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Jones Posts Loss Wednesday, but Shares Climb

Results for Jones Apparel beat Wall Street’s expectations.

Wes Card

Jones Apparel Group on Wednesday reported a net loss of $822.9 million for the fourth quarter — but its shares soared almost 10 percent anyway.


The reason the shares went one way while earnings were headed in the opposite direction? The results beat Wall Street’s expectations and analysts applauded Jones’ strong balance sheet and drive to expand into areas including private label. Because of these factors, president and chief executive officer Wesley Card believes Jones is well positioned despite the recession.

“Our brands really fit in with where the consumer is shopping. They are trusted value brands at good price points. It’s a tough time, [but we’re] in a good spot,” Card told WWD.

The company warned Wall Street last month that quarterly results would be hit with a substantial impairment charge, and its net loss of $822.9 million, or $10.08 a diluted share, also reflected deep discounts and promotions by retail customers over the tumultuous holiday period.

However, stripping out impairment and other charges, adjusted earnings per share came to a loss of 4 cents a share, 1 cent less than analysts’ consensus estimates. Wall Street applauded the results, and Jones’ shares closed Wednesday’s New York Stock Exchange session at $3.58, up 32 cents, or 9.8 percent.

The deficit for the three months ended Dec. 31 came against a loss of $89.8 million, or $1.06, in the year-ago quarter and included an $813.2 million charge for goodwill impairment. Boosted by the introduction of its L.E.I. brand at Wal-Mart stores, total revenues inched up 1 percent to $846.9 million from $838.5 million. In its retail unit, comparable-store sales were down 6.1 percent and fell 6.4 percent last month.

Card told Wall Street during a conference call, “Virtually all retailers concentrated on promoting and moving inventory, and we did the same thing in our own chain of retail stores. On the positive side, it’s evident that unit sell-throughs were up significantly, but this is a good thing [because] it is essential that inventories have cleared and remain under control in this environment.”

He also told analysts that consumers are still “very much in a buy-now, wear-now mode and more than ever buying only items they truly need.” The company believes it is well positioned for fall in suits and dresses.

Jennifer Black, analyst at Jennifer Black & Associates, observed, “Jones is offering merchandise to wholesale accounts at higher initial markups, with enough cushion to allow for additional markdowns while still protecting margins. Jones is able to do this without raising actual prices of merchandise because it has seen reductions in its own costs of sourcing and transportation costs.”

Despite the tough retail climate, Jones has some breathing room, with ample cash and limited debt. The company recently completed a $600 million amended and restated bank credit agreement. According to John T. McClain, chief financial officer, Jones ended the quarter with $338 million in cash, an increase of $35 million from a year ago. The company’s debt balances remain at $780 million, unchanged from last year.

 

Lazard Capital Markets analyst Todd Slater noted that “Jones can pay off its $250 million debt coming due in November 2009 without drawing on bank lines by using 2009 [free cash flow of more than $100 million from operations] and cash on hand.”

During the fourth quarter, wholesale better apparel revenues rose 7.1 percent to $258 million and wholesale jeanswear sales gained 8 percent to $203 million, but sales of wholesale footwear and accessories fell 9.9 percent to $219 million. According to McClain, 2008 results were also hurt by $1 million in charges connected with the bankruptcy filings of some of its retail customers.

The cfo said 2009 revenues are expected to come in at between $3.3 billion and $3.55 billion. The company declined to provide earnings guidance for 2009.

Card told WWD the company has been working with some retailers on their private label sportswear offerings, an area that accounts for about 10 percent of overall group revenues. He said the segment could become a bigger business for the company, which gets paid fees from retailers that utilize the firm’s design and execution expertise, as the industry consolidates.

“I like it. If you intensify your [contacts] with major customers, it gives you more legs in your relationship,” the ceo said.

The company already does full collections, and one undertaken for Style & Co. “worked very well. It was one of the best performers at Macy’s last fall,” Card said.

As for Macy’s, Card indicated it is still premature to conclude what the impact will be from the retailer’s expansion of its “My Macy’s” initiative and its restructuring into a single national operation announced earlier this month.

According to Card, the firm did have specific teams working with each of Macy’s former divisions. In 2008, business at Macy’s accounted for 20 percent of the apparel firm’s gross revenues, or about $725 million, Card said.

So far, the changes at Macy’s haven’t hurt brands under the Jones umbrella. If anything, the volume continues to intensify for brands that are working, such as Jones Signature, according to Card.

“The dust is still clearing [over Macy’s announcement]. It will provide a better channel for rolling out product,” Card said, emphasizing that one-on-one dealings in a centralized operation should streamline the process.