After taking itself off the market two months ago, Jones Apparel Group is left doing its own remodeling.
Jones chief executive officer Peter Boneparth chose the old house analogy to describe the Bristol, Pa.-based giant, and analysts are inclined to agree the company's $5.07 billion portfolio is in need of an update.
For the first half of the year, Jones' earnings plummeted 55.9 percent to $62.5 million, or 53 cents a diluted share, from $141.8 million, or $1.17, in the same year-ago period. With these numbers and the reality that no buyer would meet its asking price, Jones' strategy and leadership have fallen under scrutiny.
Analysts are divided on the wisdom of the firm's string of acquisitions since 1998, which include Nine West Group Inc. in 1999, Gloria Vanderbilt Apparel Group Corp. in 2002 and Barneys New York Inc. in 2004.
"Jones used to have a bunch of really strong brands, but the mix of businesses they have now is challenging — all areas are not disasters, but there's not a lot of growth potential either," said Elizabeth Montgomery, analyst for Cowen & Co. "Jones has bought brands that do not have great synergies or advantages with economies of scale."
Montgomery cites Barneys, one of many buys that some analysts applaud while others question. "Barneys did give them exposure to the high-end consumer, but it did not give them any economy of scale, and in the long term, the operational margins at Barneys are going to be well below Jones' as a whole," Montgomery said. "If they took a good look at these portfolios, and took these brands that did not add to their economy of scale, they could have more cash flow to invest into their other brands, like Nine West."
Barneys does connect Jones to the thriving luxury market and to retail — both desirable footholds. Although the store does not carry the lines that Jones manufactures, it does inspire high-end thinking, according to Boneparth, who cites Nine West's collaborations last spring with designers Vivienne Westwood, Thakoon and Sophia Kokosalaki.
If Jones ever decides to sell off some of its holdings, some believe Barneys could make a prime acquisition for Neiman Marcus Group or even a hedge fund.
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