Boosted by better denim sales, aggressive cost controls and higher margins, Jones Apparel Group Inc. on Wednesday posted second-quarter earnings that beat Wall Street estimates by 22 cents.
For the three months ended July 4, net income rose 23.5 percent to $13.1 million, or 15 cents a diluted share, from $10.6 million, or 12 cents, in the year-ago quarter. Excluding adjustments such as the costs connected with a tender offer for notes due in November, adjusted earnings per share were 29 cents compared with the Wall Street consensus estimate of 7 cents.
Total revenues were down 3.1 percent to $803.9 million from $829.4 million, including a 3.3 percent decline in sales to $793.4 million. By segment at wholesale, jeanswear jumped 28.5 percent to $221.2 million, while better apparel sales fell 13.7 percent to $202.7 million and footwear and accessories dropped 14 percent to $185 million. Retail sales decreased 6.9 percent to $183.8 million as comparable-store sales declined 6.4 percent.
Digesting the results, investors bid the stock up 39 cents, or 3.3 percent, to $12.29 in New York Stock Exchange trading Wednesday. Shares went as high as $12.94 in the morning. (For more on the day’s performance of the stock market, see page 13.)
For the half, income dropped 55.6 percent to $13.4 million, or 16 cents a diluted share, from $30.2 million, or 35 cents, a year ago. Total revenues fell 6.1 percent to $1.7 billion from $1.8 billion.
“While we are still operating in a difficult and in an uncertain retail environment, inventory levels generally appear to be coming in line with demand,” said Wesley Card, president and chief executive officer, on a Wednesday morning conference call.
He said customers ordered “very conservatively” for the second half of this year.
Card told WWD the firm’s business in July so far has showed signs of strength. He added Jones also picked up some additional business from retail customers worried about CIT Group Inc.’s solvency and its impact on other vendors.
Jones does not factor its receivables, and its exposure to CIT is limited to $45 million, or 7 percent, of its total $650 million credit facility, in which CIT is a participant.
The company plans to close 240 retail locations — 60 percent footwear stores in malls and 40 percent freestanding stores — by the end of next year. When done, outlets will represent 70 percent of its store base.
In addition to its Rachel Roy brand launch, Jones is working with Wal-Mart Stores Inc. on a test collection of L.E.I. bottoms for men, at a price point of $20 a pair, which will ship in mid-August to 100 Wal-Mart stores.
Chief financial officer John McClain said the operating margin was 6.2 percent, compared with 4.2 percent a year ago.
“There is no reason why this company can’t get back up to the high-single-digit operating margin over the next three years,” said analyst Jennifer Black. “The company has done a great job of assorting its merchandise towards the way today’s customer is shopping, offering ‘wear-now’ merchandise with a focus on need and value.”
She explained the collections are also now “item-driven” businesses, a key in the current environment where consumers want things that are “versatile.”
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