The Jones Group Inc. (ticker: JNY, exchange: New York Stock Exchange (.N))
News Release -
28-Jul-2005
Jones Apparel Group, Inc. Reports Second Quarter 2005 Financial Results, Updates Expectations for Full Year 2005, Announces Strategic Review of Its Operating Infrastructure, and Increases Quarterly Cash Dividend by 20% to $0.12 NEW YORK, July 28 /PRNewswire-FirstCall/ -- Jones Apparel Group, Inc.
(NYSE: JNY) today reported results for the second quarter ended July 2, 2005.
The Company also updated its expectations for the full year 2005, announced a
strategic review of its operating infrastructure to improve profitability, and
increased its dividend to reflect its strong financial position.
Revenues for the second quarter totaled $1,176.4 million as compared to
$1,052.6 million for the second quarter of 2004. Earnings per share were
$0.46 for the second quarter of 2005, as compared to $0.61 in the same period
last year. Earnings per share were $1.17 for the first six months of 2005, as
compared to $1.34 for the same period last year. Earnings per share,
excluding the impact of manufacturing inefficiencies realized in connection
with the consolidation of its Mexican denim manufacturing operations, were
$0.48 for the second quarter and $1.21 for the first six months.
Peter Boneparth, President and Chief Executive Officer, stated, "Our
second quarter financial performance was generally consistent with our
expectations. The wholesale better apparel businesses, Gloria Vanderbilt
moderate apparel business and Barneys New York retail business each exceeded
their plan. This stronger performance offset previously announced expenses
during the period of (i) $4.6 million due to lost manufacturing efficiencies
associated with our denim operations and (ii) $3.2 million related to an
arbitration award to a former employee, which were not in our plan. Our
moderate sportswear businesses also performed well and benefited greatly from
the infrastructure changes implemented last year. We continued to experience
challenges in our wholesale footwear, accessories and junior denim businesses.
Comparable store sales from our owned footwear and ready-to-wear stores
(excluding Barneys New York) increased 1.8% versus an increase of 3.8% in the
prior year. The Barneys New York luxury retail business reported comparable
store sales increases of 13.0%; to date, we have been very pleased with the
performance of this business. We are moving forward with plans to expand the
resources available to Barneys in the form of additional management personnel,
improved systems, and increased capital to support its store expansion
program."
Wesley Card, Chief Operating and Financial Officer, commented, "The
acquisitions of Maxwell Shoe and Barneys New York added $166.7 million to
revenues during the quarter, partially offset by decreases in our wholesale
better apparel, footwear and accessories business and our l.e.i. junior denim
business. Our operating profit margin for the quarter was 9.0%, compared to
12.8% in the prior year. This decrease was primarily a result of gross margin
pressure across many of our wholesale businesses largely attributable to lower
levels of full price sales, along with the inclusion of Barneys, which carries
a lower operating margin than the company average. Our operating cash flow
during the six months ending July 2, 2005 improved by $18.8 million over the
same period last year, as our working capital planning remained disciplined."
Mr. Card added, "Our accounts receivable at the end of the second quarter
was $509.2 million, compared to $451.6 million at the end of the prior year
period. Exclusive of Maxwell Shoe and Barneys New York receivables, which
were acquired during the third and fourth quarters of 2004, respectively,
accounts receivable increased $2.0 million, or 0.4%. Inventory at the end of
the second quarter totaled $661.7 million, compared to $592.8 million at the
end of the prior year period. Excluding acquisitions, inventory at the end of
the second quarter 2005 totaled $583.1 million, a 1.6% decrease from the year-
earlier period. We ended the quarter with $1,272.2 million of funded debt
and, net of $35.3 million cash on hand, our net debt to book capitalization
ratio was 32.0%, in line with our expectations. During the quarter, we
repurchased approximately 3.54 million shares of common stock in the open
market at an aggregate cost of $112.4 million, or $31.78 per share."
The Board of Directors approved a 20% increase in the quarterly cash
dividend from $0.10 per share to $0.12 per share, which is available to all
common stockholders of record as of August 12, 2005 for payment on August 26,
2005.
Outlook and Strategic Operating Review
The Company is reducing its expected 2005 full year revenues to a range of
$5.0 to $5.1 billion. The Company also indicated its projected earnings per
share on an adjusted basis, excluding restructuring costs and manufacturing
inefficiencies, are forecasted to equal or exceed the $2.39 earnings per share
reported for 2004. This adjusted range reflects revenue and gross profit
reductions in the junior denim business and reductions in the wholesale
footwear and accessories business as the Company continues to work with
retailers to increase inventory turn and reduce stock levels.
