The Jones Group Inc. (ticker: JNY, exchange: New York Stock Exchange (.N))
News Release -
29-Jul-2003
Jones Apparel Group, Inc. Reports Second Quarter 2003 Financial Results - Launches Jones New York Signature Product Line for Spring 2004
- Provides Guidance for 2003 & 2004
- Announces Intention to Bid on Kasper A.S.L., Ltd.
- Initiates Quarterly Dividend of $.08 Per Share
- Authorizes Additional $150 Million Stock Repurchase
- Announces Addition of Ann Reese to Board of Directors
NEW YORK, July 29 /PRNewswire-FirstCall/ -- Jones Apparel Group, Inc.
(NYSE: JNY) today reported results for the second quarter of 2003. Revenues
increased 1% to $980 million for the second quarter ended July 5, 2003, from
$972 million for the second quarter ended July 6, 2002. Earnings per share
increased to $.54 for the second quarter of 2003 as compared to $.49 for the
second quarter of 2002. Peter Boneparth, Chief Executive Officer, stated, "We are quite satisfied
with our second quarter results, which were achieved during a very difficult
period as consumers remained wary of the sluggish economy and higher levels of
unemployment. While the overall retail environment improved slightly from the
first quarter, it continued to present numerous obstacles across our various
businesses. Promotional sales were broad across all channels of distribution
impacting many of our wholesale businesses, and we accordingly experienced
slightly lower orders across many of our wholesale businesses, as our retail
partners focused on controlling inventories within their channels of
distribution. In our retail segment, consumer traffic was most challenging
within our mall-based stores, while stores located in outlet centers showed
considerable improvement from the first quarter." Wesley Card, Chief Operating and Financial Officer, commented, "Our
operating margin for the quarter was 13%, compared to an operating margin of
12.4% for the second quarter of 2002. The operating margin in 2002 included a
$9.3 million purchase accounting adjustment to bring the Gloria Vanderbilt
inventory to fair market value and a $5.8 million write down in the value of
trademarks associated with the jewelry business. Exclusive of these items,
our operating margin for the most recent quarter declined 100 basis points,
resulting from lower operating margins in the apparel segments of the
business, which were impacted by higher store promotions. These decreases
were partially offset by stronger margins in the jewelry and retail
businesses." Mr. Card further stated, "Inventory levels were $584 million, or $523
million on a comparable basis to last year (the 2002 balance is exclusive of
l.e.i. inventory as it was acquired on August 14, 2002), compared to $554
million in 2002, representing a 6% decrease. We ended the quarter with $1
billion of debt, principally long-term, resulting in a debt (net of cash on
hand of $347 million) to book capitalization ratio of 21.3%. During the
quarter, we repurchased 1.1 million shares of Company common stock in the open
market at an aggregate cost of $31.5 million." Mr. Boneparth added, "As we focus on the future, we are energized by
several important new initiatives. We are launching a new lifestyle-inspired
product, branded Jones New York Signature, for Spring 2004 with deliveries
scheduled to be in stores for February. This line will be launched in over
700 department store locations, with expected net sales of $200 million for
the full year 2004. We will fully support the launch with a comprehensive
national media campaign including national advertising in fashion and
lifestyle publications, and grassroots efforts including trunk shows and in-
store events, as well as retail support across all doors through our retail
coordinator program. "The uncertain economic climate and its possible effect on consumer
spending in the back half of 2003, would lead us to reduce our previous
earnings per share forecast from a range of $2.90 to $3.10 to a range of $2.75
to $2.80 for the full year of 2003. Moreover, as we have initiated
conversations with our customers, we have determined that there will be costs
impacting our second half earnings outlook as a result of transitioning from
the Lauren and Ralph product lines," Mr. Boneparth continued. "Specifically,
we will be providing incentives to our wholesale customers to assist them in
managing their inventories of the discontinued lines through year-end 2003.
