Struggling clothier Liz Claiborne, Inc. (NYSE: LIZ) stepped into the earnings spotlight early this morning, and the stock is down sharply as investors react to a wider-than-forecast quarterly loss.

LIZ confessed to a first-quarter adjusted loss of 37 cents per share, or 97 cents per share on a GAAP basis. Analysts were expecting a much narrower loss of 22 cents per share. Sales for the period slipped nearly 29% to $779.7 million, falling well short of Wall Street's consensus estimate for revenue of $880.8 million.

Ann Taylor (NYSE: ANN) is not the darling of Wall Street today. As I write this, the retailer's shares have lost 30% of their value. Trading volume is heavy. The company missed Wall Street's estimates by a pretty wide margin.

The call, was for an adjusted loss of $0.55 per share in the fourth quarter. According to the press release, Ann Taylor lost $1.03 per share on an adjusted basis. Last year at this time, there was a profit of $0.19 per share. What a difference a year makes. By the way, if you include all the GAAP stuff in the current Q4, Ann Taylor lost an amount equal to the mark of the beast. I don't even want to write the evil number out, but it begins with a 6 if you want a hint.

The parade of layoffs continues with Liz Claiborne (NYSE: LIZ) announcing that it will cut 725 workers -- 8% of its US workforce.

CEO William L. McComb noted in a press release that "The challenging retail and economic environment requires us to remain more focused than ever on cost rationalization and act decisively to manage the relationship between our revenue and our SG&A."

The company's performance has been absolutely brutal of late, and the stock price has followed. But the company will be debuting its new collection designed by Isaac Mizrahi this month, and the buzz appears to be quite good.

Liz Claiborne sold has sold off a lot of brands over the past two years -- a wise move given that the value of those assets has likely plunged in the interim. Turning around the company will be impossible without an economic recovery but by cutting costs, ditching lesser brands, and hiring a star to revitalize a legendary brand that has lacked life for years, Liz Claiborne could be poised for a comeback.

With CEOs catching flack for flying in private planes, many are taking it down a notch and flying first class.

Liz Claiborne (NYSE: LIZ) CEO William L. McComb takes it a step further. According (subscription required) to The Wall Street Journal, "The boyish-looking executive, who turned 46 Monday, flies nearly 200,000 miles a year, all of them on commercial flights, almost always in coach."

Mr. McComb deserves credit for cutting costs and sacrificing his own comfort and convenience, and the company's PR people deserve credit for spinning it into a puff piece in the nation's leading business newspaper. Coach class or no, the stock is still down 90% over the past year.

Still, Mr. McComb appears committed to cutting costs wherever possible to keep the company afloat while it sheds brands to strengthen its balance sheet and waits for the economy to rebound. If it can make it through this mess, strong brands like Lucky Brand Jeans and Juicy Couture could lead shareholders to impressive returns.

Liz Claiborne (NYSE: LIZ - option chain) shares are dropping today after the company got a slate of bad news. First, S&P downgraded the stock today and cut its price target by 47%. Also, September retail sales came in way lower than expected, which is driving retail stocks lower today. Lastly, competitor Jones Apparel Group (NYSE: JNY) lowered its EPS guidance and is off by more than 20% today. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LIZ.

This morning, LIZ opened at $11.06. So far today the stock has hit a low of $9.99 and a high of $11.15. As of 12:40, LIZ is trading at $10.59, down $1.17 (-10.0%). The chart for LIZ looks bearish and S&P gives LIZ a 2 STARS (out of 5) sell ranking.

For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $15 range.

I've been expressing my long-term bullishness on Liz Claiborne, Inc. (NYSE: LIZ) since the company announced that Isaac Mizrahi would be taking over as creative director for its flagship brand. The stock is down a little since that announcement back in January, but with the re-launch under Mizrahi's direction scheduled to hit stores in February, investors could start bearing the fruits of that deal soon.

A piece (subscription required) in yesterday's Wall Street Journal looked at Mizrahi and his plans for the Liz Claiborne brand, which has seen its sales decline by about 50% so far this decade: "The collection includes modern styles like cork-covered high heels and oversize tote bags in soft neutrals, metallics and bright colors, according to two people who were there. The designs also incorporate an updated Liz Claiborne logo."