Mr. Boneparth stated, "We are in a very solid financial position and have
notable strengths relating to the creation of high quality product, superior
merchandising skills, and a highly-recognizable brand portfolio. At the same
time, we believe that operational execution will increasingly be a key element
in driving future success. As a result, we are in the initial stages of a
strategic review of our operating infrastructure to improve profitability and
to ensure we are properly positioned for the long-term benefit of our
shareholders. By proactively reviewing our infrastructure, systems and
operating processes at a time when the industry is undergoing consolidation
and change, we plan to eliminate redundancies and improve our overall cost
structure and margin performance."
The Company outlined three critical areas of review:
-- Supply Chain Management -
-- The Company is well into the initial stages of implementing an
enterprise-wide merchandise planning system that has the ability
to be fully integrated with third-party manufacturers.
-- The Company is analyzing the capabilities of its third-party
manufacturers to increase pre-production collaboration efforts
with them, thereby increasing speed to market and improving
margins. This has already been achieved in some of the moderate
businesses, and the initiative is now being expanded to include
the better apparel business.
-- Given the elimination of quotas and safeguards over the next few
years, the Company plans to review its vendor matrix with an
expectation of consolidating third-party manufacturing.
-- The technology supporting each of the businesses is being
carefully examined to determine the platform best suited to
address the Company's growing business needs.
-- The logistics network is being analyzed in an effort to reduce
costs and increase efficiency by following a tiered approach of
(i) direct shipping from factory to vendor, (ii) utilizing third
party logistics providers, and (iii) multiple product usage of
existing distribution centers.
-- Manufacturing -
-- The Company has assessed the performance of its owned
manufacturing facilities. To this end, on July 11th, it
announced the consolidation of its operations in Mexico to
improve capacity utilization rates while increasing its denim
sourcing efforts available from alternative sources.
-- General and Administrative Areas -
-- The Company is reviewing all general and administrative support
areas to increase efficiencies and improve service effectiveness.
In some instances, third-party consultants are assisting in the
identification of best practices and providing benchmark
analytics.
The Company expects the reviews to be substantially completed over the
next three months, and estimates that the implementation and execution of the
initiatives generated as a result of the reviews already underway, will be
substantially completed over the next 36 months. The Company has targeted
annual savings of approximately $100 million once all the initiatives have
been implemented. The costs associated with the review and the ultimate
execution expenses related to the initiatives that are derived will not be
quantifiable until a later date. To date, the Company has estimated $14
million in restructuring expenses associated with the consolidation of its
denim manufacturing operations and $12.8 million in manufacturing
inefficiencies associated with the transition plan, resulting in full year
estimated cost savings of $5 million.
Mr. Boneparth concluded, "I am pleased that we have the financial
resources to drive any needed operational improvements so that cost synergies
may be realized. We are pursuing these strategic initiatives and at the same
time we continue our ongoing program of returning incremental value to
shareholders in the form of dividend distributions and share repurchase
programs."
The Company will host a conference call with management to discuss these
results and its outlook for 2005 at 8:30 a.m. eastern time today, which is
accessible by dialing 412-858-4600 or through a web cast at
http://www.jny.com. The call will be recorded and made available through
August 5 and is accessible by dialing 877-344-7529. Enter account number
373773.
Jones Apparel Group, Inc. (http://www.jny.com), a Fortune 500 company, is
a leading designer, marketer and wholesaler of branded apparel, footwear and
accessories. We also market directly to consumers through our chain of
specialty retail and value-based stores, and operate the Barneys New York
chain of luxury stores. Our nationally recognized brands include Jones New
York, Evan-Picone, Norton McNaughton, Gloria Vanderbilt, Erika, l.e.i.,
Energie, Nine West, Easy Spirit, Enzo Angiolini, Bandolino, Joan & David,
Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Kasper, Anne Klein,
Albert Nipon, Le Suit and Barneys New York. The Company also markets apparel
under the Polo Jeans Company brand licensed from Polo Ralph Lauren
Corporation, costume jewelry under the Tommy Hilfiger brand licensed from
Tommy Hilfiger Licensing, Inc. and the Givenchy brand licensed from Givenchy
Corporation and footwear under the Dockers Women brand licensed from Levi
Strauss & Co. Each brand is differentiated by its own distinctive styling,
pricing strategy, distribution channel and target consumer. We primarily
contract for the manufacture of our products through a worldwide network of
quality manufacturers. We have capitalized on our nationally known brand names
by entering into various licenses for several of our trademarks, including
Jones New York, Evan-Picone, Anne Klein New York, Nine West, Gloria Vanderbilt
and l.e.i., with select manufacturers of women's and men's products which we
do not manufacture. For more than 30 years, we have built a reputation for
excellence in product quality and value, and in operational execution.