We are also required to accelerate the amortization period for store fixtures
for the Lauren product as well as the Canadian license for the Polo brands
that we acquired in 1999, so that all assets are fully amortized and expensed
by December 31, 2003. We recognized $1.9 million associated with the
accelerated non-cash amortization in the second quarter of 2002. We will be
converting real estate for a number of Polo retail locations in Canada to
other Jones New York Brands, or in a few instances we may opt to terminate the
lease. Inclusive of these items, we now anticipate revenues for the full year
2003 in a range of $4.325 billion to $4.375 billion and earnings per share in
a range of $2.40 to $2.50. We forecast cash flow from operations in excess of
$500 million for 2003. While it is very early to fully anticipate the
economic climate for 2004, we are comfortable that we can achieve revenues of
$4 billion and earnings per share in a range of $2.25 to $2.50, exclusive of
financial transactions and additional acquisitions. We also forecast cash
flow from operations for 2004 to be in excess of $400 million." Mr. Boneparth added, "We have decided to enter the auction process for
Kasper A.S.L., Ltd., which will shortly be emerging from Chapter 11 Bankruptcy
proceedings. We see numerous strategic advantages to acquiring Kasper. Its
portfolio of brands, which include Kasper and Anne Klein, can be excellent
additions to our existing branded portfolio. This potential acquisition would
be a good fit within all our product segments and offers product growth
opportunities and cost synergies. "Further, the Board of Directors has declared our first-ever quarterly
cash dividend of $.08 per share to all common stockholders of record as of
August 15, 2003 for payment on August 29, 2003. We continue to place high
priority on maintaining a strong capital structure that will continue to
provide us with financial strength as an industry leader and also provide an
optimal return to our equity holders. We believe that instituting a dividend
at this time is key to that equation, and it reinforces our Board's confidence
in the Company's financial strength and continued positive cash flow, while
remaining within our prudent financial policies. "Finally, aggregate open market share repurchases now total 25.3 million
shares, or $614.2 million, since the program began in 1995. With just $35.8
million remaining under current authorizations, the Board of Directors has
authorized an additional $150 million to bring the aggregate program to $800
million." Mr. Boneparth concluded, "We are continuing to enhance our initiatives as
a Company in the area of corporate governance. I am pleased to announce that
Ann Reese has been added to the Board of Directors. Ms. Reese brings with her
close to thirty years of financial experience, with her most recent corporate
service as Executive Vice President and Chief Financial Officer for ITT
Corporation. She will serve on the Audit Committee and meets the Security and
Exchange Commission's standards for an audit committee financial expert."
The Company will host a conference call with management to discuss these
results and its outlook for 2003 and 2004 at 9:30 a.m. EDT today, which is
accessible by dialing 412-858-4600 or through a web cast at www.jny.com.
Jones Apparel Group, Inc. (www.jny.com), a Fortune 500 Company, is a
leading designer and marketer of branded apparel, footwear and accessories.
The Company's nationally recognized brands include: Jones New York; Lauren by
Ralph Lauren, Ralph by Ralph Lauren, and Polo Jeans Company, which are
licensed from Polo Ralph Lauren Corporation; Evan-Picone, Rena Rowan, Norton
McNaughton, Gloria Vanderbilt, Erika, l.e.i., Energie, Currants, Jamie Scott,
Todd Oldham, Nine West, Easy Spirit, Enzo Angiolini, Bandolino, Napier and
Judith Jack. The Company also markets costume jewelry under the Tommy Hilfiger
brand licensed from Tommy Hilfiger Corporation and the Givenchy brand licensed
from Givenchy Corporation, and footwear and accessories under the ESPRIT brand
licensed from Esprit Europe, B.V. Celebrating more than 30 years of service,
the Company has built a reputation for excellence in product quality and
value, and in operational execution.
Certain statements herein are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements represent the Company's expectations
or beliefs concerning future events that involve risks and uncertainties,
including the strength of the economy and the overall level of consumer
spending, the performance of the Company's products within the prevailing
retail environment, and other factors which are set forth in the Company's
2002 Form 10-K and in all filings with the SEC made by the Company subsequent
to the filing of the Form 10-K. The Company does not undertake to publicly
update or revise its forward-looking statements as a result of new
information, future events or otherwise.
JONES APPAREL GROUP, INC.
