Cost Cutting Lifts Jones Q3 Earnings

BOSTON — Jones Apparel Group Inc. has indeed taken control of what it can control — and it’s showing.

With an eye on cost controls and inventory management, in addition to healthy gross margins, the firm reported better-than-expected third-quarter earnings last Wednesday. And based, in part, on strong footwear sales, the firm expressed optimism that consumers are returning to stores.

In an interview with Footwear News, Jones President and CEO Wesley Card said the firm’s roster of footwear brands posted solid results during the third quarter, with particular strength in boots and closed-toe shoes.

“[Footwear has] been a very good category,” Card said. “We’ve got great product at the right price points. We’re in the right sweet spot in today’s economy.” He added that the firm’s newly launched Nine West Vintage America brand is doing well and that the firm is “encouraged by the results” from its recently opened multibrand Shoe Woo store on Lexington Avenue in New York. In addition, Jones’ newest Rachel Rachel Roy footwear line has had healthy sales.

As a result, the CEO said he is optimistic on holiday prospects. “When [the fall season] starts off this strong, it usually will continue through the holiday season,” he said. “I’m not so focused on the [sales] comps, but the profits on those comps are going to be much better. We have less inventory, less clearance.”

The first quarter of 2010, however, could pose some challenges, as many retailers face tough comparisons against the clearance sales of the prior year, though the outlook should improve as the year progresses, Card predicted.

Lazard Capital Markets analyst Todd Slater said Jones’ third-quarter results and positive outlook can be viewed as something of a barometer for the retail industry.

“Their stores are selling product. And look at their inventory, down 24 percent — that’s very indicative of industrywide [trends]. What we’ve seen is stores are very disciplined about their purchases,” he told FN.

Further, Jones said selling, general and administrative expenses in the third quarter dropped to $243.5 million from $271.5 million. The firm announced it will exit 265 retail locations through 2010 — up from a prior plan to close 240.

By way of guidance, Jones slightly lowered its full-year 2009 outlook for wholesale footwear and accessories revenues to $890 million to $900 million, from a prior guidance for $900 million to $920 million. Annual 2009 revenues are seen at $3.31 billion to $3.34 billion; the firm had sales of $3.62 billion last year.

Last Wednesday, Jones posted an 11 percent increase in third-quarter net profits to $30.4 million, or 36 cents a diluted share. On an adjusted basis, which excludes severance charges and other restructuring-related costs, the firm earned 46 cents — well ahead of Wall Street estimates for 27 cents — compared with 34 cents a year ago.

Net revenues were $855.7 million, down 11 percent from $964.7 million. Though revenues were at the higher end of the firm’s  guidance, they missed Wall Street estimates for $867.3 million.

Wholesale footwear and accessories revenues were $242 million, down 19 percent. Jones said same-store sales in footwear fell 5.4 percent.

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