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Lower Jones Net Tops Estimates

The company took a more upbeat view about prices and supply for the future.

NEW YORK — Shares of The Jones Group Inc. rose 16.3 percent Wednesday, to close at $12.91, as second-quarter earnings fell less than expected and the company took a more upbeat view about prices and supply for the future.

This story first appeared in the July 28, 2011 issue of WWD.  Subscribe Today.

In a conference call with Wall Street analysts, Wesley Card, chief executive officer, alluded to the drop in the company’s second-quarter gross margin, which fell to 36.4 percent of sales from 36.9 percent a year ago. “The margin decline results from the impact of higher product costs and higher retail promotional levels which began in the second half of last year and is an industry-wide situation,” 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 to product costs as certain raw material costs are coming down and factory capacity issues are softening considerably.”

He added that consumer spending for the back half of the year was still a question mark owing to mixed economic signals, from changing reads on consumer confidence to the ongoing debt ceiling debate in Washington.

As for price increases, Card said during the call that prices for commodity-type products have begun to “escalate this summer.” While prices rose moderately during the first half, with little resistance from the consumer, the increases will become “more pronounced” in the second half.

Card later told WWD, “Cotton and other raw materials for apparel are coming down as we move to spring, and factory capacity is opening up. Those are some of the bright spots moving into the first and second quarter of next year.”

For fall, the company is featuring a go-to item for each brand. For Jones New York, it will be the Broadway blazer, and, for Nine West, the items will be loafers, Mary Janes and boots. Rachel Roy, Card said, is doing “phenomenally in Macy’s,” where dresses are a hot category for the brand.

Richard Dickson, president and ceo of branded businesses, said that the product strategy for Rachel Roy will be focused on the 24-hour dress, which will help showcase specific key items to go with it.

For the three months ended July 2, net income attributable to Jones fell 79.6 percent to $5 million, or 6 cents a diluted share, from the year-ago level of $24.5 million, or 30 cents. Excluding nonrecurring items related to acquisitions and restructuring, earnings landed at 33 cents, 6 cents above analysts’ consensus estimates, and 12 cents below the 45 cents registered in the 2010 quarter.

Cutting into profits were a 6.2 percent increase in selling, general and administrative expenses, to $278.2 million, and a sharp spike in net interest expense, to $37 million from $14.3 million in last year’s quarter.

Revenues rose 3.2 percent to $887.4 million, from $859.6 million, with sales ahead 3.3 percent to $876.7 million. Analysts had expected revenues of $894.8 million. Gross margin dipped to 36.4 percent of sales from 36.9 percent in the year-ago period.

With the exception of domestic wholesale footwear and accessories, all segments of Jones reported an operating profit, with international wholesale and domestic wholesale sportswear both reporting an operating margin of over 10 percent.

For the six months, net income attributable to Jones dropped 51.5 percent to $30 million, 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 as gross margin receded to 35.4 percent of sales from 36.8 percent in the first half of 2010.