Despite Swing into a Loss, Jones Group Adjusted Q2 Earnings Beat Forecasts

In What's New, Industry News by Jeff Prine

Behind the scenes at Stuart Weitzman Fall '13 shoot. The footwear brand has been one of Jones Group's best performers.

Behind the scenes at Stuart Weitzman Fall ’13 shoot. The footwear brand has been one of Jones Group’s best performers.

New York—The Jones Group today reported that it swung into a second quarter loss; nevertheless, results were better than analysts had predicted.

For the quarter ended June 30, the parent to Nine West, Jones New York, Anne Klein, Stuart Weitzman and more than 30 other brands posted a net loss of $3.4 million, or 5 cents a share, compared to net income of $7.9 million, or 10 cents a share, in the year-ago period. Excluding one-time items such as severance charges, net income totaled 2 cents a share, compared with 22 cents per share last year.

Analysts’ average estimate had expected a loss of 12 cents a share.

Net revenue declined 1% to $845.6 million, but still managed to beat analysts’ forecast for $836.7 million in sales.

Gross margin narrowed to 35.6% from 38.2% as costs of goods increased, the company said.

While The Jones Group said its jeanswear and international wholesales sales improved during the quarter, cooler weather hurt sales of seasonal products, leading to larger markdowns than planned.

“The International Wholesale segment also showed improved operating results, led by the Nine West and Stuart Weitzman international businesses,” said Wesley R. Card, chief executive. “For other areas of the business, the weather impacted seasonal product sales, which generated higher promotional levels. As a result, second quarter gross margins were approximately 260 basis points below last year. We anticipate we will achieve improved performance in fall 2013 with our new and refocused sportswear product offerings.”

Jones Exploring Its Own Sale?

The company’s Domestic Wholesale Footwear & Accessories “showed lowest revenues and operating profits in the quarter. Sales slowed, particularly in the better zone, as retailers addressed the higher inventory levels and shorter windows, resulting from colder weather early in the quarter,” according to Card. “Handbags and Jewelry were strong performance, and our Stuart Weitzman business operating at luxury—entry-level also had a very strong performance in the second quarter.”

Earlier this month, Jones Group reportedly hired Citigroup to explore its possible sale though the company declined comment on the reports.

Last month, Moody’s Investors Service cut its ratings on Jones Group to Ba3–three steps into junk territory–saying the company’s credit metrics are likely to remain elevated for an extended period of time. Only one month earlier Standard & Poor’s Ratings Services lowered its outlook on the company to negative from stable, citing “tepid operating performance.”

But John T. McClain, chief financial officer, noted that the company’s financial position remains “strong. We ended the quarter with $81 million in cash and our revolver undrawn. Our approach to inventory commitments continues to be conservative, and we continue to emphasize tight expense control. Our plans to create operational efficiencies, reduce costs within the wholesale channel and improve the performance of our domestic retail business are on track.”

Card added that the company is “better positioned” for the second half of the year “as we continue to focus on enhancing profitability. We are approaching the Jones brand with strong conviction and have received very positive reactions from our customers to our refocused sportswear that will begin shipping in August.”

The company also declared a regular quarterly dividend of 5 cents, payable on August 30 to shareholders of record as of Aug. 16.




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