By and  on May 3, 2007

Jones Apparel Group plans to trim its brand portfolio — and Norton McNaughton and Erika could be among the first to go.

The company, which posted a jump in first-quarter earnings on Wednesday, said it plans to eliminate $300 million in business in the moderate sportswear sector by yearend, but will remain in the category with a limited number of labels that will provide a bigger margin boost to the bottom line. Management did not disclose which brands would be eliminated, but industry sources said Norton McNaughton and Erika were on the block.

"What's most important for us is to start 2008 fresh and to do [that] we need to remove that low-margin business, obviously, from our operating statements," said Peter Boneparth, president and chief operating officer, during a conference call to Wall Street analysts. He did not disclose which businesses the company would sell because of ongoing conversations with retail partners regarding strategies for those labels. Aside from Norton McNaughton and Erika, several analysts and bankers believe Evan-Picone could be sold, although at least one banker believes the label is a candidate for licensing. A decision to drop the Norton McNaughton business would be ironic given that Boneparth ran that company until selling it to Jones, which is what brought him into management of the group.

"It will play out in a variety of different ways, depending on the brand and the customer base," Boneparth told WWD. "It could involve an outright sale, a license or [even] be discontinued entirely. It's too early to tell. However, we will not be leaving the moderate business entirely."

Boneparth declined comment on Barneys New York, which is said to be on the market. As reported in WWD, there's been strong interest from potential buyers from the Middle East. Banking sources said discussions are ongoing.

For the quarter ended April 7, net income for the company rose 85.3 percent to $47.8 million, or 44 cents a diluted share, from $25.8 million, or 22 cents, in the same year-ago quarter, when profits were depressed by retail consolidation. Excluding certain charges for severance and restructuring, earnings per share were 50 cents. Analysts were over-optimistic, however, expecting 60 cents a share.Total revenues rose 2.7 percent to $1.25 billion from $1.22 billion, which included a sales gain of 2.3 percent to $1.23 billion and a 3.4 percent gain in licensing income to $12.3 million. Same-store sales at Barneys, its crown jewel, jumped 10.1 percent. However, retail comps in general were down 5 percent, driven by Jones' footwear outlet doors, which declined on a comp-store basis by 12.3 percent. Better apparel, wholesale footwear, accessories and the jewelry businesses were strong performers during the quarter, Boneparth said during the call to analysts.

"The pothole was in the retail business," the ceo added in the interview. "On the wholesale side, we're seeing the benefit of the work that we've done over the past 18 months. We're always looking at ways to increase shareholder value and, from a portfolio perspective, we're much closer to the portfolio than we would be comfortable with. In terms of our retail, as I said on the call, it'll take our outlet wholesale business a couple of quarters to clean it up."

Boneparth was upbeat about the denim and junior businesses, in particular the moderate brands Gloria Vanderbilt and Energie, as well as optimistic about L.E.I.'s tops business. The initiatives for L.E.I.'s bottoms business is in place for back-to-school, a selling season that Boneparth said will be "very important" for the company.

He noted some launches that the company will be undertaking as it heads into fiscal year 2008, but was reticent about what those plans will be other than the announced fall launch of the Anne Klein Designer collection spearheaded by designer Isabel Toledo.

Separately, WWD learned that Mark Mendelson, chief merchandising officer, will be "transitioning" over to the role of consultant for the company, although no timetable has been set, according to Boneparth. Mendelson was a group president, handling Jones' better sportswear brands such as Nine West, Jones New York and Anne Klein. Prior to joining Jones, he was president of Tahari. Mendelson could not be reached for comment Wednesday.

Based on first-quarter results, the company took a cautious view for the remainder of the year and lowered 2007 guidance to between $1.95 and $2.05 a share. The original estimate was a 10 percent gain on 2006 earnings of $2.19 a share, or earnings per share of $2.41.Shares of Jones on Wednesday closed at $31.44, down 2.84 percent, in trading on the New York Stock Exchange. Over 4.4 million shares were traded, versus a three-month average volume of 1.1 million.

"Management remains flexible in a quickly changing marketplace, demonstrating strength at the better wholesale and footwear wholesale, and cautious optimism on the denim and juniors businesses. Peter continues to proactively seek to maximize returns and shareholder value by staying ahead of the changing landscape. Barneys continues to excel," observed William Susman, president and chief operating officer at the banking boutique firm Financo Inc.

"Liz Claiborne [which reported results Tuesday] was about product and if Federated Department Stores had liked the product, you can't tell me they wouldn't have bought it. In the case of Jones, they've been restructuring for two years. The bottom line is that Jones has rationalized its businesses and have taken the appropriate steps in turning around the operations that can really make money for them, such as Nine West, Jones New York Signature and the new Anne Klein line. I saw Anne Klein product and it was phenomenal. I also saw the new Nine West line of shoes, and it is amazing. The shoes go with the apparel and jewelry," observed analyst Jennifer Black, of the firm that bears her name.

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