Goldman Sachs analyst Benjamin Rowbotham called the relaunch "the single most important issue" for the company, and Liz Claiborne has reportedly given Mizrahi a rare level of creative freedom in reviving its brand.

Liz Claiborne has struggled of late, even more so than the industry at large, but remember: Mizrahi made Target Corporation (NYSE: TGT) a cool place to shop for clothes. With the stock trading in the bargain basement, Mizrahi's new collection offers savvy investors tremendous upside potential.

Liz Claiborne (NYSE: LIZ) has agreed to sell its Ellen Tracy brand to a group of investors including Radius Partners LLC, William Sweedler of Windsong Brands LLC, Barry Sternlicht and Marvin Traub in cash deal that could reach $42 million -- $27.3 million in cash and an earn-out of up to $15.

Liz Claiborne CEO William McComb said that "Ellen Tracy is an iconic brand, and we are confident that the new owners will invest in this business and give it the care and attention it deserves. We are also thrilled that the substantial majority of Ellen Tracy employees will be retained as part of the deal."

Perhaps Liz's management should have given the decision to acquire the company in the first place more attention. In 2002, the company paid $180 million for Ellen Tracy.

The company's failed effort to diversify its brands aside, there may be reason for optimism now that Liz Claiborne has made the decision to sell non-core brands and focus on the flagship. The signing of design legend Isaac Mizrahi could lead to a major turnaround of the company over the next few years, and investors willing to go against the grain may want to take a look in light of today's pullback.

It's been awhile since shareholders of Liz Claiborne (NYSE: LIZ) have had any good news. In the past year, the company's stock has declined from north of $45 per share to Monday's closing price of $16.40: the lowest the stock has traded since 1998.

If anyone can save the struggling fashion house, it's the man they just signed to be creative director of the company's flagship brand: Isaac Mizrahi. You can be sure he didn't come cheap, but he's just what they need. After all, this is the guy who actually managed to make Target (NYSE: TGT) a cool place to shop for clothes.

Liz Claiborne has a lot of potential. In the press release announcing the signing, Mizrahi himself summed it up best: "Liz Claiborne is an American fashion icon. Her clothes were not only beautiful, not only smart, they were revolutionary. She invented separates, and invented an entirely new category in the department store. She made fashion friendly and accessible and in doing so she became every woman's best friend. These are all ideas I treasure and I'm honored to have the opportunity to build on this fantastic legacy and excited to reestablish the label as a must-have." (emphasis mine)

There are no sure things in fashion, but at a discount to its book value and a low price/earnings multiple, you have to like the chances of a Mizrahi-led Liz Claiborne line delivering value to shareholders for the first time in a long time.

MAJOR PAPERS:

• In a move to capitalize on its Hollywood franchise, JP Morgan Chase & Co (NYSE: JPM) is expected to announce plans today to invest $200M of its own money into the entertainment industry, the Wall Street Journal reported.
• The WSJ also reported that while stocks like Countrywide Financial Corporation (NYSE: CFC) may face big discounts to book value, signs of the turmoil in the credit market are beginning to appear elsewhere causing analysts to remain cautious on jumping back in to banking stocks.

OTHER PAPERS:

• With the recent news of a 3-for-1 share proposal for Rio Tinto Plc (NYSE: RTP) by BHP Billiton Limited (NYSE: BHP), rumors have been flying of another potential merger between Anglo American Plc (NASDAQ: AAUK) and Xstrata, the Guardian reported.

WEBSITES/MAGAZINES:

• Fortune has learned that Liz Claiborne Inc (NYSE: LIZ) has received at least two final round bids for nine of its apparel brands, but the outcome is in doubt as some of the potential suitors dropped out.

Liz Claiborne (NYSE: LIZ) reported lower earnings today as sales continued to be weak and the company took several restructuring charges. However the results were slightly above guidance, and on the conference call, CEO Ellen Tracy said the company had been contacted by "dozens of parties" interesting in acquiring brands from the company. The stock traded up modestly in after-hours trading.

Adjusted diluted EPS for the second quarter 2007 were $0.26 compared to adjusted diluted EPS of $0.45 for the second quarter of 2006. The adjustments reflect the restructuring charges. Sales increased just 0.5% year over year.

A piece in today's New York Times looked at some of the challenges the company faces relating to its falling out with Macy's. Liz Claiborne hopes to continue to move away from department store sales and establish a stronger single-brand retail presence, which would have higher margins.

