Jones Seeks to Counteract Cost Increases

NEW YORK — To battle mounting costs, The Jones Group Inc. is planning to raise prices next year to preserve margins.

Although the supply-side problems in China have affected the industry as a whole, “some of the cost pressures did creep up on us a little more than we had expected,” admitted Jones Group CEO Wes Card. Raw material price hikes, freight increases and tight factory capacity visibly chipped away at gross margins in the third quarter, and the New York-based firm reported a lower-than-expected profit last Wednesday.

Although revenue grew 19 percent to $1.02 billion, in line with Wall Street’s forecast, that was below management’s expected range, due to delays in the firm’s supply chain. Jones now expects revenue to rise between 12 percent and 15 percent in the fourth quarter.

“We’re working as far forward as we can with our factory base and expanding that capacity and moving into lower cost areas. Fortunately, in footwear, you don’t have raw material issues like you do in [apparel with] cotton,” Card told Footwear News last Wednesday.

For the period ended Oct. 2, Jones earned a net income of $29.2 million, down 5 percent from $30.6 million the same period a year ago. Earnings per share were 34 cents, down from 36 cents. Excluding one-time charges related to the acquisition of businesses Stuart Weitzman and Robert Rodriguez, however, EPS was 54 cents, but still fell short of analysts’ average forecast of 61 cents a share, as polled by Yahoo Finance. Gross margins declined 2.1 percentage points to 33.5 percent. Of that, eight-tenths of a percentage point came from increases in product and freight costs.

Footwear remained a bright spot for the firm, which recently appointed Richard Olicker to spearhead its mid-tier brands division. Wholesale footwear and accessories revenue, which includes the Stuart Weitzman business that was acquired in June, totaled $340 million, up 41 percent from last year’s $242 million.

Excluding Weitzman, the segment was up 19 percent. Virtually every brand in footwear experienced a sales surge, with the most significant increases coming from Nine West, Anne Klein, Easy Spirit and Enzo Angiolini.

“Our target has been to register a good, strong single-digit comp on these large core brands, and we expect that to continue into next year, which would be augmented by increases from acquisitions or other strategic initiatives, such as the Brian Atwood [contemporary line],” said Card.

“We are going to have to work through the cost pressures, and we’re working very diligently to preserve that gross-margin level that we’ve experienced this year into next year, so we have a positive with Weitzman coming in at a higher margin. The supply-chain issues should start to balance out a little bit [going into next year],” he added.

Jones also announced Wednesday it is taking the Jones New York brand overseas to Mexico and Spain, partnering with the Liverpool chain of department stores in Mexico. (It has not formalized a deal in Spain.)

“There are large department store businesses in those countries — [as opposed to in the] U.K. and France [where they] are more specialty-store driven. That ties into our strength, and these are good starting points as we re-energize the Jones New York campaign,” said Card.

Jones closed 46 retail locations in the third quarter to end with 834 locations, and plans to shutter an additional 40 unprofitable locations by the end of 2010.

It finished the quarter with $34 million in cash, down from $157 million in the previous year, reflecting the investment in working capital and the funding of the acquisitions the firm made earlier in the year.

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