NEW YORK (
) -- One of the most exciting parts of value investing -- to me anyway -- is the hunt for "reclamation projects," companies that have seen better days and are struggling to right the ship.
Often, the markets have little patience for these names and punishes them severely for a long time.
One of the risks that value investors take in these cases is that they are buying the dreaded "value trap": It looks like value and smells like value, but there's actually little or no life left.
If you don't dig deep enough, you can easily convince yourself that a name is too cheap to pass up. Three years later, nothing has changed, and the stock still appears to be cheap, but has gone nowhere. Or worse yet, it has gotten "cheaper," as the price has continued to drop.
, (known as
when I owned it in the past) has been a rags-to-riches-to-rags story over the years.
The company is in a tough industry. It designs and markets women's clothing, shoes and accessories, in both the retail and wholesale sides of the business. The past four years have been difficult at best.
Following losses in 2008 and 2009, the company returned to profitability in 2010, but margins have declined to the point that if you looked at the bottom line without knowing any better, you might think you were viewing the financials of a grocery store chain. Net margins that were in the 6% to 8% range in the mid 2000s are now in the 1%-plus range.
Higher-end apparel and shoes is not a great place to be in difficult economic times, and the lower-margin products the company had been moving toward did little to help turn the company around.
Now Jones is again focusing some efforts on the higher end, having acquired interests in several brands over the past few years, such as
in 2010. In 2011, the company acquired
, a European shoe retailer, for $352 million. Jones is not giving up on core brands such as
Jones New York
, and is in the process of "revitalizing" them.