partner brands performance, we're revising the outlook we provided back in July. We now see our 2010 financial goals as follows. Mid-single digit annual sales growth operating margin in the range of 9% to 11%. 20 plus % annual EPS growth and ROIC in the 12% to 14% range.

Slide 28 titled Direct Brands outlook. Our Direct Brands are clearly poised for meaningful long-term growth. We forecast 2008 sales of approximately $2.6 million and operating margin of approximately 10%. As we continue to expand our retail footprint in a Direct Brand segment, we expect to realize the 2010 compounded annual sales growth of 10% or 12% and to achieve operating margins between 12% and 14%. For 2010, we expect our Direct Brand segment to account more than 60% of both our total company sales and operating income.

Lastly, Slide 29 titled Partner Brands Outlook. Here I'd like you think about Partner Brands financially. Back in July, we called sales of 2008 down versus 2007 by approximately 10% is stabilizing by 2009. We're also said that margin recovery would begin in 2008 but the thought that we would have been able to relaunch the core Liz business by the fall of 2008. By delaying the Liz brand being launched into the spring 2009, we're now forecasting that the margin recovery in this segment would be slow as anticipated, taking till 2010 to achieve mid-single digit operating margins.

To strategically view process behind us, we are extremely focused on stabilizing our Partner Brand segment in 2009 and beyond. In 2008, we expect Partner Brand sales to be approximately $1.8 billion, with operating margins at approximately 2%. We continue to aggressively look for cost side opportunities in both the Partner Brand segment, as well as in our supporting corporate cost structures in order to improve upon this low forecasted operating margin.

Though, we forecasted compounded sales growth for 2010 to be only 0% to 5%, and operating margin to be 4% to 6%, we're fully committed to achieving our long-term operating margin goal of 10 plus percent for this segment.

And now, I'd like to open the call up for questions.

Question-and-Answer Session

Bill McComb

Thanks Andy.

Operator

Thank you.

Bill McComb

Okay

Operator

(Operator Instructions). Your first question is coming from Kate Mcshane with Citigroup.

Bill McComb

Hi, Kate.

Operator

Please go ahead.

Kate Mcshane - Citigroup

Good morning. My question is about Liz Claiborne and Isaac Mizrahi. Has Macy's indicated to you, one way or another, if they are pleased about this change? And since this impact won't be seen until spring 2008, can you remind us--?

Bill McComb

Spring 2009.

Kate Mcshane - Citigroup

I am sorry. Spring 2009. I misspoke. Can you tell us when we could see the potential impact of these new orders on your P&L?

Bill McComb

Sure. Dave, why don't you take that?

Dave McTague

Okay. Great. Thank you, Kate. Yes, in fact, we have worked with Macy's. They are ecstatic about this opportunity with Isaac. Clearly, Isaac has been an innovator as he set target up for success and created them as a destination for fashion and apparel, whereas before they weren't, they recognize and know him not only from his control but also have great respect for his business document and how he executed a target.

Market for spring '09 will be in the second half of 2008 obviously, that's the first opportunity we will have with them to see the product. We will begin building financial plans as soon as we finish the fall holiday market cycle, but all indications are very, very positive and they're really excited about his creative talent as well as product differentiation.

Bill McComb

Kate, its fair to say that they are very eager for Dave and Isaac to get very specific about the execution. What's on the hand tag? How are we going to market it? But I think a big part of the excitement is that this is, in fact, he is a great designer, he has proven to win with that missy boomer that is alluding us all so much. And on top of that all he has got a very, very, very marketable image and name and so I would just say that its going to be very important, that this line clearly differentiate and distinguish itself from I'll call it Liz & Co at Penny's, which is one of its intention, but also that it stand out on the floor and that it has a level of newness in look and feel that re-excite their customer.

And not to be underplayed as the emphasis that Dave put on that Isaac being the master designer. Meaning, that he will play a heavy hand on license categories and on all of the product that we develop internally. It will be done through his group. That we've never done on this business. And it has shown on the floor. And that has been one of the first questions that we've heard from the principles and from that department store class of trade. They want to see the jewelry go much more premium in price and look at deal. They want to know that footwear in particular, and is going to do the same handbags.

