Jones Apparel Group Inc. rode an upgrade from Goldman Sachs & Co. to a 1.6 percent stock gain Tuesday as retail shares and the major indices endured a sell-off.
Citing Jones’ initiatives and an expected improvement among midtier department stores starting in the second half, Goldman equity analyst Benjamin Rowbotham upgraded Jones to “buy” from “neutral” and raised his price target to $12 from $9.70. Shares of the New York-based wholesaler and retailer of sportswear, footwear and accessories ended the session at $9.68, up 15 cents, and traded as high as $10.24.
Rowbotham’s research note to clients was as much a vote of confidence in midtier department stores — with Macy’s Inc., J.C. Penney Co. Inc. and Kohl’s Corp. mentioned by name — as in Jones’ ability to ramp up its earnings in the second half. He wrote that he expects midtier players to experience an “earlier recovery” than their high-end counterparts, characterized by “‘less negative’ comp trends and inventory realignment,” leading to better gross margins and profits.
Domestic department stores are responsible for 59 percent of Jones’ revenues, higher than competitors Liz Claiborne Inc., at 44 percent; Phillips-Van Heusen Corp., 40 percent, and Carters Inc., 38 percent.
Rowbotham wrote that Goldman’s earnings-per-share estimates of 66 cents and 87 cents for the current and next fiscal years, respectively, are 5 percent and 19 percent above current Wall Street estimates, “reflecting improved cyclical margins, cost cuts, better sourcing and retail rationalization.
“We believe that, as department store fundamentals improve and [Jones’] company-specific initiatives take hold, estimates will move higher, particularly during [the second half], boosting the shares,” he said.
With investors antsy about the size and timing of a recovery, the S&P Retail Index fell 2.1 percent Tuesday to 304.23.
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