The dramatic pullback in spending by consumers reduced Jones Apparel Group Inc.’s third-quarter earnings to a fraction of what they were a year ago, but still a hair above Wall Street’s expectations.
For the three months ended Oct. 4, net income fell 93.1 percent to $27.3 million, or 33 cents a diluted share, compared with $400.1 million, or $3.97, in the year-ago quarter. Adjusted earnings per share for continuing operations were 34 cents, 1 cent higher than the consensus estimate of analysts.
Total revenues fell by 6.1 percent to $964.7 million from $1.03 billion a year ago, which included a sales decline of 6.2 percent to $948.6 million from $1.01 billion. In the quarter, total wholesale better apparel sales fell by 4.6 percent to $350.6 million, while total wholesale jeanswear sales sank by 18.4 percent to $203.1 million.
Shares of Jones ended Wednesday’s New York Stock Exchange session at $10.17, up 15 cents or 1.5 percent.
The lone bright spot was total wholesale footwear and accessories sales, which bucked the trend by gaining 1.6 percent to $297.2 million.
The company said same-store sales at its own domestic stores were down by 2.4 percent for the quarter.
In addition to the drop-off in consumer demand, the elimination of certain sportswear lines contributed to the reduction in revenues.
The apparel firm earlier this month guided earnings expectations lower due to the deteriorating economic climate and its impact on consumer spending. Jones met its own third-quarter adjusted EPS expectations for continuing operations of between 32 and 34 cents a share. It expects 2008 full-year adjusted EPS from continuing operations at between 93 and 98 cents, compared with 2007 adjusted earnings of $1.26.
Wesley R. Card, president and chief executive officer, told Wall Street analysts that comparable-store sales in October for its customers will likely follow the path of September’s decline. He noted that September comps among Jones’ department store customers fell 11.8 percent.
“What we’re seeing is more than ever, consumers are in a buy-now, wear-now mode,” he said. “Women’s sportswear has been the most challenged business, while tailored basics, dresses, suits and footwear are showing more resilience in the current climate.”
As a result, he continued, “we’ve provided for additional markdown support in our third-quarter results as well as in the guidance for the balance of this year. We also adjusted our expectations for our own vertical retail operations downward and anticipated higher promotions to keep inventories in line with demand.”
In an interview, Card said that so far, retailers are planning their spring season conservatively. He anticipates that with a new presidential administration on the horizon, one can expect government intervention in the form of stimulus packages to ease the financial pressures felt by consumers.
“What we’re doing in the meantime is careful and meaningful inventory planning,” he said. “We’re scrubbing down every expense, and focusing on efficiency and especially on our product.”
The goal, he noted, is to provide the “best product with the best value in the market.…When people buy less, they are more careful and [buy] better quality. That is the guts of our business.”
The firm has spent considerable time reviewing its portfolio of brands, and will continue to focus on the existing core holdings. However, the vendor continues to evaluate possible opportunities to add to its brand umbrella.
“We’re always looking at acquisitions,” Card said. “In this climate, we’re much more cautious about making a deal, [but it is] almost impossible with the credit lockup to do anything.”
Accordingly, the ceo said, the company is focused on “looking at our core operation to make sure we get through any downturn next year.”
According to John McClain, chief financial officer, the company has a $200 million cash position that is expected to increase to $300 million by the end of the fourth quarter. That’s enough to pay off a $250 million senior note due in November 2009, without having to draw down on the firm’s $1.25 billion credit line.
Companies such as Jones are reaping some of the benefits from a softening of raw material prices, and with energy prices down, seeing some moderation in transportation costs, Card said.
For the nine months, income was $57.5 million, or 68 cents a diluted share, representing an 85.7 percent drop from $400.9 million, or $3.77, a year ago. Total revenues declined by 8 percent to $2.77 billion from $3.01 billion.�
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