JONES APPAREL STOCK DOWN 21% IN 2ND QUARTER

Byline: Thomas J. Ryan

NEW YORK--Shares of Jones Apparel Group tumbled 6 1/2 to 24 5/8--or 21 percent-- in heavy trading Tuesday on the New York Stock Exchange, after the company said earnings for 1994 would come in at the low end of Wall Street estimates.
Jones now expects it will make about $2.10 a share against Wall Street's projected range of $2.10 to $2.20 a share. That compares with $1.90 earned in 1993. Analysts' estimates for 1995 were trimmed to about $2.35 from previous estimates of $2.45 to $2.50.
Jones told analysts that third-quarter margins would be under pressure due to high inventories, which were up 32 percent at the end of the quarter from the year-ago period.
Jones also told analysts it decided to discontinue Rena Rowan for Saville Studio brand, a casual sportswear line introduced for spring 1994. Jones added that its expansion into Canada retail stores was not doing as well as anticipated because of weakness in the Canadian economy.
The company made its comments in a conference call with analysts after the release of increased--but somewhat disappointing--results for the second quarter ended July 3. Earnings in the quarter rose 11.6 percent to $9.5 million, or 36 cents, from $8.5 million, or 32 cents. Sales in the quarter advanced 11.5 percent to $135.7 million from $121.6 million.
Per-share earnings came in shy of Wall Street's mean estimate of 37 cents a share.
While analysts were obviously distressed, Sidney Kimmel, chairman, said in a statement that the company was pleased with results, "especially given the reports of overall weakness in women's apparel sales by major retailers during the period."
"We are extremely pleased with both our second-quarter and six-month sales and earnings," he added. Company officials could not be reached for further comment.
Most analysts slashed third-quarter estimates 8 to 10 cents a share to around 78 cents a share, expecting the company would need to lower prices to clear inventory. Jones earned 75 cents in the 1993 third quarter.
However, Jones told analysts a shift in product mix would lead to improved sales and earnings in the fourth quarter. Most analysts raised their estimates for the fourth quarter by 2 to 5 cents a share to about 41 cents, which compares with 28 cents a year earlier.
"They really surprised some people by the penny shortfall, but I think what spooked people was the inventory numbers," said analyst Jennifer Black Groves, at Black & Co. in Portland, Ore.
Groves said that excluding the discontinued Studio line and the Saville Dress by Rena Rowan line introduced in June, inventories were up 18 percent, closer to its 11 percent sales gain.
Trading in the Jones stock reached 1.7 million shares Tuesday, compared with an average daily level of 68,000.
Analysts said the company's casual sportswear line continues to do well at retail, but Jones career sportswear lines, which accounted for about two-thirds of Jones's overall business, was not performing as well.
"There's been tremendous growth and response to Jones's casualwear products, but the career business has been erratic at best," said Todd D. Slater at UBS Securities Inc.
Sales of career sportswear, which includes Jones New York and Rena Rowan for Saville, rose 10 percent in the quarter, including shipments of the Evan-Picone career line introduced in February.
Kimmel said Evan-Picone "met with very favorable initial consumer response at the retail level."
Sales of casual sportswear, which includes Jones New York Sport and Jones & Co., increased 19 percent in the quarter. Kimmel, in his prepared comments, said casual sportswear products "retailed exceptionally well and continue to gain momentum."
In the dress, suit and other category division, sales grew 10 percent, led by strong sales gains from Jones New York Suit and Jones New York Dress.
In 1993, career sportswear accounted for 67 percent of sales; casual sportswear for 13.6 percent, and the dress, suit and other division, 19.4 percent.
"Our fall product lines met with favorable reaction from our retailers, and the first groups are now on the selling floors," Kimmel said. Kimmel noted that the company's first complete Evan-Picone career sportswear line is set to reach the market for fall.
In the half, profits rose to $24.2 million, or 91 cents a share. In the year-ago period, the company earned $21.4 million before an accounting credit of $1.4 million brought net earnings to $22.7 million, or 87 cents.
Sales gained 11.5 percent to $297.4 million from $266.7 million.
--Fairchild News Service

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