NEW YORK — Recent acquisitions and tight inventory controls lifted Jones Apparel Group Inc. to double-digit gains in second-quarter profits and revenue.
In a conference call following the release of earnings, Peter Boneparth, president and chief executive officer, said the firm was "very comfortable" with the Aug. 14 deadline for certification of financial results by executives of public firms. He also added Jones to the list of firms committed to recording its stock options as a compensation expense, making it the first apparel firm to do so.
For the three months ended July 6, income rose 20 percent to $66.5 million, or 49 cents a diluted share, versus $55.4 million, or 43 cents in the year-ago quarter. The consensus estimates of Wall Street analysts polled by Thomson/First Call was 43 cents. Excluding a noncash aftertax charge of $5.8 million, related to a purchase account adjustment to bring Gloria Vanderbilt inventory to fair market value, earnings per share would have been 53 cents.
Total revenues were up 10 percent to $972.1 million from $883.9 million. Licensing income in the quarter grew 9 percent to $6 million from $5.5 million. Wholesale better apparel sales were down 12.7 percent to $343.7 million, compared with $393.7 million a year ago, while wholesale moderate apparel sales, boosted by the acquisitions of McNaughton Apparel Group and Gloria Vanderbilt, rose 175.5 percent to $224 million.
Boneparth said of the expensing of options: "Although we believe that there are grounds for reasonable debate, we think for our company, in these particular times, there is tremendous merit and tremendous value to shareholders to create a definitive response to the stock option quandary. So in response to the stock option rules, commencing in grants with respect to 2003, we will record stock options as a compensation expense."
The ceo added that, while the company will be "very careful and cautious in granting stock options," they play an important role in compensation packages and will continue to be included in them. Jones has retained several compensation experts to determine what is the best practice in structuring the form and substance of stock options.
Shares of Jones fell 48 cents, or 1.4 percent, to close at $34.03 in New York Stock Exchange trading Wednesday.Of the difficult better apparel business, and especially Jones’ career offerings, Boneparth remained pessimistic. "We did not have any expectations that it would improve in the second quarter," he said. "I will tell you that I have no expectations that it will improve through the back half of this year." However, he noted that it was a single-digit percentage of the firm’s overall volume.
In contrast, Jones New York Sport, representing the casual side of the business, was up 7 percent in the quarter over last year. The company’s focus on the shorts category paid off as competitors ran away from the business, the ceo said. The firm has been very aggressive in the bottoms business and has been intensifying its assortment in the Jones New York jeans brand. The Ralph by Ralph Lauren collection had made a "dramatic turnaround" with sales rebounding strongly from year-ago figures,despite the limited scope of the line and an actual reduction in that size.
Moderate wholesale sales, which include the McNaughton Apparel Group business and the Gloria Vanderbilt acquisition, were on plan, but operating margins, the ceo said, were the most encouraging performance within the business. Sales were driven by linen dressing, Americana themes and anything feminine and frilly.
Wes Card, chief financial officer, said: "We did outperform our expectations for the quarter. The most significant drivers were stronger-than-planned margins in our better apparel segment, also in our moderate apparel segment and higher margins in the Nine West retail operation."
Robert Drbul, analyst at Lehman Bros., wrote in a research note: "The company’s strategy of diversifying its brand portfolio, consumer targets and distribution channels should continue to produce sustainable above-average earnings growth over the long term. However, we believe the company faces many challenges in the near term as it attempts to negotiate the challenging retail environment. Despite our near-term concerns, we remain a long-term supporter of the company and believe that it will likely emerge from the challenging retail environment in a solid competitive position."
Drbul said McNaughton contributed about $250 million in 2001 revenues and could grow at a high-single-digit rate this year.
For the six months, income was down 9.6 percent to $137.2 million, or $1.12 a share, from $151.8 million, or $1.18, a year ago. Total revenues were up 7 percent to $1.25 billion from $1.16 billion, with licensing income jumping 15 percent to $12.6 million from $11 million.Based on strong second-quarter results, company executives said earnings per share for 2002 will be "$2.72 to $2.75 from $2.65." Revenues are estimated at between $4.2 billion and $4.3 billion.
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