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Jones Aims to Limit Price Hikes

Second-quarter profits at Jones Apparel Group nearly doubled compared to year-ago levels.

Jones Apparel Group Inc. is hoping that a vigilant approach to cost efficiencies will help it limit the impact of higher prices that appear likely to start showing up in stores toward the end of the year.

Wesley Card, chief executive officer, discussed the price situation on a conference call with analysts after the company reported second-quarter profits that nearly doubled year-ago levels and beat consensus estimates. The Jones executive said cost pressures will begin to affect prices 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 coming on-stream much stronger and should catch up to demand.”

While that should reduce price pressure, other factors, such as the appreciation of the Chinese currency and hikes in labor and freight expense, will continue.

Card concluded those costs will “force some price increases on the American consumer.” Jones hopes to offset higher costs and minimize the impact on margins by expanding its supply chain to other countries and reengineering some products, Card said.

Card’s comments offered a somewhat more encouraging perspective on price than the one provided last week by Richard Noll, ceo of Hanesbrands Inc., who said, “The era of apparel deflation is now over.” Hanesbrands’ business is more dependent on commodity merchandise than Jones’, however.

For the quarter ended July 3, net income was $25.7 million, or 30 cents a diluted share, from $13.1 million, or 15 cents, in the year-ago quarter. Excluding the impact of acquisition-related charges and severance connected with the planned closure of certain stores, adjusted earnings per share were 45 cents for the quarter, 12 cents better than the 33 cent EPS level forecast by analysts polled by Yahoo Finance. Year-ago EPS was 29 cents.

Total revenues rose 6.9 percent to $859.6 million 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 accessories jumped 35.2 percent to $264.5 million, wholesale better apparel rose 12.6 percent to $261.4 million, and wholesale jeanswear fell 13.8 percent to $191.3 million. Retail sales fell 3.4 percent to $177.5 million.

For the year to date, income grew nearly fivefold to $64.9 million, or 75 cents a diluted share, from $13.4 million, or 16 cents, a year ago. Total revenues rose 3.1 percent to $1.75 billion from $1.7 billion.

The company recently completed the acquisition of a 55 percent interest in Stuart Weitzman Holdings and entered into an exclusive licensing and distribution agreement with G-III Apparel Group Inc. for Andrew Marc men’s jeanswear.

Card, who noted Jones will wait for the end of the spring clearance period and the upcoming back-to-school season to determine the strength of consumer spending for the second half, said he remained cautious about more moves on the acquisition front. Companies that would be of interest include businesses that do well in Jones’ core product capabilities such as jeanswear and sportswear, but in areas where Jones’ business is less developed, such as contemporary and affordable luxury, Card said.

Shares of Jones Wednesday closed at $17, up 32 cents, or 1.9 percent. That’s about midway between their 52-week low of $11.50, reached last July 28, and the corresponding high of $24.72, reached April 28.