But the transition, even if it is successful, may be painful for shareholders in the interim.

Zac Bissonnette is a partner and writer for Hedge Funnies, a satirical take on the financial markets.

MAJOR PAPERS:

• Thanks to a downturn in sales, sportswear maker Liz Claiborne Inc (NYSE: LIZ) will seek to divest itself of 16 of its 36 apparel brands, equal to about $800 million of its $5 nillion in annual revenue, reported the Wall Street Journal (subscription required)
• The Financial Times (subscription required) reported that Dell Inc (NASDAQ: DELL) has listened to customer concerns and has moved to eliminate "trialware" from a range of small business laptops and desktops computers.

OTHER PAPERS:

• British mining company Rio Tinto plc (NYSE: RTP) is believed to be preparing a $34 billion, or $90 per share, takeover bid for Canadian aluminum company Alcan Inc (NYSE: AL), reported the U.K. Times.
• According to the Economic Times, FedEx Corporation (NYSE: FDX) has failed in its attempt to buy out Indian logistics company SafeExpress.
• The Chicago Tribune reported that the U.S. faces an "increased risk" of a terror attack this summer, according to U.S. Homeland Security Secretary Michael Chertoff.

Liz Claiborne (NYSE: LIZ) will sell 16 of its 36 brands in a move that will cut [subscription required] about $800 million of the company's $5 billion revenue.

The move is very risky. The company believes that by moving out of brands that have modest profits it can focus more on its core brands. A difficult environment in department-store sales is behind the company's thinking for focusing on a fewer number of product lines.

To get around problems with slow department-store sales, the company will also open 300 of its own outlets by 2010.

The Wall Street Journal, however, points out that the brands Liz will cut are not necessarily the slowest growing brands. The company has not said whether they are less profitable than the ones to be retained or not.

That is why the strategy may make little sense. Having a larger number of brands would appear to give the company more leverage at the retail level.

Well, perhaps the management knows something Wall Street does not know. Earnings over the next couple of quarters will bear watching.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Hoorah, now that this earnings period is starting to wind down, I can highlight some non-earnings events to look out for next week.

Monday May 14

• Hitachi Ltd (NYSE: HIT) Strategic Storage Announcement conference call at 8am.
• Aircastle Limited (NYSE: AYR) to report Q1 earnings; conference call at 11am.
• Another Vioxx trial starts for Merck and Co Inc (NYSE: MRK) in Texas.

Tuesday May 15

• Motorola Inc (NYSE: MOT) mobile experience at 10am.
• Yamana Gold Inc (NYSE: AUY) to report Q1 earnings; conference call at 11am.

Wednesday May 16

• Southwest Airlines (NYSE: LUV) shareholder meeting at 11am.
• Hewlett-Packard Company (NYSE: HPQ) to report Q2 earnings; conference call at 5pm.

Thursday May 17

• JC Penney Company Co Inc (NYSE: JCP) to report Q1 earnings; conference call at 9:30am.
• Liz Claiborne Inc (NYSE: LIZ) annual shareholder meeting at 10am.
• Biogen Idec (NASDAQ: BIIB) research and development day at 8:30am.

Friday May 18

• British Airways (NYSE: BAB) to report preliminary Q4 earnings; conference call at 9am.
• Federated Department Stores Inc (NYSE: FD) shareholder meeting at 11am.

Today, Cramer came on CNBC for the STOP TRADING segment and was briefly positive on Olin Corporation (NYSE: OLN) as a cheap chemical company and positive on Churchill Downs, Inc. (NASDAQ: CHDN) ahead of the Kentucky Derby.

The main issue though is on Crocs, Inc. (NASDAQ: CROX). Cramer is still sticking with Crocs as one that is now not a fad, and he thinks it is going higher.

He did not go as far as a $95.00 target that was given today but he is now saying the ugly shoes are "not a fad." That is markedly different than what he noted in February when he said you could still make money before the fad peaks and it tumbles. He noted somewhat jokingly that Liz Claiborne, Inc. (NYSE: LIZ) ought to go buy that company to re-energize its sagging brand. So that may be a key change in his longer-term views and sounds like he's going to be behind this one for longer than just "a trade" for his future shows and appearances.

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.