So all of that is the basis of lot of really positive conversation. If they want to see the detail unlike we said that we're cutting that up right now and Dave will be sharing that not only with them but with you all as well, in process from that sort of when we actually are in showroom in September.

Kate Mcshane - Citigroup

Okay. Great. Two quick follow-up to that, is the branding of Liz Claiborne now going to Dave, Liz Claiborne by Isaac Mizrahi, is his name going to be fully at with it on the actual label and then also you said you want to go more premium in jewelry and handbag. Could we see higher price points in the apparel as well?

Bill McComb

I think the answer to that, Dave, why don't you answer both of those.

Dave McTague

Yeah. Absolutely. As far as the labeling and packaging and marketing of the product itself as per Bill's earlier comment, we're literally in design phase of that right now. The brand is Liz Claiborne but we clearly want to insight the consumers' knowledge of Isaac's involvement through both the marketing of the products and marketing in general.

Across the product architectures and merchandising, clearly, we believe that there is an opportunity to have a much more balanced assortment, Isaac will bring fashion and as a result of that, clearly, we would all, the angle of the pyramid of good, better, best will certainly be affected. And we intend to put tremendous design and quality into the product and we will bring that to the consumer value.

So by classification, we certainly will be adding another floor on the roof top of the house.

Kate Mcshane - Citigroup

Okay. Thanks very much

Dave McTague

Thanks.

Bill McComb

Thank you, again.

Operator

Your next question is coming from Robert Drbul with Lehman Brothers. Please go ahead.

Robert Drbul - Lehman Brothers

Hi, and good morning.

Bill McComb

Hi, Bob.

Robert Drbul - Lehman Brothers

I guess the first question is when you look at 2007, overall, within your Direct Brands, can you maybe just break down, how much selling did you do in the off price channel for those brands and how is that expected to sort of trend throughout 2008.

Bill McComb

We don't and haven't disclosed within a brand that level of detail in terms of channel. We will tell you that the -- Jill why don't you talk about how you are managing that issue from a strategy perspective?

Jill Granoff

Yeah. I would say strategically, we are really looking to lessen any sales through the off price channel and to move those sales into the outlets where we can control the selling experience and ensure that we have a branded environment. As you saw from the numbers we talked about earlier, we had very few outlets historically for our Direct Brands, so we liquidated excess inventory to our price. Now, we have a very clear strategy to go into the best outlet centers, to create a branded environment, and to really liquidate excess inventory and do made-for-outlet product through that channel. So you will see less sales going forward in our price more sales going forward through the outlet segment.

Robert Drbul - Lehman Brothers

Okay. And within the outlet business, can you just, maybe just give us the update in terms of that the whole turnaround in terms of with the new nameplates and where you are with in that initiative?

Bill McComb

Sure.

Jill Granoff

I would say, maybe, we're approximately half way through the initiative. What we're really looking to do is optimize our real estate portfolio. We are looking to downsize our Liz Claiborne outlet stores, which have historically been oversized and under productive. We are focusing the merchandise assortment and this is facilitated by the sale of Emma James and JH Collectible and the closure of Sigrid. So we will have Liz Claiborne only outlets stores in smaller boxes.

And where we can, in other words where its right center with the right adjacencies in sufficient frontage, we are doing carvings into those boxes in building out Juicy, Lucky and Kate Spade outlet stores. And obviously, these are very favorable rents because we have the lease on the entire box overall. So I would say, we're midway through this.

Obviously, we had to put the plan in place. We have to negotiate with the more developers. We have to build out the stores. We will continue this initiative through '08. But the goal really is to ship the mix of our outlet sales, which historically had roughly 80% Liz Claiborne to roughly 50% Liz Claiborne and Partnered Brands and roughly 50% in the Direct Brand segment.