Presentation of Information in the Press Release
In an effort to provide investors with additional information regarding
the Company's consolidated operating results as determined by generally
accepted accounting principals (GAAP), the Company has also disclosed in this
press release non-GAAP information regarding the Strategic Review of its
Infrastructure as discussed above. The Company believes that providing
further information resulting from the execution of the Strategic Review will
allow investors to better analyze its ongoing results. The Company has also
provided a reconciliation of its GAAP results to adjusted results.
Certain statements contained herein are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
All statements regarding the Company's expected financial position, business
and financing plans are forward-looking statements. The words "believes,"
"expects," "plans," "intends," "anticipates" and similar expressions identify
forward-looking statements. Forward-looking statements also include
representations of the Company's expectations or beliefs concerning future
events that involve risks and uncertainties, including:
-- those associated with the effect of national and regional economic
conditions;
-- lowered levels of consumer spending resulting from a general economic
downturn or lower levels of consumer confidence or generally reduced
shopping activity caused by public safety concerns;
-- the performance of the Company's products within the prevailing
retail environment;
-- customer acceptance of both new designs and newly-introduced product
lines;
-- the Company's reliance on a few department store groups for large
portions of the Company's business;
-- consolidation of the Company's retail customers;
-- financial difficulties encountered by customers;
-- the effects of vigorous competition in the markets in which the
Company operates;
-- the Company's ability to identify acquisition candidates and acquire
such businesses on reasonable financial and other terms, in an
increasingly competitive environment for such acquisitions;
-- the integration of the organizations and operations of any acquired
businesses into the Company's existing organization and operations;
-- the Company's reliance on independent foreign manufacturers;
-- changes in the costs of raw materials, labor and advertising;
-- the general inability to obtain higher wholesale prices for the
Company's products that the Company has experienced for many years;
-- the uncertainties of sourcing associated with the new environment in
which quota has been eliminated on apparel products while political
pressure is building for the re-imposition of quotas in certain
categories; and
-- the Company's ability to secure and protect trademarks and other
intellectual property rights.
A further description of these risks and uncertainties and other important
factors that could cause actual results to differ materially from the
Company's expectations can be found in the Company's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 2004, including, but not limited
to, the Statement Regarding Forward-Looking Disclosure and the information
concerning trends and risk factors included in Management's Discussion and
Analysis of Financial Condition and Results of Operations therein, and in the
Company's other filings with the Securities and Exchange Commission. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, such expectations may prove to be incorrect. 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
2005 2004
Net sales $1,165.4 99.1% $1,042.6 99.0%
Licensing income (net) 11.0 0.9% 10.0 1.0%
Total revenues 1,176.4 100.0% 1,052.6 100.0%
Cost of goods sold 741.9 63.1% 639.2 60.7%
Gross profit 434.5 36.9% 413.4 39.3%
SG&A expenses 329.1 28.0% 278.8 26.5%
Income from operations 105.4 9.0% 134.6 12.8%
Net interest expense and financing
costs 17.9 1.5% 11.0 1.0%
Equity in earnings of unconsolidated
affiliates 0.9 0.1% 0.6 0.1%
Income before taxes 88.4 7.5% 124.2 11.8%
Provision for income taxes 33.6 2.9% 46.6 4.4%
Net income $54.8 4.7% $77.6 7.4%
Shares outstanding - diluted 120.2 127.1
Earnings per share - diluted $0.46 $0.61
SIX MONTHS
2005 2004
Net sales $2,500.4 99.0% $2,247.6 99.0%
Licensing income (net) 25.2 1.0% 23.1 1.0%
Total revenues 2,525.6 100.0% 2,270.7 100.0%
Cost of goods sold 1,592.4 63.1% 1,395.7 61.5%
Gross profit 933.2 36.9% 875.0 38.5%
SG&A expenses 669.5 26.5% 578.5 25.5%
Income from operations 263.7 10.4% 296.5 13.1%
Net interest expense and financing
costs 36.8 1.5% 22.7 1.0%
Equity in earnings of unconsolidated
affiliates 1.8 0.1% 1.4 0.1%
Income before taxes 228.7 9.1% 275.2 12.1%
Provision for income taxes 86.9 3.4% 103.2 4.5%
Net income $141.8 5.6% $172.0 7.6%
Shares outstanding - diluted 121.4 128.6
Earnings per share - diluted $1.17 $1.34
Percentages may not add due to rounding.
