NEW YORK — The poor numbers continued in the second quarter for Liz Claiborne Inc. and Jones Apparel Group.
Jones posted a 33.2 percent net income decline, citing in part the sale of its Polo Jeans Co. business as well as softer sales of high-margin categories such as jewelry and accessories. For Liz Claiborne, its 27.2 percent profit decrease was due to fashion missteps in its bridge and better businesses.
But on the conference calls with Wall Street, both companies defended their core brands while the impact of the Federated Department Stores-May Department Stores Co. merger did not take center stage as it had in the first quarter. Store closures at May cut sharply into both vendors’ top line during that quarter.
Peter Boneparth, president and chief executive officer of Jones, told Wall Street, “Many of the drivers of our business in the first quarter continue to be very robust in the second quarter, which would [bode] very well for the future.” He said the company’s core Jones brand, along with Anne Klein and Gloria Vanderbilt, were standouts on the wholesale side of the business.
“I think that clearly any suggestion that our brands are tired or old has certainly been a misperception based on how the customer voted this spring. All our apparel brands, whether Jones New York, Jones New York Sport or Signature, Anne Klein and Nine West, were the top performers in the department store category,” said Boneparth.
For the three months ended July 1, Jones’ net income dropped to $36.6 million, or 32 cents a diluted share, from $54.8 million, or 46 cents, in the same year-ago quarter. Total revenues declined by 8.7 percent to $1.07 billion from $1.18 billion last year, which included a 9.1 percent drop in sales to $1.06 billion from $1.17 billion. Operating income in the quarter fell to $69.8 million from $105.4 million in the prior year.
While same-store sales at company-owned footwear and ready-to-wear stores, excluding Barneys New York, were down 0.8 percent, comps at Barneys jumped 8.9 percent in the quarter.
For the six months, net income 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. Total revenues declined 9.4 percent to $2.29 billion from $2.53 billion.
Boneparth said accessories and jewelry, both high-margin businesses, were disappointing during the quarter, but added the company remains “comfortable with our assessment that Barneys is a billion-dollar opportunity at minimum and possibly larger as we get down the road.”
And while Boneparth declined to provide any updates on the Jones sale process, he said on the call, “I will say, however, we expect resolution of this process in the near future.”
As reported, financial sources said if an acquisition of Jones does happen, it would likely be with Bain Capital, which has emerged as the top, if not only, contender after two other potential buyers are believed to have dropped out.
During the Liz Claiborne conference call, Paul Charron, chairman and ceo, said he thought “private-equity players are looking for branded businesses that are well managed, that can profit from going private and can come back out at some point in time having gone through some kind of recap and reconfiguration. A perfect example of that is J. Crew.”
Charron, in response to an analyst’s query about going private, also said, “You should assume that this board is interested in enhancing shareholder value and that it always considers every single opportunity.…So you know we’ll deal with the hand that we’re dealt, but we’re not — we’re definitely not — looking to be taken out by anyone.”
Liz Claiborne’s net income for the three months ended July 1 dropped to $39.4 million, or 38 cents a diluted share, from $54.1 million, or 50 cents, in the same year-ago quarter. Sales rose by 2.4 percent to $1.13 billion from $1.1 billion. Operating income in the quarter dropped to $75 million from $92 million in the prior year.
For the six months, income was down by 31.2 percent to $86.4 million, or 84 cents, from $125.6 million, or $1.17, in the same year-ago period. Sales dipped by 0.7 percent to $2.3 billion from $2.31 billion.
“We’re reasonably pleased with these results, but know we can do better. We’re undertaking a number of initiatives to enhance profitability, drive long-term growth and strengthen our competitive edge,” Charron said on the call.
He acknowledged the company had some fashion missteps in several of its brands, including Dana Buchman, Ellen Tracy in the bridge sector and Sigrid Olsen in the better category.
“This is called shooting yourself in the foot. It is something of an occupational hazard in the fashion business. We have lived through this before and we’ll do so again. In fact, we think that Ellen Tracy is back on track as new design initiatives have been well received by this attractive consumer segment,” Charron added.
Charron also noted the search for his successor is “progressing well,” and that the company’s strong cash flow and debt-to-total capital ratio of only 23 percent gives Liz Claiborne more than ample financial flexibility should it elect to do an acquisition.
Last month, Patrick Bousquet-Chavanne, a group president at the Estée Lauder Cos. Inc., was said to be in the final stages of negotiations to fill Charron’s post. Since then, there have been conflicting reports over a replacement. Some industry sources said Bousquet-Chavanne will stay at Lauder. Other sources said due to a non-compete clause, Bousquet-Chavanne wouldn’t be allowed to join Claiborne immediately.
Other candidates for the job include Trudy Sullivan, president of Claiborne and the only internal candidate being considered, and Jenny Ming, who stepped down as president of Old Navy.
The company said it has a new design resource center in Hong Kong to complement the one in New York, a move that Charron said will help the apparel giant work more quickly on product lines across time zones.
Shares of Liz Claiborne closed down 2.6 percent to $35.47, while Jones finished Wednesday up 0.1 percent to $29.17 in trading on the New York Stock Exchange.