Robert Drbul - Lehman Brothers

And then just one final question. On Dana Buchman, how were the revenues for Dana Buchman be booked? Would it be as license revenue or wholesale revenue, how should we think about that from a P&L perspective?

Bill McComb

It'll be a license revenue. A 100% margin license revenue.

Robert Drbul - Lehman Brothers

Great. Thank you very much. Good luck.

Andy Warren

We don't have markdown liability, we don't carry inventory. We design the product in a very collaborative relationship. We work very collaboratively on brand and marketing with them and that's the reason.

Robert Drbul - Lehman Brothers

Thank you.

Andy Warren

Thanks. Bob.

Operator

Thank you. Your next question is coming from Omar Saad with Credit Suisse. Please go ahead.

Omar Saad - Credit Suisse

Thanks. Good morning.

Andy Warren

Good morning.

Omar Saad - Credit Suisse

Bill, can discuss some of the visibility issues between kind of the end of the third quarter and the end of the fourth quarter? What happened in terms of you planning for the fourth quarter and how do you get comfortable with your ability to just kind of track and plan the business going forward?

Bill McComb

Well. I'll give you a couple of answers on that, if you go back to the chart that we had in the PowerPoint deck that showed that the causes of it. I will tell you the place that we really did have a visibility problem that needs to be fixed and addressed is with regard to that the internal projections on markdown liability. That's one that is our mess and we are addressing it actually with systems improvements as well as just the dust settling on the teams, we were in the process of some real team changes, and I think that that contributed to the team not calling the debts of markdown liability where it needed to be.

But that said, we made a strategic decision to ensure that we preserved the right floor space in distribution on some of those brands and that resulted in from a negotiation perspective with the retailers, yet, I am saying in 2008, which is the year where we were waiting to get to 2009 a bridge year when all the new design in new product and merchandising. And in those top-to-top negotiations, it became clear that the markdown liability where the EOS, end of season, on liability was stiffer than what the divisions were, we're planning.

In terms of the cosmetics issue, we've characterized that there was a significant order that was to be placed in December that was expected in December that upon truing up our partner Elizabeth Arden had acquired another distributor in the second half of the year. And with that came some significant inventory liability and in working closely with that partner it didn't make sense to push through a large shipment of goods and that was not in our forecast. And so that impacted the business and yet it was the right thing to do long-terms or I'll say 2007-2008 perspective. And what else, Andy?

Andy Warren

Yeah. All Right.

Bill McComb

What I'll say is it really gets brands under strategic review.

Andy Warren

Yeah, I'd say, it falls into a couple of buckets. I think it's important to highlight that. Two of the declines were really, I would say, just were strategic, meaning that we knew we're going to hurt the '07 results and were going to help '08-'09, meaning the markdown money is still referred to in the liquidation of inventory. I mean, clearly, we want to get the inventory headwind out of the way. We knew it was going to be a hit to us as we went through the fourth quarter. And we really wanted to have as much leeway and as much bandwidth into '08 as possible. I think the other two were really more in surprise category.

Bill McComb

You can go back on Partnered Brands, I'll say, never have we seen a December like that on the business, and when a significant portion of your operating profit falls not only in the fourth quarter, but in the period from Thanksgiving to New Year's, and I'm talking way up there in the double-digit range, okay? Yet your last call from a forecast perspective at let's call it towards the end of October, which is when we talked to you and provided that guidance, we weren't anticipating what ended up happening at retail in December. And I'm talking specifically there about the Claiborne Men's and the Liz Claiborne Women's business. The DKNY women's business was softer than planned, but that's not really a factor in this miss. It was really those two major businesses.

Omar Saad - Credit Suisse

Okay. That's helpful. Now, guaranteeing markdowns to keep the space, I mean, isn't this part of the issue with the way this industry has ran and kind of when you came in, you kind of said this isn't a, kind of an unhealthy way to run the business. Did you see that changing long-term or are you just kind of doing what you need to do to be where you need to be for '09?