As required by the Securities and Exchange Commission Regulation
G, the following table contains information regarding the non-GAAP
adjustments used by the Company in the presentation of its financial
results:
SECOND QUARTER SIX MONTHS
2005 2004 2005 2004
Net income (as reported) $54.8 $77.6 $141.8 $172.0
Provision for income taxes 33.6 46.6 86.9 103.2
Manufacturing inefficiencies 4.6 - 8.4 -
Adjusted income before taxes 93.0 124.2 237.1 275.2
Adjusted provision for income taxes 35.3 46.6 90.1 103.2
Adjusted net income $57.7 $77.6 $147.0 $172.0
Earnings per share - diluted (as
reported) $0.46 $0.61 $1.17 $1.34
Provision for income taxes 0.27 0.37 0.71 0.80
Manufacturing inefficiencies 0.04 - 0.07 -
Adjusted income before taxes 0.77 0.98 1.95 2.14
Adjusted provision for income taxes 0.29 0.37 0.74 0.80
Adjusted earnings per
share - diluted $0.48 $0.61 $1.21 $1.34
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
All amounts in millions
July 2, 2005 July 3, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $35.3 $42.9
Accounts receivable, net of
allowances of $45.8 and $43.6 for
doubtful accounts, discounts,
returns and co-op advertising 509.2 451.6
Inventories 661.7 592.8
Deferred taxes 57.7 69.3
Other current assets 80.0 72.9
TOTAL CURRENT ASSETS 1,343.9 1,229.5
Property, plant and equipment, at
cost, less accumulated depreciation and
amortization 309.9 261.6
Goodwill 2,100.6 1,633.1
Other intangibles, less accumulated
amortization 831.0 753.8
Other assets 55.7 52.7
$4,641.1 $3,930.7
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $123.3 $329.2
Current portion of long-term debt
and capital lease obligations 357.8 5.6
Accounts payable 282.0 209.1
Income taxes payable 41.0 45.6
Accrued expenses and other current
liabilities 160.8 133.2
TOTAL CURRENT LIABILITIES 964.9 722.7
NONCURRENT LIABILITIES:
Long-term debt and obligation
under capital leases 791.1 395.2
Deferred taxes 167.7 108.5
Other 91.4 58.7
TOTAL NONCURRENT LIABILITIES 1,050.2 562.4
TOTAL LIABILITIES 2,015.1 1,285.1
STOCKHOLDERS' EQUITY 2,626.0 2,645.6
$4,641.1 $3,930.7
JONES APPAREL GROUP, INC.
