JONES NET UP 49.7%, BUT SAYS POLO STORE CLOSURES COULD HURT
Byline: Thomas J. Ryan
NEW YORK — Powered by the return of career looks and cost savings wrung out of its Nine West acquisition, Jones Apparel Group’s profits jumped 49.7 percent in the third quarter.
Jones New York and Lauren and Evan Picone were the star brands and the August launch of Nine West leather and sweaters have been hot with shoppers. But Jones expects to lose about $30 million in sales due to Polo Ralph Lauren’s decision to close its 12 full-price Polo Jeans stores; and it also forecast declines in 2001 in the Ralph junior line and Jones New York Sport.
However, Jones announced a number of new initiatives to make up for these shortfalls, the biggest being the launch of a new line — Nine and Company — to be shipped to 150 Kohl’s doors and 125 Mervyn’s units in spring 2001.
“We look forward to building a successful brand and are optimistic that over time the Nine and Company brand could represent substantial wholesale income,” said Sidney Kimmel, chairman, in a statement. The collection will feature apparel, footwear, accessories and costume jewelry.
Among other growth initiatives:
The reopening of business at Dillard Department Stores and Parisian in spring 2001. Dillard’s will place the Jones New York collection and dress lines in 70 stores, while Parisian will add all Jones New York lines, Lauren, Ralph, Rena Rowan and Nine West in 15.
Evan Picone, which was successfully repositioned to the moderate channel at J.C. Penney Co. and The May Department Stores Co., will be open for other chains to buy.
Jones is close to reaching an agreement with Polo Ralph Lauren to introduce Lauren and Ralph to Europe and Asia.
A full-price specialty store featuring Nine West apparel, accessories and footwear will be tested in Cherry Hill, N.J. If successful, five to 10 more will be added in 2001, with a full rollout of the concept beginning in 2002.
In the quarter ended Oct. 3, earnings rose to $112.3 million, or 93 cents a share, from $75 million, or 59 cents, a year ago. Revenues rose 3.9 percent to $1.19 billion from 1.15 billion, but, excluding businesses discarded after its acquisition of Nine West last year, increased 9 percent.
“These results reflect a rapid turnaround and restructuring in both the Nine West division wholesale and retail businesses,” said Kimmel.
Results were in line with Wall Street estimates, but the stock Wednesday fell $2.44 to $25.13 on the New York Stock Exchange. Analysts felt investors were looking for a blowout quarter, but they were impressed.
“Maybe people thought Jones would blow through the quarter cause they had said the fall season had started so well. But Jones has a lot of good things working for them,” said Margaret Whitfield, at Tucker Anthony Capital Markets.
Lee Backus, at Buckingham Research, felt investors might have wanted more top-line growth.
“One thing that Jones has had quarter in quarter out is consistency,” said Backus. “They are still rationalizing the business and getting out of a lot of businesses that are marginal. So while you’re not seeing very much on top line, you’re seeing very nice margin expansion and that should continue into next year.”
Results in the quarter by operating segment:
Wholesale apparel gained 3.9 percent to $664.2 million. Operating margins eroded to 19.1 percent from 21.6 percent because of higher production costs, as well as higher air-freight changes tied to late changes on several lines — Ralph, Jones New York Sport and Evan Picone.
Wholesale footwear and accessories climbed 21 percent to $272.2 million. Operating margins increased to 19.8 percent from 16.7 percent. The acquisition of costume jewelry maker Victoria & Co. added 100 basis points.
Retail sales dropped 9.8 percent to $249.1 million, reflecting store closings at acquired Nine West locations. Operating margins surged to 16.9 percent from 3.8 percent, due to restructuring efforts.
On a conference call, Jackwyn Nemerov, president, said Jones New York has capitalized on the reemergence of career apparel. “The consumer continues to focus on the dress-up, polished look in building her wardrobe, and we believe Jones New York has been a leader.”
Rena Rowan underperformed in August and early September, but is above plan over the last five weeks. The Jones New York dress and suit business has experienced “excellent retail selling” this year, as a result of broader price points and product offerings, Nemerov said.
Lauren “continues to be a stellar performer” with petites, large sizes, jeans and dresses “showing outstanding performances for fall.” Ralph by Ralph Lauren, entering its second year at retail, has narrowed its distribution and broadened its target customer to late teens through late 20s. She said Jones “relaxed the fit to address this target audience.”
Polo Jeans had a “strong resurgence beginning this fall after a more difficult second quarter in the status denim zone,” with particular strength in the denim component, and is the number one status brand at department stores, Nemerov noted. Despite the loss of about $30 million in sales from Polo Jeans store closings, Ralph Lauren will still carry Polo Jeans as well Lauren at its outlets.
Nine West apparel “is off to an encouraging first season,” she said, with particular consumer interest in leather, which made up 20 percent of the line; and sweaters, 26 percent.
Evan Picone, reintroduced to the moderate channel at Penney’s and May Co. last year, had a “phenomenal turnaround this fall,” and is now being offered to other chains, Nemerov said. Joneswear, an exclusive to Penney’s, “is performing extremely well” and additional accessories lines will bow at Penney’s next year.
The footwear-accessory categories was propelled by “solid” performances in Nine West and Easy Spirit, while Bandolino is seeing “very strong results” after being repositioned to the moderate channel, she noted. Nemerov also said the firm is “very pleased” with the launch of Jones New York accessories in the quarter, and its goal is to be the number two brand behind Nine West.
Looking to 2001, Jones said it expects wholesale apparel to rise 5 to 8 percent next year; footwear and accessories to be ahead between 18 to 21 percent and retail to drop about 7 percent.
In the nine-month period, profits surged 47.8 percent to $238.4 million, or $1.96 a share, from $161.3 million, or $1.40, a year ago. Sales jumped 42.2 percent to $3.18 billion from $21.24 billion.