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Dillard’s Jettisons Nine West Brand

NEW YORK — Dillard Department Stores has dropped Nine West from its lineup of brands.<BR><BR>Meanwhile, analysts are closely watching Jones Apparel Group, which owns the Nine West brand, to get a read on how recent acquisitions will affect its...

NEW YORK — Dillard Department Stores has dropped Nine West from its lineup of brands.

Meanwhile, analysts are closely watching Jones Apparel Group, which owns the Nine West brand, to get a read on how recent acquisitions will affect its bottom line.

Sources said the decision to drop Nine West was made in connection with Dillard’s strategy to become more “upscale” in its merchandising.

Julie Bull, director of investor relations at Dillard’s, declined comment on the move to drop Nine West. Regarding the retailer’s positioning to a more upscale format, she described it as an “ongoing strategy for a couple of years.”

Executives at Jones Apparel Group could not be reached for comment. Jones is scheduled to report fourth-quarter earnings results today.

News of Dillard’s decision surfaced last week in Las Vegas during the World Shoe Association show, the footwear industry’s largest U.S. trade show. It’s unclear whether the decision to drop Nine West affects merchandise for spring or fall.

Merrill Lynch analyst Virginia Genereux said in a research note that Jones’ 2005 revenue outlook “looks high to us, at $5.35 billion in sales at the midpoint. This implies about $700 million in incremental sales growth over 2004, although Barneys [New York] and Maxwell Shoe are expected to contribute only $575 million of this.”

A $575 million contribution includes $475 million from Barneys and $100 million from Maxwell. That implies that the core Jones business “will be up about $125 million, although the wholesale business is on balance planned flat for this year,” the analyst noted.

Jones acquired Barneys New York and Maxwell Shoe in 2004. The analyst added, “We wonder how the Barneys acquisition will impact Jones’ free cash flow, a focus for value investors. Under its credit agreement, Barneys’ [capital expenditure] was limited to around $10 million, but the stores may require additional investment.”

Genereux concluded that Jones’ multiple is in the “process of taking a permanent step down, as investors focus more on poor return characteristics and the company’s relatively weaker strategic positioning among retailers demanding smaller, more differentiated brands.”

Genereux said the challenges before Jones is not the fault of the current management team. Instead, the analyst said management’s visibility into earnings is diminishing because of several other external factors, which include retailers forcing vendors to take more inventory risk and department store customers demanding smaller, more differentiated brands.

This story first appeared in the February 16, 2005 issue of WWD.  Subscribe Today.

The analyst said Jones’ management may not fully understand the newly acquired business, and that there may be underestimation of margin pressure in the core Jones business.