UPDATE 3-Denims help Jones Apparel top Street, shares up

Wed Jul 29, 2009 1:56pm EDT

* Q2 EPS $0.29 ex-items vs. Street view $0.07

* Says "cautious" on outlook for rest of '09

* Says customers ordered "very conservatively" for H2

* To launch men's l.e.i. products at Wal-Mart

* Shares rise as much as 8.7 pct

(Adds comments from CEO, analysts, conference call, stock move)

By Dhanya Skariachan

BANGALORE, July 29 (reuters) - Jones Apparel Group Inc's JNY.N quarterly profit beat estimates handsomely, boosted by strong sales in its wholesale jeans segment and a surprise profit in its retail business and sending shares up as much as 8.7 percent.

While the company's wholesale jeans business has gotten a boost from a deal to sell its l.e.i. line at Wal-Mart Stores Inc (WMT.N), its retail business improved mostly on its efforts to prune its store base.

Jones said net income for the second quarter ended July 4 rose to $12.6 million, or 15 cents a share, from $10.5 million, or 12 cents a share, a year earlier.

Excluding items, the company earned 29 cents a share. This compares with analysts' expectation of 7 cents, according to Reuters Estimates.

Revenue fell about 3 percent to $804 million, hurt by declines in all divisions except wholesale jeans, where revenue rose 28.5 percent.

The maker of Anne Klein and Jones New York clothing and Nine West and Easy Spirit shoes posted an operating profit of $3 million in its retail segment, down from $6 million a year earlier. However, the results were lauded by many analysts, who had expected a loss at retail.

Lazard Capital Markets analyst Todd Slater said he was expecting the retail unit to post a loss of $11 million.

"Retail, the area of greatest consternation in the last two years, drove the biggest swing," Slater wrote in a research note.

He said the feat was "all the more impressive" given very cool and rainy weather that allowed consumers to put off buying open-toed shoes and sandals, forcing stores to mark them down.

STRONG SALES AT WAL-MART

Jones sells its l.e.i. jeanswear line exclusively at Wal-Mart, a deal that Standard & Poor's retail equities analyst Marie Driscoll said helped margins.

In an interview with Reuters, Jones Chief Executive Officer Wesley Card said the company plans to launch a men's collection under the l.e.i. line at about 100 locations of the world's largest retailer. [ID:nWNBB4890]

Despite the strong second-quarter results, Jones gave a "cautious" outlook for the rest of 2009 citing conservative orders from its customers for the back half, which includes the all important holiday season.

Jones, however, added that the conservative orders could translate into fewer promotions and thereby help boost margins during the fall and holiday seasons.

The company trimmed the top end of its 2009 revenue forecast to $3.35 billion from $3.50 billion, while keeping the low end at $3.30 billion. It said expenses in the second half of the year will not be down as much as they were in the first half.

Jones -- which has cut jobs, shuttered stores and managed inventory tightly in a bid to reduce costs in the recession -- said it plans to close about 240 retail stores this year and next. That compares with its earlier plan to close 225 stores.

It sees the accelerated closures improving profit by about $4 million this year, $15 million next year and $21 million in 2011. Card told Reuters he did not see any major cost-cuts this year beyond the announced initiatives.

Jones is also testing a new retail chain called ShoeWoo that would sell many shoe brands and be larger than most of its current stores.

Jones shares rose to a high of $12.94, before surrendering most of their gains to trade up 12 cents at $12.02 Wednesday afternoon on the New York Stock Exchange. (Reporting by Dhanya Skariachan in Bangalore; Editing by Lisa Von Ahn, editing by Gerald E. McCormick)

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