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Jones Apparel Shredded After Weak Quarter

Shares slide 12% after the apparel maker slashes guidance amid fashion missteps.
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Shares of Jones Apparel (JNY) tumbled Wednesday after the clothing maker posted weaker-than-expected second-quarter results and slashed its guidance, hurt by a falloff in sales at its retail stores.

The stock was trading down $3.06, or 12%, to $21.90.

The New York-based company, which owns such brands as Anne Klein and Nine West, reported a second-quarter loss of $47.1 million, or 44 cents a share, compared with a profit of $36.6 million, or 32 cents a share, the year before.

Excluding discontinued operations and one-time charges, earnings were 17 cents a share. Still, the results on this basis were well worse than analysts' average forecast for EPS of 31 cents.

Revenue fell to $903.9 million in the second quarter from $923.9 million a year ago, missing analysts' estimate for sales of $1.08 billion.

"We are clearly dissatisfied with our second-quarter results, which continue to be impacted by disappointing performance in our own retail operations," said Chief Executive Wesley Card in a conference call.

Card, a 17-year company veteran, was elevated to CEO three weeks ago following the departure of Peter Boneparth, who failed to lift Jones out of a massive slump. The company has been struggling over the past year with a weak retail environment, competition from trendier brands and department store consolidation that has cut demand.

Card admitted to fashion missteps in the second quarter, which contributed to an 8% drop in same-store sales, or sales at stores open at least a year. The company slashed prices at 1,000 retail locations in order to get rid of its inventory.

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"There was not a lot of must-have items this spring," Card said.

Outlet stores, which have historically been the most profitable channel for Jones Apparel, became a "dumping ground" for excess products from mall-based stores, Card said. At Nine West, the company said it miscalculated which fashion items would be a hit, focusing on bottoms when the trend had been toward tops.

For the full year, Jones now anticipates adjusted earnings of $1.28 to $1.34 a share, down from $2.19 last year. In May, Jones projected earnings of $1.95 to $2.05 a share.

The company sees revenue of $3.9 billion and $3.98 billion for the year. Analysts had targeted earnings of $1.99 a share and revenue of $4.75 billion.

Card said the company's performance began to deteriorate last year in the fourth quarter after a deceptively good third quarter. Results became progressively worse in the first half of the year as Jones Apparel initiated its turnaround efforts.

"We believe Jones' new CEO, Wes Card, is taking the appropriate strategic steps to divest and reinvest, and clear the earnings decks in orderto lower Street expectations," wrote Todd Slater, an analyst for Lazard Capital Markets, in a research note. "We remain neutral on the shares given the long recovery timelines of this type of strategic repositioning."

Jones also said it plans to accept an offer by Japan's Fast Retailing Co. to purchase its Barneys luxury chain. Fast Retailing, owner of the popular Japanese chain Uniqlo, has offered $900 million for Barneys, trumping a current $825 million deal in place with Istithmar, the investment arm of the Dubai government.

Istithmar has three business days to make a counter offer that is "at least as favorable to the company as the Fast offer," Jones said. The company must pay a $22.7 million termination fee to Istithmar if it chooses to sell to Fast Retailing.