U.S. News

Jones Apparel Swings to Loss, Shares Fall on Reduced Forecast


Jones Apparel Group posted a quarterly net loss Wednesday on falling sales, discontinued operations and one-time restructuring costs and cut its full-year earnings outlook, helping to send shares down as much as 13 percent to their lowest price in more than 7 years.

The owner of Nine West also said it planned to accept a $900 million offer for its Barneys New York chain from Japan's Fast Retailing unless private equity firm Istithmar sweetens its $825 million bid within three days, to at least match the rival offer.

Dubai-owned Istithmar has not said if it would raise its bid, which Jones accepted in June while saying it would weigh offers for the whole company through Aug. 11.

Jones said Wednesday that it had not yet received any bids for the whole company and that it was not actively looking.

"The directions to senior management from our board are to manage and grow our business for the future benefit of our shareholders," said Chief Executive Wesley Card. "There is no 'For Sale' sign over the company."

New York-based Jones, which is trying to exit or sell some moderately priced product lines, has struggled recently due to stiff competition from consolidating department stores that are promoting their own private brands.

Jones also said it was investing in its core brands, an effort to counter the declining same-store sales and aggressive markdowns on wholesale items that hurt profit in the latest quarter.

"We're focusing on the core of the company," said Card in an interview, referring to brands such as Jones New York, Anne Klein, Nine West, Gloria Vanderbilt and LEI. "We're working extremely hard on our retail execution. That's where all of my initial efforts will be spent."

Jones posted a net loss of $47.1 million, or 44 cents per share, for the second quarter, compared with a year-earlier profit of $36.6 million, or 32 cents a share.

But excluding discontinued operations and expenses for restructuring and a strategic review of its business, Jones earned 17 cents per share from continuing operations.

Analysts on average were expecting a profit of 31 cents per share, excluding items, according to Reuters Estimates.

Revenue fell 2 percent to $903.9 million, as same-store sales fell 8 percent, due to a steep decline at outlet stores. Jones said it was now targeting full-year adjusted earnings per share of $1.28 to $1.34, or $1.20 to $1.25 excluding Barneys.

The company expects full-year revenue of $3.9 billion to $3.98 billion, with $1.25 billion coming from "better sportswear" lines, such as Jones New York, Anne Klein and Nine West. For its moderate brands such as LEI and Gloria Vanderbilt, Jones expects just over $1 billion in sales this year, but sees that shrinking to $800 million as it exits some brands.

Jones said it expects $1 billion in sales from wholesale footwear and accessories and $750 million from its network of 1,000 retail stores, which will post a loss for the year due to fashion missteps, heavy promotions, and a poor sandal season.

Analysts on average had been expecting earnings of $1.99 per share on revenue of $4.73 billion, according to Reuters Estimates. Jones had earlier forecast profit of $1.95 to $2.05.

"While the guide-down is driven partly due to weak sales in both its wholesale and retail businesses, we're pleasantly surprised that Jones is beginning to discuss upping the ante on investing in its content," said Morgan Stanley analyst Brian McGough. "Jones finally appears to be playing offense instead of defense."

Jones put itself up for sale last year, but failed to find a buyer. McGough said he thought numerous Jones bidders walked away because the brands had been starved of capital over the years.

Through Tuesday's close, Jones' stock had fallen 25 percent this year, compared with gains of 1 percent in the Dow Jones U.S. Clothing and Accessories Index and 2.6 percent in the Standard & Poor's 500 Index .

Jones shares were trading at 12.5 times earnings estimates for the current fiscal year, a deep discount to rivals such as Liz Claiborne Inc., which has a multiple of 17.9, and VF Corp., whose multiple is 16.2.

Jones shares were down $3.05 at $21.91 on the New York Stock Exchange in afternoon trade, after as falling as low as $21.61 earlier in the session.

Related Tags