NEW YORK — Shares of The Jones Group Inc. rose 16.3 percentWednesday, to close at $12.91, as second-quarter earnings fell less thanexpected and the company took a more upbeat view about prices andsupply for the future.
In a conference call with Wall Streetanalysts, Wesley Card, chief executive officer, alluded to the drop inthe company’s second-quarter gross margin, which fell to 36.4 percent ofsales from 36.9 percent a year ago. “The margin decline results fromthe impact of higher product costs and higher retail promotional levelswhich began in the second half of last year and is an industry-widesituation,” he said. “We now have a strong handle on the cost situation.And in fact we see some bright spots in the future with respect toproduct costs as certain raw material costs are coming down and factorycapacity issues are softening considerably.”
He added thatconsumer spending for the back half of the year was still a questionmark owing to mixed economic signals, from changing reads on consumerconfidence to the ongoing debt ceiling debate in Washington.
Asfor price increases, Card said during the call that prices forcommodity-type products have begun to “escalate this summer.” Whileprices rose moderately during the first half, with little resistancefrom the consumer, the increases will become “more pronounced” in thesecond half.
Card later told WWD, “Cotton and other raw materialsfor apparel are coming down as we move to spring, and factory capacityis opening up. Those are some of the bright spots moving into the firstand second quarter of next year.”
For fall, the company isfeaturing a go-to item for each brand. For Jones New York, it will bethe Broadway blazer, and, for Nine West, the items will be loafers, MaryJanes and boots. Rachel Roy, Card said, is doing “phenomenally inMacy’s,” where dresses are a hot category for the brand.
RichardDickson, president and ceo of branded businesses, said that the productstrategy for Rachel Roy will be focused on the 24-hour dress, which willhelp showcase specific key items to go with it.
For the threemonths ended July 2, net income attributable to Jones fell 79.6 percentto $5 million, or 6 cents a diluted share, from the year-ago level of$24.5 million, or 30 cents. Excluding nonrecurring items related toacquisitions and restructuring, earnings landed at 33 cents, 6 centsabove analysts’ consensus estimates, and 12 cents below the 45 centsregistered in the 2010 quarter.
Cutting into profits were a 6.2percent increase in selling, general and administrative expenses, to$278.2 million, and a sharp spike in net interest expense, to $37million from $14.3 million in last year’s quarter.
Revenues rose3.2 percent to $887.4 million, from $859.6 million, with sales ahead 3.3percent to $876.7 million. Analysts had expected revenues of $894.8million. Gross margin dipped to 36.4 percent of sales from 36.9 percentin the year-ago period.
With the exception of domestic wholesalefootwear and accessories, all segments of Jones reported an operatingprofit, with international wholesale and domestic wholesale sportswearboth reporting an operating margin of over 10 percent.
For thesix months, net income attributable to Jones dropped 51.5 percent to $30million, or 36 cents a diluted share, from $61.9 million, or 75 cents.Revenues were up 5.8 percent to $1.85 billion from $1.75 billion asgross margin receded to 35.4 percent of sales from 36.8 percent in thefirst half of 2010.
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