JONES NET UP 28% IN QUARTER
Byline: Vicki M. Young
NEW YORK — In spite of an uncertain economic environment and challenging retail climate, Jones Apparel Group Inc. on Wednesday reported a 28 percent rise in income and a 30 percent jump in earnings per share for the fourth quarter, meeting the Street’s expectations.
Shares of Jones, however, fell $1.04 cents or 2.7 percent, to close at $37.86 on the New York Stock Exchange. In intraday trading, the stock price ranged from a low of $37.60 to a high of $38.90. The 52-week high is $40.27 and the low $20.37.
Income for the quarter ended Dec. 31 rose to $64 million, or 52 cents a share, from $50 million, or 40 cents, in the comparable 1999 quarter, excluding noncash pretax charges of $1.1 million and $39.1 million, for 2000 and 1999, respectively. The charges relate to purchase accounting adjustments for the write-up of Victoria & Co. Ltd. and Nine West Group inventories to fair market value. Revenue for the quarter increased 5 percent to $962 million from $915 million. Excluding discontinued businesses, revenues for the quarter were up 13 percent.
Calling the company “optimistic about our businesses,” Sidney Kimmel, chairman, said in a statement, “We are proud of our results in 2000, given the uncertainty in the economic environment and the challenges of the highly promotional period prevailing in the fourth quarter of 2000. Further, we are very proud of our highly successful turnaround of the Nine West Group and the performance of our newest acquisition, Victoria & Co. Ltd.”
Wesley R. Card, chief financial officer, said during Wednesday’s conference call that the breakdown for the different segments is: 7 percent growth in wholesale apparel sales to $467.2 million, representing 48.6 percent of total revenues; 23 percent growth in wholesale footwear and accessories sales to $230 million, representing 23.9 percent of total sales, with Victoria & Co. contributing $33 million to the sales total, and a 9.5 percent decline in retail sales to $258 million, accounting for 27.1 percent of total sales.
The cfo also said that the company was in a financial position to possibly make some acquisitions in 2001, but declined to disclose which sectors Jones would consider. “We’ve always had a broad approach to acquisitions,” he hedged.
Dennis Rosenberg, equity analyst at Credit Suisse First Boston, wrote in a research note that retail sell-throughs of apparel either met or exceeded plan for Jones Collection, Jones Sport, Lauren, Polo Jeans, Evan Picone and Joneswear. Sales of Nine West apparel and Ralph by Ralph Lauren were disappointing. While wholesale sportswear and accessories sales were strong, the analyst pointed out that retail sales declined because of store closings. He also noted that the company’s cash position is likely to be used for an acquisition or a larger share repurchase. Rosenberg has a “strong buy” rating on the company.
Jackwyn Nemerov, president of Jones, said during the call that the company has successfully integrated the Nine West acquisition. “The businesses have been reorganized and integrated to drive profitability,” she said. Nemerov noted that the company further cemented its relationship with Polo Ralph Lauren through the acquisition of the Canadian licenses for various Polo Ralph Lauren brands.
She added, “Polished, classic career clothing has been a driving force in women’s clothing.” The Jones New York collection, Nemerov pointed out, exceeded expectations throughout the year. Also showing strength was the dress business. The casual Jones Sport line gained momentum in the second half as customers responded to changes in fit and a return to fashion focus. The Lauren line continues to provide Jones with strong retail results, while Polo jeans is the number one performer in the status denim department, the president pointed out.
For the year, Jones posted a 28 percent jump in income to $304 million, or $2.49 a share, compared with $238 million, or $2.02, in 1999. The results exclude one-time charges of $3.1 million and $84.6 million, for 2000 and 1999, respectively, for purchase accounting adjustments for the write up of Victoria & Co. Ltd. and Nine West Group inventories to fair market value. Revenues for the year were up 31 percent to $4.14 billion versus $3.15 billion in 1999.
Looking ahead, Kimmel said that the company is “comfortable” with its previous 2001 earnings per share guidance of between $2.93 and $3.00, a projected increase of between 18 percent to 20 percent over 2000 results. Kimmel noted that the company’s revenue projection range for 2001 is between $4.12 billion and $4.27 billion, an increase of up to 3 percent over 2000. On continuing businesses, the increase is between 7 percent and 11 percent. The projections were adjusted to reflect the sale of the Nine West retail business in the United Kingdom to its current management group, which was completed last month. Jones will continue to provide certain products under a long-term licensing arrangement, Kimmel noted.
Card projected first quarter fiscal 2001 revenue to be flat at between $1.05 billion and $1.07 billion, with earnings per share between 69 cents and 72 cents, compared with $1.08 billion, or 58 cents, in the comparable 2000 quarter. Second quarter projections call for revenue to increase to between $920 million and $950 million with an EPS of 52 to 55 cents, versus $906 million, or 46 cents, in the comparable 2000 period.
Kimmel also noted Jones’ sale of 20-year zero coupon convertible senior notes, announced last month, raised $350 million.
Following the earnings report, Moody’s Investors Services, the ratings agency, assigned a “Baa2” rating to the apparel firm. “Jones’ rating,” Moody’s said, “reflects its strong and consistent financial performance, its prudent financial management and the increasing strength of the company’s wide brand and product diversification.”
Standard & Poor’s Tuesday upgraded Jones to triple-“B” from triple-“B” minus. David T. Shapiro of S&P wrote that the upgrade reflects the company’s successful integration of the Nine West acquisition, while preserving strong overall operating margins and maintaining appropriate credit protection measures, during a period of retail weakness.”
Janet Joseph Kloppenburg, equity analyst at Robertson Stephens, on Wednesday reiterated her “buy” rating on the company. “We believe [Jones] is poised to remain a leader in the branded apparel sector in fiscal 2001+. Importantly, in fiscal 2002, we believe the company can continue to grow this business at mid-double-digit rate as they enjoy the benefit of a full year of product launches,” she wrote in a research report. Kloppenburg also noted that the company has “made significant headway toward expanding their product offerings to become more of a true lifestyle brand as evidenced through the launch of Nine West Apparel” in the third quarter of 2000.
Nemerov said that Evan Picone apparel, which is distributed to J.C. Penney and May stores, will be more broadly distributed starting in fall 2001 to include Federated, Target’s department stores and Dillards. Other plans include the launch of Nine & Co. footwear lines to Kohl’s and Mervyn’s, the introduction of new accessories lines into department and discount stores and the development of Easy Spirit Apparel. “We are clearly building a stronger, more diversified base of operations to continue our track record of positive growth into 2001 and beyond,” she said.