Jones Apparel Group Inc. is hoping that a vigilant approach to costefficiencies will help it limit the impact of higher prices that appearlikely to start showing up in stores toward the end of the year.
WesleyCard, chief executive officer, discussed the price situation on aconference call with analysts after the company reported second-quarterprofits that nearly doubled year-ago levels and beat consensusestimates. The Jones executive said cost pressures will begin to affectprices of some goods in the fourth quarter, and more so in spring 2011.While prices for leather and cotton have moved up sharply, Card said the“cotton impact is starting to moderate and…the supply is now comingon-stream much stronger and should catch up to demand.”
Whilethat should reduce price pressure, other factors, such as theappreciation of the Chinese currency and hikes in labor and freightexpense, will continue.
Card concluded those costs will “forcesome price increases on the American consumer.” Jones hopes to offsethigher costs and minimize the impact on margins by expanding its supplychain to other countries and reengineering some products, Card said.
Card’scomments offered a somewhat more encouraging perspective on price thanthe one provided last week by Richard Noll, ceo of Hanesbrands Inc., whosaid, “The era of apparel deflation is now over.” Hanesbrands’ businessis more dependent on commodity merchandise than Jones’, however.
Forthe quarter ended July 3, net income was $25.7 million, or 30 cents adiluted share, from $13.1 million, or 15 cents, in the year-ago quarter.Excluding the impact of acquisition-related charges and severanceconnected with the planned closure of certain stores, adjusted earningsper share were 45 cents for the quarter, 12 cents better than the 33cent EPS level forecast by analysts polled by Yahoo Finance. Year-agoEPS was 29 cents.
Total revenues rose 6.9 percent to $859.6million from $803.9 million, boosted by strength in better apparel,footwear and accessories, with sales up 7 percent to $849 million from$793.4 million. By product category, wholesale footwear and accessoriesjumped 35.2 percent to $264.5 million, wholesale better apparel rose12.6 percent to $261.4 million, and wholesale jeanswear fell 13.8percent to $191.3 million. Retail sales fell 3.4 percent to $177.5million.
For the year to date, income grew nearly fivefold to$64.9 million, or 75 cents a diluted share, from $13.4 million, or 16cents, a year ago. Total revenues rose 3.1 percent to $1.75 billion from$1.7 billion.
The company recently completed the acquisition ofa 55 percent interest in Stuart Weitzman Holdings and entered into anexclusive licensing and distribution agreement with G-III Apparel GroupInc. for Andrew Marc men’s jeanswear.
Card, who noted Jones willwait for the end of the spring clearance period and the upcomingback-to-school season to determine the strength of consumer spending forthe second half, said he remained cautious about more moves on theacquisition front. Companies that would be of interest includebusinesses that do well in Jones’ core product capabilities such asjeanswear and sportswear, but in areas where Jones’ business is lessdeveloped, such as contemporary and affordable luxury, Card said.
Sharesof Jones Wednesday closed at $17, up 32 cents, or 1.9 percent. That’sabout midway between their 52-week low of $11.50, reached last July 28,and the corresponding high of $24.72, reached April 28.
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