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NEW YORK — During its nine-minute annual shareholders’ meeting Wednesday, Peter Boneparth, president and chief executive officer of the Jones Apparel Group, said irrespective of the outcome of the Ralph Lauren dispute, “we’re always evaluating licensing opportunities.”
He told about 30 shareholders and executives at the meeting here at Bear, Stearns & Co. that he’s not prepared to talk about any of them at this moment. “We are evaluating a number of opportunities,” he said, in response to a shareholder’s question about the Ralph Lauren situation.
As reported, Polo Ralph Lauren and Jones are feuding over the Lauren by Ralph Lauren and Ralph by Ralph Lauren licenses, and sources believe those two businesses are headed back to Polo. Polo is also reportedly interested in buying back the Polo Jeans business, which isn’t part of the dispute. All three businesses account for $1 billion in sales at Jones.
Boneparth declined to elaborate on the Lauren disagreement, but the company’s 10-K, filed March 25, states: “The discussions between us and Polo Ralph Lauren Corp. could result in restructured licensing arrangements, an end to some or all of their licensing arrangements or litigation.”
The ceo told shareholders that the company’s business is balanced between licenses and owned properties. Boneparth noted that in any deal, the firm brings to the table expertise in many areas, including execution and sourcing.
He described Jones, the $4.3 billion apparel firm, as being in good shape, and despite a challenging retail environment, said it’s weathering the storms.
“The last 18 months to two years we’ve been living in very unusual times at retail and the world in general,” said Boneparth. He said the company has come through this challenging time with record levels of free cash flow. He attributed the strong position to its people and its board of directors, and the fact that today the company only does 50 percent of its business with department stores, down from 88 percent in 1997. Another key component of its success is its diversification strategy, with such acquisitions as Nine West, Sun Apparel and Norton McNaughton, as well as licenses such as Polo Jeans.
Although Boneparth didn’t specify any changes in Polo Jeans, the company’s 10-K states: “The dispute between us and Polo Ralph Lauren Corp. does not relate to the Polo Jeans license, and an end to the Lauren by Ralph Lauren and Ralph by Ralph Lauren licenses would not end our longer-term Polo Jeans license or otherwise adversely affect the Polo Jeans license in the U.S. However, the ongoing discussions between us and Polo Ralph Lauren Corp. could result in changes to the Polo Jeans licensing arrangements.”
As for the breakdown of the Jones business in 2002, better department stores accounted for 47 percent; specialty retail, 25 percent; mass market and national chains, 13 percent; moderate department stores, 8 percent, and discounters, 7 percent.
Of the company’s $4.3 billion in net revenue, 38 percent is generated by wholesale better apparel; 25 percent by wholesale moderate apparel; 20 percent by wholesale footwear and accessories; 16 percent by retail, and 1 percent, other.
Jones’s moderate division was the only segment to show total revenue gains last year.
In 2002, total revenues for Jones’ wholesale better apparel were $1.6 billion, down 10.8 percent from $1.8 billion in the prior year. Moderate apparel revenues jumped to $1.09 billion, a 99.8 percent increase from $547.3 million a year ago. Wholesale footwear and accessories revenues generated $882.3 million, down 10 percent from a year ago, while retail revenues were $700 million, off 1.6 percent from $711.7 million in 2001.
The increase in moderate apparel revenues was primarily attributed to the McNaughton, Gloria Vanderbilt and l.e.i. acquisitions, which accounted for $528.5 million of the increase.
“Diversification and a balanced strategy clearly served us really well in [these] difficult times,” Boneparth told shareholders.
Describing the prior year, Boneparth said, “This is ‘The Perfect Storm.’ We’ve survived port strikes, wars and now SARS. We’ve come through this in terrific shape, and we are very focused on balance and diversification. We’ll weather the storm. We’ll manage our inventory positions and free cash flow.”
During 2002, the company experienced a record level of cash flow from operations of $717 million, a 27 percent increase over 2001, and a 30 percent increase in earnings per share to $2.36.
In response to a shareholder’s question about how the weaker dollar will affect sales and net profit, Boneparth said, “I don’t see any impact. We source globally. The reality, from the supply standpoint, is there is too much supply out there. We don’t sell our product outside the U.S.”
Another shareholder asked about executive compensation and noted that Jones has decided to expense options. Boneparth noted that all stock options will be expensed, and Jones is the only company in the industry doing that.
Following the meeting, Boneparth declined to comment on how the dispute with Ralph Lauren is progressing, and whether there’s a timetable for a resolution. Nor would he comment on whether the company has any interest in buying the Tommy Hilfiger business.
As far as SARS, he said he’s hopeful that the disease won’t impact fall deliveries, and he doesn’t see any “meaningful” disruptions.
Boneparth noted that he doesn’t foresee any change in conditions on the retail front over the next six to nine months and if the consumer comes back, that “would be great for our industry.” Department stores seem to be doing “marginally better,” but sales in the Northeast have been difficult because of the cooler weather, he said.
After the meeting, Rhonda Brown, president and chief executive officer of the Jones footwear, accessories and retail group, told WWD that sales in the handbag business has been trending “nicely toward the end of March and April, with high sell-through rates.” She noted that consumers are paying close attention to what’s inside the bag, focusing on attachments such makeup cases. “Convenience is becoming more important for our customer,” Brown said.