Bill McComb

Well, first of all, I would say we don't really operate on a system guaranteed margins. The age old system of vendor reconciliation, we very much participate in. I would tell you it all comes down to brand strength and what leverage you've got, I mean unfortunately 2007 was the year of probably the worst natural margins or natural sell through on the Liz Claiborne brand that we've ever seen. Its been veining for years but the product itself did not perform and we haven't been shy to say that the product direction that we took, I guess you could say it started in the fall of 2006, where the merchandising and design team was focused on more refinement, less casual, more muted colors, a younger silhouette, and just a mix within the product line. It didn't work. And it didn't work with the consumer. And what that means as you rack up a very big gap for the retailer in what they need to -- how they need to margin their floor.

This isn't a case of just a winner and a loser, where the department store makes out and we loose. The reality is when your product doesn't margin well nobody really wins. So I couldn't emphasis enough how timely and urgent the need to completely rethink and relaunch the men's Claiborne and women Liz Claiborne brands were, and in a nontrivial way. And so we're very thankful for that. I would tell you what can you expect going forward, the whole notion of vendors participating in margin protection with department stores is unlikely to be one that goes away.

However, the efforts that I talked about from the first and second quarter around downsizing the size of our sales team and increasing the resources Dave spoke about this morning. Increasing the resources and what a vertical retailer would call planning and allocation, we're doing that as a partner, in Partnered Brands with wholesaler. That is one great initiative to go a long way to improving the natural margins. So I would tell you that the Liz & Co. business has performed incredibly well from a natural margin perspective.

And we've got, we have engineered that offering very well from a price value perspective and Penney's a great operator. And so they've execute the launch very well. And that business margins naturally right where it need to margin. And that's what we think is going to happen with our Liz Claiborne and the Clairborne's men's business. It will take a while to build it, quarter-by-quarter I think that this is in -- we don't anticipate that will reach the peak of performance in the first quarter that we launch it, because the research shows we need to convince the consumer. We need to leverage all of the market ability and buzz factor that Isaac can bring to this. But that that the burden, end of season reconciliation is going to go down as our business model in terms of what we ship, where we ship it, door-by-door vendor partnership and product gets better.

Omar Saad - Credit Suisse

Okay. That's helpful. I just want to ask one question on the Direct Brand side. You've seen the profitability of that business was a little bit over 12% in '06 and a little over 11% in '07, looks like you're looking for 10% in '08. When do you think, and it sounds like the gross margins are fine.

Bill McComb

Yeah absolutely.

Omar Saad - Credit Suisse

But do you have that opportunity in the SG&A line. So when do you think and how should we be thinking about when we can start to see margins going back up again as you have the critical need to invest behind those brands. But when do you start getting leverage in that business?

Bill McComb

I think it comes in 2010, 2011, 2012 – is when you should see it start. We aren't being shy about it. We could be very focused on that metric in 2008 and 2009 and it will result in not making the right investments that these monobrand companies need. But we showed a range of 12% to 14% on slide 28 of the deck for -- 12% to 14% 2010 on slide 28 and that is absolutely right.

Omar Saad - Credit Suisse

Okay. But over the next year or two, you're going to continue to kind of out invest the growth?

Bill McComb

Yeah. And that doesn't mean it invest wisely cut smartly. Even within the footprint of direct brands, we've cutback in some areas and we have redeployed some cost to be very smart about where we spend. But in those areas of marketing and up talent new positions, new functions, planning an allocation was a nation or almost non-existing function in the businesses, and we've had to hiring people and build systems.

So in the second half of '09, you'll see a real lift and then as we have in essence pre-guided for a range for 2010 of 12% to 14%, it's definitely going to flow through. It's just we're balancing right now the needs and the commitments to have the capabilities. We can't promise that we're going to execute without also knowing that we have investments to make.

Omar Saad - Credit Suisse

Okay. And then is the marketing investment in the Direct Brand side, I think you said somewhere in the presentation you're going to increase marketing spend by 45 million over the next few years?

Bill McComb

Well I would tell you what date was this in there.

Dave McTague

$20 million in '08 and $45 million over the three-year window.

