NEW YORK — Shares of Jones Apparel Group dropped 7.5 percent Wednesday after the company lowered earnings guidance for the third and fourth quarters.
The stock closed at $33.57, down $2.73, in trading on the New York Stock Exchange.
Citing a challenging third quarter — which included soft consumer confidence and employment indicators, and hurricane activity in the Southeast — the company said its domestic retail comparable-store sales fell by 1.9 percent in the period against an initial forecast of a gain of 3 to 4 percent.
Jones reports results for the third quarter ending Oct. 2 in two weeks. For now, it expects earnings per share for the three months to be in the range of 75 cents to 77 cents, below earlier guidance between 80 cents and 84 cents. The company also lowered fourth-quarter EPS guidance to between 40 cents to 45 cents, down from the previous expectation of 56 cents to 59 cents. For the full year, the company said EPS will be in the range of $2.49 to $2.56 on revenues estimated at $4.6 billion. The previous forecast pegged full-year EPS at $2.70 to $2.76.
Peter Boneparth, president and chief executive officer, told Wall Street analysts during a conference call that the junior denim business, particularly L.E.I., impacted results for the third quarter.
“In L.E.I., where you know we had execution challenges [last year], this year we executed very well and the consumer wasn’t there,” Boneparth said.
A highlight has been the accessories business, including handbags and jewelry. However, Boneparth noted that growth is “down a tick from where it was in spring.” While he added that the fourth quarter should benefit from the big gift-giving part of the business, he expects the sector could also see a slight slowdown.
Wes Card, chief operating and financial officer, characterized back-to-school junior denim as “lackluster,” particularly toward the end of the third quarter. He also cited a pullback on retail customer orders for the fourth quarter, which is accounting for Jones’ lowering of its aggregate sales forecasts by about $20 million for the three months.
Also causing the company to be more cautious in its outlook is the anticipation of further markdown exposure of promotions across its wholesale business and its forecast of $13 million worth of additional markdown and/or promotional allowances in the fourth quarter, according to Card.Another impact for Jones is the slowness in sales of boots.
“We had seen a very precipitous slowdown in our footwear businesses at both the wholesale and retail level, and certainly in the retail level, [that] is reflected in our comps,” noted Boneparth.
The ceo was optimistic about recapturing some of the lost sales over the holiday selling season, but noted that from an earnings forecast perspective, “it’s very important that we be very, very conservative going forward.”
At one point, Boneparth zeroed in on the challenging retail environment, pointing out to analysts: “If you had looked back three months ago, we had continuously been accused of being too conservative in our retail group comp assumption and, in fact, we weren’t quite conservative enough.”
The company also provided guidance for 2005, estimating EPS to be between $3.00 and $3.10, representing a 17 to 24 percent gain over 2004 projected EPS. The guidance does not include additional share repurchases or acquisitions. Total revenues in 2005 were forecast to be $4.9 billion, an increase of 7 percent over 2004 projected revenues.
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