Yesterday, Jones Apparel Group reported a 20% increase in net income for its second quarter. While the company attributed most of that increase to cost-cutting, the market nonetheless cheered the results. The company trumpeted their Rachel Roy launch at Macy’s and the success of the LEI business at Wal-Mart, but peeling back the layers just a little reveals a company without a strategy and with no end in sight to their erosion of revenue.
Their core wholesale Jones Apparel business is one that is swimming in a shrinking demographic pool with Liz Claiborne, Ann Taylor, Talbots, Coldwater Creek and Chicos, and is destined for an increasingly diminished volume for the future. The wholesale footwear and accessory business will be lucky to maintain their volume and will probably drop. The retail business, by their own admission of closing 240 stores over the next year, which represents about 25% of the total, is obviously going to deliver less dollars.
The Jeanswear division has the lone home run for the company in their LEI brand, which basically turned a bad buy into a success story just by being in the right place at the right time, and having the good fortune to have Jack Gross orchestrate a deal that turned lemons into lemonade. However, Retailsails is hearing that Wal-Mart is taking some open to buy away from LEI in order to finance the launch of the Miley Cyrus business. We will have to wait and see if LEI is maxed out.
Additionally, the rest of the denim business will not be adding any volume and will probably have a significant retreat. Their pinning any large volume hope on Rachel Roy is wishful thinking. That is at best just a niche brand and cannot move the needle to the extent that Jones would like. Lastly and in summary, this is a business that is dependent on failing brands being distributed to limping department stores plus their own mediocre retail business, and those are two ingredients that make for a failing company in this environment.
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