SEGMENT INFORMATION
(UNAUDITED)
All amounts in millions
Wholesale Wholesale Wholesale
Better Moderate Footwear &
Apparel Apparel Accessories
For the fiscal quarter
ended July 2, 2005
Revenues from external customers $300.6 $306.4 $218.7
Intersegment revenues 38.0 - 9.0
Total revenues 338.6 306.4 227.7
Segment income $26.0 $22.9 $25.3
7.7% 7.5% 11.1%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the fiscal quarter
ended July 3, 2004
Revenues from external customers $320.2 $310.7 $213.1
Intersegment revenues 30.6 4.6 12.7
Total revenues 350.8 315.3 225.8
Segment income $43.7 $31.1 $38.1
12.5% 9.9% 16.9%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the fiscal six months
ended July 2, 2005
Revenues from external customers $729.3 $661.5 $486.4
Intersegment revenues 72.9 2.8 21.1
Total revenues 802.2 664.3 507.5
Segment income $97.6 $68.5 $66.9
12.2% 10.3% 13.2%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the fiscal six months
ended July 3, 2004
Revenues from external customers $729.4 $706.1 $443.8
Intersegment revenues 71.9 6.5 31.8
Total revenues 801.3 712.6 475.6
Segment income $99.7 $91.7 $87.7
12.4% 12.9% 18.4%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
Licensing,
Other &
Retail Eliminations Consolidated
For the fiscal quarter
ended July 2, 2005
Revenues from external customers $339.7 $11.0 $1,176.4
Intersegment revenues - (47.0) -
Total revenues 339.7 (36.0) 1,176.4
Segment income $39.5 $(8.3) 105.4
11.6% 9.0%
Net interest expense (17.9)
Equity in earnings of
unconsolidated affiliates 0.9
Income before provision for
income taxes $88.4
For the fiscal quarter
ended July 3, 2004
Revenues from external customers $198.6 $10.0 $1,052.6
Intersegment revenues - (47.9) -
Total revenues 198.6 (37.9) 1,052.6
Segment income $29.5 $(7.8) 134.6
14.9% 12.8%
Net interest expense (11.0)
Equity in earnings of
unconsolidated affiliates 0.6
Income before provision for
income taxes $124.2
For the fiscal six months
ended July 2, 2005
Revenues from external customers $623.2 $25.2 $2,525.6
Intersegment revenues - (96.8) -
Total revenues 623.2 (71.6) 2,525.6
Segment income $49.9 $(19.2) 263.7
8.0% 10.4%
Net interest expense (36.8)
Equity in earnings of
unconsolidated affiliates 1.8
Income before provision for
income taxes $228.7
For the fiscal six months
ended July 3, 2004
Revenues from external customers $368.3 $23.1 $2,270.7
Intersegment revenues - (110.2) -
Total revenues 368.3 (87.1) 2,270.7
Segment income $37.2 $(19.8) 296.5
10.1% 13.1%
Net interest expense (22.7)
Equity in earnings of
unconsolidated affiliates 1.4
Income before provision for
income taxes $275.2
JONES APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
All amounts in millions Six Months Ended
July 2, 2005 July 3, 2004
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $141.8 $172.0
Adjustments to reconcile net
income to net cash
provided by operating activities,
net of acquisitions:
Amortization of original issue
discount - 1.3
Depreciation and other
amortization 51.8 50.4
Equity in earnings of
unconsolidated affiliates (1.8) (1.4)
Dividends received from
unconsolidated affiliates - 1.5
Provision for losses on accounts
receivable 1.3 (0.1)
Deferred taxes 29.6 2.3
Loss on redemption of Zero
Coupon Convertible Senior Notes - 8.4
Other (0.5) 2.0
Changes in operating assets and
liabilities:
Accounts receivable (62.5) (67.0)
Inventories 1.9 (1.3)
Prepaid expenses and other
current assets (12.0) (23.6)
Other assets 4.2 (4.9)
Accounts payable 20.6 (28.6)
Income taxes payable 10.9 33.4
Accrued expenses and other
liabilities (33.2) (11.1)
Total adjustments 10.3 (38.7)
Net cash provided by operating
activities 152.1 133.3
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments related to Barneys
acquisition (4.1) -
Payments related to Kasper
acquisition - (37.8)
Capital expenditures (37.6) (26.1)
Acquisition of intangibles (0.1) -
Other 0.3 -
Net cash used in investing
activities (41.5) (63.9)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings under credit
facilities 54.0 329.2
Redemption of Zero Coupon
Convertible Senior Notes - (446.6)
Redemption at maturity of 7.50%
Senior Notes - (175.0)
Debt issuance costs (0.4) -
Principal payments on capitalized
leases (2.5) (2.9)
Purchases of treasury stock (155.6) (91.1)
Dividends paid (24.2) (20.2)
Proceeds from exercise of employee
stock options 8.9 30.5
Net cash used in financing
activities (119.8) (376.1)
EFFECT OF EXCHANGE RATES ON CASH (0.5) (0.4)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (9.7) (307.1)
CASH AND CASH EQUIVALENTS,
beginning of period 45.0 350.0
CASH AND CASH EQUIVALENTS, end of
period $35.3 $42.9
SOURCE Jones Apparel Group, Inc.
07/28/2005
CONTACT: Wesley R. Card, Chief Operating and Financial Officer, or
Anita Britt, Executive Vice President Finance, both of Jones Apparel Group,
+1-215-785-4000/
/Web site: http://www.jny.com /
|
The Jones Group Inc.
