J.C. Penney Co. Inc.’s reinvention is pinching the vendor community.
This story first appeared in the April 26, 2012 issue of WWD. Subscribe Today.
Both The Jones Group Inc. and Iconix Brand Group Inc. on Wednesday posted first-quarter results that reflected lower sales due in part to Penney’s makeover. The shortfall led to a dive in both companies’ share price, even as Penney’s shares rose. Shares of Iconix dropped 14.6 percent to close at $14.53 Wednesday in over-the-counter-trading. Shares of Jones fell 8.1 percent to close at $11.25 in trading Wednesday on the New York Stock Exchange.
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Penney’s shares were one of the best performers of the day, gaining 5.5 percent to $35.66.
Wesley R. Card, chief executive officer of Jones, said on the morning call to Wall Street analysts that Penney’s has dropped the firm’s Gloria Vanderbilt and Easy Spirit brands.
“We are working on several initiatives with Penney’s [that] we haven’t announced yet, and are still sorting out a couple of other brands,” Card added.
As for the loss of the two brands at Penney’s doors, Card explained, “The [retail] customers that are up against those doors of J.C. Penney are seeing an acceleration in both of those brands, and I think that’s a really good sign for the strength of those brands. So we’re fueling some of the loss in volume into the other channels around J.C. Penney.”
In a telephone interview, Card declined to provide specifics about the conversations with Penney’s since those are ongoing, although the general topics have included the brands that are staying, whether they will be shops-in-shop and whether the product offerings will be in the newly defined areas of accessories and footwear that the retailer is planning.
While orders for Vanderbilt and Easy Spirit have increased at retail doors that now sell those brands, Card said it was unlikely that all of the volume lost due to the Penney’s change would be made up.
Vanderbilt, which is primarily denim tops and bottoms, contributed to the 21.5 percent decline in Jones’ domestic wholesale jeanswear revenues in the quarter to $184.8 million from $235.5 million a year ago.
Jones lost $1 million, or 1 cent a diluted share, for the quarter ended March 31, against income of $24.9 million, or 30 cents, in the year-ago quarter. Impacting the bottom line were charges for store closures, severance and related restructuring costs. Adjusted earnings per share of 31 cents, excluding restructuring costs and other charges, beat analysts’ consensus estimates of 14 cents.
Total revenues for the period fell 2.6 percent to $936 million from $961.3 million. That includes a 2.7 percent decline in sales to $923.4 million from $949 million. Licensing income was essentially flat, inching up slightly to $12.3 million from $12.1 million.
Card said during the conference call that footwear, accessories and jeanswear were its strongest categories at retail. “Traditional sportswear remained more challenged,” he said.
What has been working and garnering strong consumer reaction in the stores has been “color denim, lots of color in handbags,” Card said.
The ceo added that the firm’s plan is to continue to remain cautious as it “moves through and into the back half of 2012.”
In the telephone interview, Card said inventories remain “tightly controlled,” and that the new creative team, led by Stefani Greenfield as chief creative officer, is having a major impact with retail customers.
“I see more creative opportunities being thrown our way for new initiatives and collaborations with our department store mix,” Card said.
Iconix said income attributed to the group fell 12.2 percent to $27.6 million, or 37 cents a diluted share, from $31.4 million, or 42 cents, last year. Revenue fell 4.2 percent to $88.5 million from $92.4 million. Free cash flow attributable to Iconix was $47.4 million, up 3 percent from a year ago.
Warren Clamen, chief financial officer, said during a call to investors that a “significant driver” of the revenue decline was the transition of Royal Velvet to a new direct license with J.C. Penney and weaker than expected sales from the group’s men’s brands, especially Rocawear and Ecko.
The company revised full-year 2012 guidance Wednesday, with generally accepted accounting principles diluted earnings per share now expected at $1.48 to $1.57 from the previous forecast of $1.62 to $1.69. Revenue is now forecasted at $340 million to $350 million from earlier guidance of $370 million to $385 million.
The guidance revision is also due to the delay in regulatory approval of Iconix’s joint venture with Reliance Brands in India, as well as other international initiatives that the company has decided not to pursue this year, said Neil Cole, chairman, president and chief executive officer, during the call.
Cole said the company is looking at different types of acquisitions, including overseas brands and businesses outside of fashion and apparel. He added that there seems to be more activity on the acquisition front in the last 30 to 60 days than there has been over the last six months.