CONSOLIDATED OPERATING RESULTS
(UNAUDITED)
All amounts in millions except per share data
SECOND QUARTER
2003 2002
Net sales $974.7 99.4% $966.1 99.4%
Licensing income (net) 5.7 0.6% 6.0 0.6%
Total revenues 980.4 100.0% 972.1 100.0%
Cost of goods sold 603.2 61.5% 582.8 60.0%
Gross profit 377.2 38.5% 389.3 40.0%
SG&A expenses 249.4 25.4% 267.6 27.5%
Executive compensation obligations - - 0.7 0.1%
Income from operations 127.8 13.0% 121.0 12.4%
Net interest expense and financing
costs 14.2 1.4% 14.2 1.5%
Equity in earnings of unconsolidated
affiliates 0.5 0.1% - -
Income before taxes 114.1 11.6% 106.8 11.0%
Provision for income taxes 43.0 4.4% 40.3 4.1%
Income before cumulative effect of
change in accounting principle 71.1 7.3% 66.5 6.8%
Cumulative effect of change in
accounting for intangible assets,
net of tax - - - -
Net income $71.1 7.3% $66.5 6.8%
Shares outstanding - diluted 136.7 139.8
Earnings per share - diluted
Income before cumulative effect of
change in accounting principle $0.54 $0.49
Cumulative effect of change in
accounting for intangible assets,
net of tax - -
Net income $0.54 $0.49
All amounts in millions except per share data
SIX MONTHS
2003 2002
Net sales $2,201.5 99.4% $2,086.3 99.4%
Licensing income (net) 13.2 0.6% 12.6 0.6%
Total revenues 2,214.7 100.0% 2,098.9 100.0%
Cost of goods sold 1,356.1 61.2% 1,261.3 60.1%
Gross profit 858.6 38.8% 837.6 39.9%
SG&A expenses 521.8 23.6% 533.1 25.4%
Executive compensation obligations - - 31.9 1.5%
Income from operations 336.8 15.2% 272.6 13.0%
Net interest expense and financing
costs 28.3 1.3% 30.2 1.4%
Equity in earnings of unconsolidated
affiliates 1.1 0.0% - -
Income before taxes 309.6 14.0% 242.4 11.5%
Provision for income taxes 116.7 5.3% 91.4 4.4%
Income before cumulative effect of
change in accounting principle 192.9 8.7% 151.0 7.2%
Cumulative effect of change in
accounting for intangible assets,
net of tax - - 13.8 0.7%
Net income $192.9 8.7% $137.2 6.5%
Shares outstanding - diluted 137.0 138.5
Earnings per share - diluted
Income before cumulative effect of
change in accounting principle $1.44 $1.12
Cumulative effect of change in
accounting for intangible assets,
net of tax - (0.10)
Net income $1.44 $1.02
Percentages may not add due to rounding.
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
all amounts in millions
July 5, 2003 July 6, 2002
ASSETS
CURRENT:
Cash and cash equivalents $347.5 $296.3
Accounts receivable, net of
allowances of $37.5 and $36.2 for
doubtful accounts, discounts,
returns and co-op advertising 432.7 415.1
Inventories 584.4 553.7
Deferred taxes 76.6 69.1
Other current assets 44.5 48.2
TOTAL CURRENT ASSETS 1,485.7 1,382.4
Property, plant and equipment, at
cost, less accumulated depreciation and
amortization 257.9 248.5
Goodwill, less accumulated
amortization 1,542.3 1,369.4
Other intangibles, less accumulated
amortization 676.1 575.5
Other assets 56.5 82.4
$4,018.5 $3,658.2
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Current portion of long-term debt
and capital lease obligations $180.4 $7.2
Accounts payable 241.2 211.7
Income taxes payable 28.0 40.7
Accrued expenses and other current
liabilities 135.5 161.7
TOTAL CURRENT LIABILITIES 585.1 421.3
NONCURRENT LIABILITIES:
Long-term debt and obligation
under capital leases 828.6 985.0
Deferred taxes 107.2 66.9
Other 46.6 37.5
TOTAL NONCURRENT LIABILITIES 982.4 1,089.4
TOTAL LIABILITIES 1,567.5 1,510.7
STOCKHOLDERS' EQUITY 2,451.0 2,147.5
$4,018.5 $3,658.2
JONES APPAREL GROUP, INC.
