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By
Reuters
Published
Oct 28, 2010
Reading time
3 minutes
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Jones Group misses on cost pressures, shares drop

By
Reuters
Published
Oct 28, 2010

NEW YORK (Reuters) - Jones Group Inc (JNY.N) reported a lower-than-expected quarterly profit, hit by higher costs for cotton and other materials, and said those pressures would persist, sending its shares down nearly 22 percent.

Jones

The company, whose apparel and footwear brands include Nine West, Jones New York and Anne Klein, also said the pressure to discount merchandise rose during the quarter. Even sales growth at outlet stores appeared to soften, a trend that is persisting in the current quarter.

"They had their margins degrade in all three key categories," said Wall Street Strategies analyst Brian Sozzi, referring to denim, women's clothing and shoes.

He noted that the disappointment in Jones's results was heightened by the fact that other companies facing similar constraints in terms of material costs and demand from retailers, like Coach Inc (COH.N), have been able to raise margins.

Chief Executive Wes Card told Reuters in an interview that cotton costs, as well as labor and freight costs, hit earnings and would do so again in the coming months.

"We'll deal with that with price increases," he said.

Jones Group's net income for the third quarter was $29.1 million or 34 cents per share, down from $30.4 million, or 36 cents per share a year earlier.

Excluding one-item items related to the acquisition of such businesses as upscale shoemaker Stuart Weitzman and clothier Robert Rodriguez, Jones earned 54 cents per share, falling short of analysts' average forecast of 62 cents per share, according to Thomson Reuters I/B/E/S.

The costs also hit gross margins, which fell 2.1 percentage points to 33.5 percent. The company is expecting gross margins to fall by 1 percentage point in the current quarter.

Shares were down $4.27 to $15.25 in afternoon trading. The shares had rallied 42.2 percent through Tuesday since hitting a yearly low on July 20. Shares in other women's clothing companies also fell, with Chico's FAS Inc (CHS.N) down 2.5 percent, AnnTaylor Stores Corp (ANN.N) down 3.2 percent and Talbots Inc (TLB.N) off 0.8 percent.

Total Jones revenue, which includes net sales and licensing income, rose 19.4 percent to $1.02 billion, in line with Wall Street forecasts.

Jones expects full year sales to range between $3.62 billion and $3.67 billion, in line with Wall Street forecasts of $3.65 billion. It also forecast revenues would rise between 12 percent and 15 percent this quarter.

Jones' wholesale business, which makes up more than 80 percent of sales, supplies retailers ranging from Neiman Marcus Group [NMRCUS.UL] Kohl's Corp (KSS.N) and Nordstrom Inc (JWN.N) to Wal-Mart Stores Inc (WMT.N).

Card told Reuters that department store orders were strong, but noted that retailers were being cautious about building up too much inventory. Those stores had to discount massively at the height of the economic crisis two years ago when they found themselves with too much merchandise on hand.

Jones, which changed its name from Jones Apparel during the quarter, closed 46 stores during the quarter and plans to close another 40 stores by the end of 2010 as part of its efforts to pare weak locations. It had 834 stores at the end of the quarter.

The company plans to have 70 percent of its stores be outlets by the end of the year.

(Reporting by Phil Wahba; Editing by Derek Caney, Gerald E. McCormick)

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