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Is Jones Group a Good Value Pick?

Retail, at least on the domestic side, has not been a good business for the company. This past quarter that segment represented less than 17% of total domestic revenue but lost $15.5 million on $140 million of revenue. So far this year, Jones has closed 85 retail locations and plans to close another 15 by year-end. This is a positive step.

The good news for Jones was that this past quarter, the company crushed the consensus earnings estimate. It earned 57 cents a share, well ahead of the 32-cent estimate.

The market, however, was unimpressed by those results, primarily because Jones lowered guidance for the full year and suggested that the holiday retail season may be challenging.

The balance sheet has pluses and minuses. Jones ended last quarter with a healthy $234 million, or $3.14 per share, in cash. Inventory dropped about 6% vs. the same quarter last year. Debt, however, stood at $960 million, putting the long-term debt-to-equity ratio at 87.4%, which is a concern, for me anyway. Interest expense for the quarter was $37.8 million and for the trailing nine months was $89.7 million.

Jones is maintaining its 5-cent quarterly dividend and yields 1.8%. The company is also buying back stock and has reduced shares outstanding by 4.2 million shares in the past year. I like the dividend and the buyback activity; that can be a powerful combination. I don't, however, like the level of debt.

Consensus estimates for 2013 are calling for earnings of $1.23, putting the forward price-to-earnings ratio at 9. At this point, Jones is back on my radar, but I'll be looking for further progress.

At the time of publication, Heller had no positions in stocks mentioned.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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