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UPDATE 3-Jones Apparel profit tops estimates; shares soar
July 30, 2008 / 11:48 AM / 9 years ago

UPDATE 3-Jones Apparel profit tops estimates; shares soar

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By Nicole Maestri

NEW YORK, July 30 (Reuters) - Jones Apparel Group Inc JNY.N reported a better-than-expected quarterly profit on Wednesday as the maker of Jones New York apparel and Nine West shoes restructured operations and shed underperforming brands, sending its shares up as much as 19 percent.

Chief Executive Wesley Card said in an interview that the company “did a little bit better in most of our operations than we had expected,” and the launch of its l.e.i. denim at Wal-Mart Stores Inc (WMT.N) was “off to a great start.”

But given the uncertain state of the economy, Card said he remained cautious headed into the second half of the year, and the company stood by its full-year earnings forecast.

“I think it’s just common sense to be cautious and conservative in this environment,” he said.

Jones Apparel reported second-quarter net income of $10.6 million, or 13 cents per share, compared with a loss of $47.1 million, or 44 cents per share, a year earlier, when it recorded restructuring costs.

Excluding special items, such as the sale of Barneys New York and costs for exiting some sportswear lines, earnings from continuing operations were 20 cents a share. Analysts’ average forecast was 12 cents, according to Reuters Estimates.

“Given the environment that’s out there, they’re doing better than we would have expected,” said Standard and Poor’s equity analyst Marie Driscoll. She raised her 12-month target price on Jones Apparel shares to $20 from $17.

The shares were up $1.78, or 12 percent, to $16.69 in midday trading on the New York Stock Exchange after rising as high as $17.68 earlier.


Jones operates its own stores, like Nine West and Easy Spirit, and also makes clothes, jeans, footwear and accessories that are sold in department stores.

Like other clothing makers, Jones is being squeezed as retailers, worried about declining consumer spending, order less inventory to prevent a glut of unsold merchandise. Meanwhile, fewer shoppers are heading to the mall, hurting sales of the merchandise Jones sells in department stores.

At the same time, the company’s margins are being pressured by higher costs for labor, transportation and raw materials.

To improve business, Jones has been revamping its operations, selling its Barneys New York stores, exiting some underperforming sportswear brands and working to improve results in its own stores.

Revenue for the second quarter fell to $829 million from $904 million a year earlier. Sales at stores open a full year, or comparable store sales, were flat, while comparable store sales in its footwear stores rose 5.8 percent.

“Their footwear is turning around,” Driscoll said. “It’s been something we’ve been waiting for for a while, and it’s great to see signs that it’s happening.”

Card said that for the back-to-school season, shoppers are following a “buy now, wear now” mentality.

“They’re going to be very selective and focused on value,” he said.

Wal-Mart is now selling the company’s l.e.i. jeans in roughly 3,000 of its discount stores, and Card said he is “very pleased” with initial sales results.

Wal-Mart now wants to expand, and sell l.e.i footwear, sunglasses, handbags and costume jewelry, he said.


In October, Jones will open a new test store in New Jersey that will sell all of its brands in one location.

“If it’s successful, we’re going to position it in malls ... where we’re not really heavily penetrated in the anchor stores with our brands,” Card said.

He also said Jones will roll out a new loyalty program for its Nine West shoe brand to help boost sales.

“We actually, frankly, have lagged behind others in getting this in place,” he said.

For the full year, Jones expects earnings per share from continuing operations, before special items, of $1.20 to $1.35, the same forecast it provided in April. At that time, Jones had said its retail customers were ordering conservatively for the third quarter and it expected the same for the fourth quarter.

Card said retailers continue to order cautiously. (Reporting by Nicole Maestri; Editing by Maureen Bavdek and John Wallace)

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