Jones Group’s Earnings: Relying On Europe For Growth Amid Domestic Struggles

Jones Group (NYSE:JNY) will release its Q2 fiscal 2013 earnings on July 31. Its international retail business, which has been running well with Stuart Weitzman and Kurt Geiger brands, will be in focus once again as we expect domestic segment to remain weak. Although two of the retailer’s biggest brands – Jones New York and Nine West have shown some signs of improvement, a turnaround in this quarter is highly unlikely. Nevertheless, their performance is vital for the company’s long term growth. We look forward to the progress on Jones Group’s strategic plan to improve profitability in the domestic market. The company plans to consolidate its under-performing stores, reduce workforce, expand Stuart Weitzman and Kurt Geiger in the U.S., and convert some of its existing brand stores to those brand stores that offer maximum growth opportunity. ^[1]

See our complete analysis for Jones Group

International Retail Segment In Focus

International retail appears to be the most promising segment for Jones Group. The revenues from popular brands, Stuart Weitzman and Kurt Geiger, jumped 30% in fiscal 2012 and accounted for 18% of the company’s overall revenues. Jones Group’s international retail segment has seen its sales increase by almost 700% due to both, the acquisition of these brands and the organic growth.  ^[2] During the second half of fiscal 2012, the segment’s revenues were up by 8%. Although Q1 fiscal 2013 experienced a slowdown due to the prolonged cold in Europe, we expect Q2 to be notably better. While Stuart Weitzman has been among the most popular luxury footwear brands for almost 26 years, Kurt Geiger has established a strong footing in the European luxury footwear market over the last 50 years.

Domestic Business Is Likely To Remain Weak

Jones Group has been struggling in the U.S. market as three out of its four domestic segments have posted substantial revenue decline over the last four years. The main reason behind this was poor performance from the retailer’s second largest brand, Jones New York. Due to a competitive pricing environment, a weak response to its fashion and its exit from J.C. Penny, the brand has been Jones Group’s weakest link. In addition to this, lower shipments of Ann Klein and Evan-Picone, and weak product performances from Grane, Le Suit and Energie have also weighed on the retailer’s growth. The table below shows revenues of Jones Group’s domestic business segments for the last four years.

*Revenues are in $ million

Apart from the domestic footwear business, the revenues from all other domestic segments have fallen significantly since 2009, and we expect the same trend to continue in this quarter as well. However, there was a sharp increase of about 38% in domestic wholesale jeanswear’s revenues in the last quarter due to increased shipments of Gloria Vanderbilt, l.e.i, Erika, Nine West Jeans, Bandolino, Jessica Simpson and other private label product lines. It will be interesting to see if the rebound in their demand is sustained in this quarter.

Focus On the Biggest Brands

Jones New York & Nine West are the biggest brands for Jones Group accounting for about 40% of its revenues. Last year, sales from these brands fell by almost 11% and 0.5% respectively. While Jones New York suffered due to weak customer response resulting in lower shipments, Nine West‘s weakness can be attributed to low store traffic and lower shipments to international markets. ^[2] Lately, these brands have shown some signs of revival and we’ll be keenly watching how they turn up in this quarter. Although we don’t expect a near term turnaround, the situation is improving and these brands remain critical from a long term perspective.

Some of Jones Group’s product segments such as Easy Care, Platinum suitings and Signature denims performed well throughout fiscal 2012. In response to this, the company started making efforts to increase their proportion in its merchandise mix. In Q1 fiscal 2013, these products contributed about 20% to the brand’s revenues, up from 9% in the same quarter last year. Jones Group is also reworking on the brand’s design and pricing, to better appeal to its loyal customer base of 45+ year old women.

Following its weakness last year, Nine West registered double-digit growth in Q1 fiscal 2013, driven by higher sales from casual wear and handbags, increased full priced sales and growth in e-commerce channel. The brand is getting significant customer attention through YouTube and Facebook. Its e-commerce sales have grown at a robust pace driven by its own shopping website, Zappos, Piperlime and Macys.com.

Our price estimate for Jones Group stands at $ 13.50, implying a premium of about 5% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. The Jones Group Inc. Announces Strategic Plan To Improve Profitability, Jones Group Inc., Apr 24 2013 [↩]
2. Jones Group’s SEC filings [↩] [↩]