Bill McComb

Yes. The increment in '08 is $20 million and the three-year increment is 45. Correct.

Omar Saad - Credit Suisse

So my question is $4.5 billion sales base, you're talking about a point, is that enough, that's my question are you investing enough? How do we get comfortably you're investing enough behind, especially the key opportunities?

Bill McComb

Well, I would tell you that, it's a number that we're going to revisit and its something that you look at quarter-by-quarter. I will tell that the better benchmark from the marketing perspective, which is the one that you probably are really poking on more than the infrastructure or capital flow through or G&A, and the marketing from a percent of sales, we're right there at benchmark at 4% to 5% of sales and all of the bench mark show that that's an adequate amount and so there you go.

Omar Saad - Credit Suisse

Okay. Thank you.

Operator

Thank you. We have time for one more question coming from David Glick with Buckingham Research. Please go ahead.

David Glick - Buckingham Research

Thank you. Good morning, Dave, I have a question for you on Liz Claiborne. How do you see the ecstatic of the brand, the lifestyle of brand evolving from its in a classic traditional heritage, do you see it joining more towards the contemporary arena or do you see it kind of sticking to its heritage?

Dave McTague

Well, hi David. I think that first Isaac in his sensibility, I would call updated, classic by nature. He is working on brand concept and we'll be reviewing that shortly. I think the heritage of this brand is very, very important. We're not looking to turn the brand into a contemporary resource. We have other resources that are filling that need quite nicely for the consumer. But I would say that there is a critical requirement to constantly evolve product. And if you look at what has been the most traditional product historically, it's sitting dead if it hasn't evolved.

David Glick - Buckingham Research

Okay.

Dave McTague

And so that's true all the way across. There should be constant innovation going to the right.

David Glick - Buckingham Research

Do you see this launch as kind of a jumping with both seat from a Macy's and other department stores kind of like a Liz & Co and American living, where do you see this? Is it an all-door, all-division type of launch, or do you see it, to Bill's earlier comment kind of building quarter-by-quarter. I mean how would you, and obviously, it's early but what are your expectations for how this thing is going to launch.

Dave McTague

No. The expectations is it's all in. I think Bill's comments was more alluding to the reality of consumer awareness and adoption just looking at normal brand adoption over time. Meaning, we're going to plan the uptake realistically. But more or like it's sound it boom in terms of sea level of a real de-launch.

Bill McComb

Absolutely.

David Glick - Buckingham Research

So you have kind of pre-commitments from all the department stores, this is going to be an all-door, all- division brand or they're waiting to see product, how would you kind of characterize the commitment so far.

Bill McComb

God know, we're not at that stage.

Dave McTague

Yeah. As a former retailer, David, I think you know the answer to that question. The answer isn't that they're really excited about it. They can't wait to see the product. We're moving in to and through 2008 and they're eager as we are to see the product and get to launch.

Bill McComb

There is still a big canvas tarp over this thing, I mean it we're very much that the presses correctly reported that we're migrating design and merchandising teams, that we're internally working on all the elements, what the hand-tag looks like all those things. And they are chomping at the bit to get those answers but not ready for prime time yet.

David Glick - Buckingham Research

Got it. One last question, will the Macy's departments store, Liz Claiborne product be at all differentiate from other stores I am talking above the JCPenny channel, so I'm not really referring to Liz & Co. but what Macy's have a separate and a subbrand or is that the same brand for all the department stores in that channel?

Dave McTague

The Liz Claiborne under Isaac Mizrahi will be for the tier 2 department store partners that we have. In addition to that, there are always conversations and additional opportunity.

David Glick - Buckingham Research

Got it. Okay. Thanks a lot. Good luck.

Dave McTague

Our pleasure. Thank you, David.

Bill McComb

Okay, Pam, it looks like that's a wrap. Any other questions?

Operator

No sir, not at this time.

Bill McComb

Okay. Thank you all for joining the call.

Operator

Thank you. And this concludes today's Liz Claiborne fourth quarter 2007 yearend conference call. You may now disconnect your lines, and have a pleasant afternoon.

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