Jones Returns to Black in Quarter; Revenues Fall 8.2 Percent

The firm?s own retail stores helped buoy results.

Shares of Jones Apparel Group rose 11.7 percent on Wednesday after the firm posted second-quarter results that beat Wall Street’s estimates by a penny and unveiled plans for a new retail concept dedicated to its own brands.

This story first appeared in the July 31, 2008 issue of WWD.  Subscribe Today.

And although the consumer remains cautious, Jones hopes to gauge the appeal of its brands by opening this October in Menlo Park, N.J., a store concept to house the company’s footwear, handbag and costume jewelry, with the exception of Easy Spirit.

If successful, the firm plans to roll out the retail concept to other malls, particularly those where the brands don’t enjoy heavy penetration in anchor stores. The stores would average 2,500 to 3,000 square feet.

“The concept ties into women’s love for shopping for shoes,” said Wesley R. Card, president and chief executive officer. “Unless we open a shop, you don’t get the same breadth of product,” he added, emphasizing that the concept would allow Jones to control how the brands and their offerings are showcased.

For the quarter ended July 5, Jones swung to net income of $10.6 million, or 13 cents a diluted share, from a loss of $47.1 million, or 44 cents, in last year’s quarter. The consensus among Wall Street analysts was for net income of 12 cents a share. The prior year’s quarter included restructuring costs. Total revenues were down 8.2 percent to $829.4 million from $903.9 million, which included an 8.3 percent decrease in sales to $820.2 million from $894.5 million, with the balance coming from licensing income.

By segment, wholesale sales of better apparel inched up slightly to $265.3 million; wholesale jeanswear fell by 33.4 percent to $173 million, and wholesale footwear and accessories rose 0.2 percent to $231 million. Retail sales also rose 0.2 percent to $197.5 million. Same-store sales for all of its concepts were flat, but footwear store comparable-store sales rose 5.8 percent.

For the six months, income was $30.2 million, or 35 cents a diluted share, versus $800,000, or 1 cent, in the prior-year period. Total revenues were down 9 percent to $1.8 billion from $1.98 billion.

As for apparel offerings, Card said wholesale apparel continues to be a challenging segment. He noted that consumers are turning to “higher-value” items and are targeting “buy now, wear now” items.

Meanwhile, Jones is pursuing other initiatives, such as moving forward on the newest sportswear line with Rachel Roy, whose collection is sold at high-end stores.

“The line has lots of potential, and we’re talking about how to build accessories and footwear around it,” Card said, adding there is the possibility of freestanding Rachel Roy stores down the road.

The firm is also moving forward on new related category launches for L.E.I., which Card said is “off to a good start” at Wal-Mart. Next up for the brand is costume jewelry in spring 2009. Also on the agenda for first-quarter 2009 through partnerships with licensees are footwear, handbags, intimate apparel, sleepwear and sunglasses. The brand’s spokeswoman, Taylor Swift, is also designing sundresses for Wal-Mart that Jones will ship from December to April.

And finally, the company rolls out its Nine Loves loyalty program at Nine West in the fall, one that is interactive with consumers through e-mail. According to Card, it will feature marketing promotions in connection with sales at Nine West stores and online.

While orders have been conservative for the third and fourth quarters and inventories kept lean, Card said the company is positioned for the holiday with “good gift-giving items.”

He emphasized that “there will be business in the fourth quarter,” but noted that margin prospects were unclear.

Jones reconfirmed its expectations of earnings per share from continuing operations, before special items, to be between $1.20 and $1.35.

Jones’ shares ended the day at $16.66, up $1.75, as the Dow Jones Industrial Average advanced 186.13 points, or 1.6 percent. The Standard & Poor’s Retail Index declined 1.17 points, or 0.3 percent. Among the larger declines in the apparel sector was Hanesbrands, which closed the day at $22.22, down $5.04, or 18.5 percent. The company said after the close of the market on Tuesday that it had more than doubled its second-quarter profits, but had fallen below consensus estimates for the period.