Jones Apparel Group wants to be more like H&M.
This story first appeared in the February 14, 2008 issue of WWD. Subscribe Today.
The apparel vendor, which on Wednesday reported narrower fourth-quarter losses, said it is looking to turn goods more quickly, aiming for the same fast-fashion model used by the Swedish retailer and its competitor, Zara.
Wesley R. Card, Jones’ chief executive officer, told WWD that the company is pushing more toward following a “speed-to-market” approach. “It’s the Zara and H&M model [and] the way we need to be,” he said.
Jones is using the model for its Nine West sportswear line, which it will show to buyers next month for fall retailing. The vendor is reserving 20 to 25 percent of orders for reorders, for in-season delivery. To do this, Jones had to take fabric positions. But the quick turn — about 10 weeks for reorders — will allow for adjustments to meet the needs of retailers.
Jones also is gearing up for a better Web portal to sell more brands online. Currently, Nine West, Easy Spirit and Bandolino footwear are available, but this will change come fall. The company has selected a new online platform, and plans to begin selling Jones New York apparel online during the fourth quarter. Anne Klein apparel is scheduled for early next year, with Anne Klein branded footwear and accessories to follow soon after.
The company discussed these plans after reporting its fourth-quarter and year-end results and revealing a deal with Wal-Mart Stores Inc. for its L.E.I. junior brand.
Wall Street applauded Jones’ L.E.I. deal, which is set to roll out in time for the back-to-school season, by sending shares of the apparel vendor up 11 percent to close at $17.15.
“We see this as a great opportunity to utilize Jones’ operational skills in partnership with a retailer of Wal-Mart’s size and scale. We are confident that with this partnership with Wal-Mart, there is excellent potential to grow and leverage the strength of L.E.I. as a branded resource across categories,” said Card.
For the quarter ended Dec. 31, the loss narrowed to $89.8 million, or $1.06 a diluted share, from a year-ago loss of $269.5 million, or $2.51. On an adjusted basis excluding the sale of Barneys New York, restructuring charges and the impairment of certain goodwill and trademarks, diluted earnings per share were 9 cents versus 32 cents last year.
Total revenues fell 16.7 percent to $838.5 million from $1.01 billion. Sales dropped 16.3 percent to $822.4 million from $983.2 million, with the balance of revenues primarily from licensing income. Of the total sales, retail sales were $211.8 million, down by 14 percent as quarterly same-store sales declined by 4.8 percent. Card said the company’s “wholesale businesses were negatively impacted by higher-than-planned markdowns to support our retail partners.”
For the year, net income came in at $311.1 million, or $3.07 a diluted share, against a loss of $144.1 million, or $1.30 a share, in 2006, as total revenues fell 5.8 percent to $3.85 billion from $4.09 billion. The gross margin rate for the year fell to 32.2 percent from 34.6 percent.
The company conservatively forecast fiscal 2008 diluted EPS guidance, on an adjusted basis for continuing operations, at between $1.25 and $1.50, compared with adjusted 2007 diluted EPS of $1.26. The wide range of expected earnings is large, the company said, because of the uncertainty in the economy.
Card said he has a plan to deal with the slowdown, though. “The best way to combat that is with great product,” he said.
John McClain, chief financial officer, said the economy seems to be in a “consumer-led recession,” but noted that, because the firm’s brands aren’t impacted by the pullback at the entry level on the lower end, nor are they affected by the presumed slowdown in luxury, the Jones product “can do well” in a recession environment.
“Women love shoes and handbags, and they will buy,” McClain said. The cfo also noted that, for retail and apparel firms, “by the time we find out we are in a recession, we are [usually] coming out of it.”
The former Anne Klein stores the company operated will be converted to Anne Klein stores selling just shoes and handbags. Card said the sites are prime real estate locations, and that the model the company will follow will be the one used overseas.
Another growth initiative in the works is that the junior denim team will be working with retailers such as Macy’s to expand the chain’s private label jeanswear offerings.
Looking at the L.E.I. deal from Wal-Mart’s perspective, the addition of the brand adds bulk to its apparel lineup, which the retailer is revamping. In August, Wal-Mart inked an exclusive deal with Iconix Brand Group to carry the Ocean Pacific and Op brands. Deciding to carry Ocean Pacific was seen by industry analysts as a way to improve Wal-Mart’s fashion sense. Two years ago, Wal-Mart had pulled its trend-right Metro 7 line from 500 stores following an ambitious expansion. In women’s wear, Wal-Mart has its George line front and center.
Currently, Wal-Mart’s junior offering is composed of licensed and private label goods. The Ocean Pacific line is expected to be rolled out slowly. When announced last year, a Wal-Mart spokeswoman described Op as a “youth brand focused on the surf lifestyle” that will “help expand the range of our apparel offering.”
Meanwhile, last year, Jones said it was breathing new life into the L.E.I. junior denim brand with an updated look for fall. The update included new packaging, labels and advertising as well as a deeper push on the Internet.
“Stores have a lot of respect for L.E.I. Brand awareness and consumer loyalty have been very, very good,” Jack Gross, ceo of Jones’ denim and juniors businesses, told WWD at the time. “The only thing constant in juniors is change. By giving the brand a facelift and modernizing it and bringing it into this time period, it brings excitement at retail.”
Jones acquired L.E.I., which stands for Life, Energy and Intelligence, in 2002 for $385 million.
Analyst Jennifer Black, of the firm that bears her name, said in a research note, “Wes Card and the management of Jones Apparel Group are slowly, methodically and effectively managing the assets of Jones to make the most of what they have. The backdrop is challenging, but that is also providing opportunities such as the announced initiative with Wal-Mart to produce and provide junior denim bottoms and knit tops under their L.E.I. brand, with opportunity to expand to other lifestyle categories in the future.”
Black said that, in a slow growth “environment with inflationary tendencies in the production of apparel and accessories, Jones is well placed to compete on competencies such as operational and design strengths at moderate price points.”