SEGMENT INFORMATION
(UNAUDITED)
all amounts in millions
Wholesale
Wholesale Wholesale Footwear Other &
Better Moderate & Access Elimin- Consol-
Apparel Apparel -ories Retail ations idated
For the fiscal quarter
ended July 5, 2003
Revenues from
external customers $318.2 $286.3 $193.1 $177.1 $5.7 $980.4
Intersegment revenues 16.0 7.1 13.6 - (36.7) -
Total revenues 334.2 293.4 206.7 177.1 (31.0) 980.4
Segment income (loss) $48.2 $30.1 $28.5 $28.1 $(7.1) 127.8
14.4% 10.3% 13.8% 15.9% 13.0%
Net interest expense (14.2)
Equity in earnings of
unconsolidated
affiliates 0.5
Income before
provision for income
taxes $114.1
For the fiscal quarter
ended July 6, 2002
Revenues from
external customers $343.7 $224.0 $210.8 $187.6 $6.0 $972.1
Intersegment revenues 18.1 4.4 14.9 - (37.4) -
Total revenues 361.8 228.4 225.7 187.6 (31.4) 972.1
Segment income (loss) $65.7 $24.5 $19.5 $23.4 $(12.1) 121.0
18.2% 10.7% 8.6% 12.5% 12.4%
Net interest expense (14.2)
Income before
provision for income
taxes $106.8
For the fiscal six
months ended July 5, 2003
Revenues from
external customers $763.3 $698.6 $422.2 $317.4 $13.2 $2,214.7
Intersegment revenues 42.5 8.5 29.7 - (80.7) -
Total revenues 805.8 707.1 451.9 317.4 (67.5) 2,214.7
Segment income (loss) $149.8 $103.8 $75.5 $23.3 $(15.6) 336.8
18.6% 14.7% 16.7% 7.3% 15.2%
Net interest expense (28.3)
Equity in earnings of
unconsolidated
affiliates 1.1
Income before
provision for income
taxes $309.6
For the fiscal six
months ended July 6, 2002
Revenues from
external customers $817.6 $480.6 $444.7 $343.4 $12.6 $2,098.9
Intersegment revenues 48.0 5.7 37.4 - (91.1) -
Total revenues 865.6 486.3 482.1 343.4 (78.5) 2,098.9
Segment income (loss) $173.8 $71.4 $50.5 $29.8 $(52.9) 272.6
20.1% 14.7% 10.5% 8.7% 13.0%
Net interest expense (30.2)
Income before
provision for income
taxes $242.4
JONES APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
July 5, 2003 July 6, 2002
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $192.9 $137.2
Adjustments to reconcile net income
to net cash provided by operating
activities, net of acquisitions:
Cumulative effect of change in
accounting principle - 13.8
Amortization of original issue
discount 7.5 7.3
Trademark impairment losses - 5.8
Depreciation and other
amortization 38.6 41.8
Provision for losses on accounts
receivable 1.3 3.1
Deferred taxes 14.7 (13.3)
Gain on short sale of U.S.
Treasury Securities (6.6) (7.4)
Losses on sale of assets 1.0 0.8
Other (1.1) (0.1)
Changes in operating assets and
liabilities:
Accounts receivable (43.7) 16.3
Inventories (53.2) 58.5
Prepaid expenses and other
current assets (14.7) 4.2
Other assets 10.4 10.2
Accounts payable 10.1 10.6
Income taxes payable 3.2 48.1
Accrued expenses and other
liabilities (38.2) (14.9)
Total adjustments (70.7) 184.8
Net cash provided by operating
activities 122.2 322.0
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions, net of cash acquired - (80.9)
Capital expenditures (27.3) (27.5)
Payments relating to acquisitions (0.1) (2.0)
Net cash related to sale of U. S.
Treasury bonds 12.2 -
Acquisition of intangibles (6.0) (1.1)
Repayments of loans to officers - 2.0
Proceeds from sales of property,
plant and equipment 24.9 0.3
Other 0.2 (0.1)
Net cash provided by (used in)
investing activities 3.9 (109.3)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net repayments under various
credit facilities - (0.8)
Repayment of long-term debt (7.4) (0.7)
Refinancing of acquired debt - (43.7)
Principal payments on capitalized
leases (2.5) (7.9)
Purchases of treasury stock (59.2) -
Proceeds from exercise of employee
stock options 6.1 60.0
Net cash (used in) provided by
financing activities (63.0) 6.9
EFFECT OF EXCHANGE RATES ON CASH 1.1 0.2
NET INCREASE IN CASH AND CASH
EQUIVALENTS 64.2 219.8
CASH AND CASH EQUIVALENTS,
beginning of period 283.3 76.5
CASH AND CASH EQUIVALENTS, end of
period $347.5 $296.3
All amounts in millions
SOURCE Jones Apparel Group, Inc. |
The Jones Group Inc.
