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NEW YORK — In moves aimed at improving efficiency, Jones Apparel Group said it will close two of its Sun Apparel production facilities and turn 20 Enzo Angiolini shoe stores into Bandolino units — ultimately putting Angiolini stores into extinction, while keeping the brand alive at wholesale.
The first 20 stores affected by this change will become Bandolino stores by April.
As a result of the consolidation and rebranding, the company said it will record pretax charges of $25.5 million, or 11 cents a share, in the fourth quarter, of which $21.9 million, or 10 cents a share, is noncash. Excluding those charges, Jones reaffirmed its previous fourth-quarter earnings forecast of 48 to 50 cents a share.
“Our continued focus is to improve upon our efficient operating model in order to better support future expansion through both internal growth and acquisitions,” Peter Boneparth, president and chief executive officer of Jones, said in a statement. “By improving productivity in two business units, the actions we are announcing today will help us to accomplish this goal.”
In accordance with accounting practices related to closing facilities and eliminating jobs, the firm said it will record $6.9 million in expenses, or 3 cents a share, to account for the write-down of facilities and severance benefits, evenly divided between cash and noncash.
The company will close the two Sun Apparel laundry and finishing facilities in Torreon, Mexico, and transfer that production to LEI, which is headed by ceo Mel Geliebter. The closing of these facilities and the restructuring of the business will result in about 2,000 jobs lost, spread over production and distribution. LEI’s main offices are in Los Angeles, and the company also has production facilities in Mexico.
“We really started to eliminate positions beginning with the LEI acquisition,” said Anita Britt, executive vice president of finance, adding that the latest round of layoffs were announced in December, affecting about 450 people, who will leave this year. “The facilities are already closed and they are in the process of continuing to transition a lot of the existing production over to LEI. We anticipate to be totally completed in the back half of 2003.”
Boneparth said Geliebter runs a “highly efficient denim manufacturing model” and named him ceo of Sun Apparel when Jones acquired LEI in August.
“After a few short months on the job, Mel and his team have performed a thorough review of the operations, which will result in a more productive use of resources,” Boneparth said.
The closing of the production facilities and rebranding the stores is part of Jones’ commitment to analyze each of its businesses and make sure they are performing on plan.
“We weren’t making any money pertaining to Sun Apparel and at the end of the day, our business model has to be a double-digit return on investment,” Britt said. Jones acquired Sun in October 1998, as part of the Polo Jeans acquisition. “…And while the Enzo Angiolini stores have been profitable, at the same time, they are not hitting our return on investment.”
Enzo Angiolini, which Britt described as a “viable wholesale business,” will still be sold in the better department stores.
“Enzo is still a great brand and there’s still a customer who goes to department stores, but part of it is the real estate where the stores were located,” she said. “We found they catered to more moderate shoppers and Bandolino is a moderate price point. The other thing, too, is we’re launching Bandolino apparel, so there’s an opportunity to put the apparel in the stores down the road. But in all fairness, Enzo has been profitable and makes money, but we just looked at it not hitting our return model and how to make the model more efficient.”
In other operating news, as a result of Jones’ annual test of goodwill and other intangible assets, the company said it will take a fourth-quarter noncash write-down of trademarks totaling $18.6 million or 8 cents a share, which represents less than 1 percent of total intangibles and goodwill. The impact of the Angiolini retail conversion represents $13.5 million, or 6 cents, of that write-down.