The Jones Group Inc. (ticker: JNY, exchange: New York Stock Exchange (.N))
News Release -
26-Oct-2005
Jones Apparel Group, Inc. Reports Third Quarter 2005 Financial Results, Affirms Adjusted Full Year 2005 Guidance of $2.39, and Board Declares Quarterly Cash Dividend of $0.12 Per Share NEW YORK, Oct. 26 /PRNewswire-FirstCall/ -- Jones Apparel Group, Inc.
(NYSE: JNY) today reported results for the third quarter ended October 1,
2005. The Company also affirmed its expectations for the full year 2005, and
provided an update on the previously announced strategic review of its
operating infrastructure to improve profitability.
Revenues for the third quarter totaled $1,327.5 million, compared to
$1,296.1 million for the third quarter of 2004. Earnings per share were $0.65
for the third quarter of 2005, compared to $0.77 in the same period last year.
Earnings per share were $1.82 for the first nine months of 2005, compared to
$2.11 for the same period last year. Earnings per share, excluding the impact
of manufacturing inefficiencies resulting from the consolidation of the
Company's Mexican denim manufacturing operations, as well as expenses incurred
related to the strategic review, were $0.76 for the third quarter and $1.96
for the first nine months.
Peter Boneparth, President and Chief Executive Officer, stated, "Our third
quarter financial results surpassed our expectations. We were particularly
pleased with the financial performance of our wholesale better apparel
businesses, the Gloria Vanderbilt moderate apparel business and the Barneys
New York retail business. Our other moderate sportswear businesses also
performed well and exceeded the prior year period's sales and operating profit
levels. Although lower than the prior year, the wholesale footwear and
accessories business and the junior denim business each exceeded our
expectations. Comparable store sales from our owned footwear and ready-to-
wear stores (excluding Barneys New York) decreased 2.9% versus a decrease of
1.1% in the prior year. The Barneys New York luxury retail business reported
a comparable store sales increase of 12.1%, benefiting from strong consumer
demand for luxury products."
Wesley Card, Chief Operating and Financial Officer, commented, "The
acquisition of Barneys New York added $133.9 million to revenues during the
quarter, partially offset by anticipated 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 10.5%, compared to
12.7% in the prior year. This decrease was primarily a result of l.e.i.'s
expected operating performance, along with the inclusion of Barneys, which
carries a lower operating margin than the company average. Included in the
current period results were two items that were recorded as reductions of
SG&A: (i) $5.1 million from Saks Incorporated related to pre-acquisition
issues with our Anne Klein business, and (ii) $5.2 million from a landlord
repurchase of a Nine West retail store operating lease. During the period, we
also absorbed the adverse financial impact of hurricanes Katrina and Rita to
our owned footwear stores, which approximated $2 million in sales. Our
operating cash flow during the nine months ended October 1, 2005 improved by
$16.9 million over the same period last year, primarily resulting from our
disciplined working capital management. Although not an operating item, the
effective income tax rate during the quarterly period was 36.6% versus 37.5%
in the prior year period. The reduction was primarily driven by a U.S. tax
benefit associated with the repatriation of earnings from our Canadian
subsidiaries."
Mr. Card added, "Our accounts receivable at the end of the third quarter
were $649.1 million, compared to $685.8 million at the end of the prior year
period. Exclusive of Barneys New York receivables, which were acquired during
the fourth quarter of 2004, accounts receivable decreased $77.5 million, or
11.3%. Inventory at the end of the third quarter totaled $731.0 million,
compared to $627.7 million at the end of the prior year period. Excluding the
Barneys New York acquisition, inventory at the end of the third quarter 2005
totaled $638.6 million, a 1.7% increase from the year-earlier period. We
ended the quarter with $1,396.9 million of funded debt and, net of $29.4
million cash on hand, our net debt to book capitalization ratio was 34.0%, in
line with our expectations. During this quarter, we repurchased 1.45 million
shares of common stock in the open market at an aggregate cost of $41.6
million, or $28.72 per share. The Company has $92.1 million available under
the Board approved share repurchase authorization."
The Board of Directors approved a quarterly cash dividend of $0.12 per
share, which is available to all common stockholders of record as of
November 14, 2005 for payment on December 2, 2005.
The Company remains comfortable with its previously provided guidance.
Revenues for 2005 full year are expected to be in a range of $5.0 to $5.1
billion and its projected full year 2005 earnings per share on an adjusted
basis, excluding restructuring costs and manufacturing inefficiencies, are
expected to equal or exceed $2.39.
Update of Strategic Operating Review
Mr. Boneparth stated, "At the end of the second quarter, we indicated that
we were in the initial stages of reviewing our operating infrastructure,
systems and processes. The goal of this review is to improve profitability
and ensure we are properly positioned for the long-term benefit of our
shareholders. The three critical areas of review include: Supply Chain
Management, Manufacturing and General and Administrative Areas. Since our
actions in many cases involve people and facilities, we are taking great care
to move quickly but with sensitivity to those individuals affected."
The initiatives include the following:
- Supply Chain Management -
- The Company has made the decision to close its Bristol, PA
distribution center. This facility will continue to operate until
the later part of the fourth quarter, at which point the units that
it distributes will be re-routed to other distribution centers
within our network. The Company expects to take a charge in the
fourth quarter resulting from this action of $5.3 million related
to severance and other employee related matters.
- The Company is continuing its implementation of an enterprise-wide
pre-production and merchandise planning system that has the ability
to be fully integrated with third-party manufacturers.
- The technology supporting each of the operating businesses has been
carefully examined, and the Company is very close to selecting an
enterprise-wide supply-and-demand system, with implementation to
commence in the first quarter of 2006.
- Manufacturing -
- The Company has substantially completed the restructuring of its
owned manufacturing facilities in Mexico. In connection with this
restructuring, approximately $15.2 million of pre-tax costs were
incurred during the quarter as follows: (i) $5.3 million of one-
time termination benefits, (ii) $6.2 million of non-cash writedowns
of property, plant, and equipment, (iii) $2.6 million of contract
termination costs, and (iv) $1.1 million of legal and other
associated costs. The Company also incurred $3.6 million of
expenses during the quarter associated with manufacturing
inefficiencies as a result of the restructuring. Full year
estimated cost savings will approximate $5 million beginning in
2006.
- General and Administrative Areas -
- The Company completed a review of all general and administrative
support areas and is developing a timetable to implement best
practices to improve service effectiveness where identified.
Mr. Boneparth concluded, "Jones Apparel Group has the commitment and
determination to make the needed operational improvements encompassed by the
strategic review. I am pleased with the progress that we have made in a
relatively short period of time. Despite the difficult business climate and
our cautious view of the holiday selling season, I am convinced that our focus
will not wane during this period of organizational and industry change."
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
November 3 and is accessible by dialing 877-344-7529. Enter account number
379564.
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 principles (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
THIRD QUARTER
2005 2004
Net sales $1,312.6 98.9% $1,283.0 99.0%
Licensing income (net) 14.9 1.1% 13.1 1.0%
Total revenues 1,327.5 100.0% 1,296.1 100.0%
Cost of goods sold 866.1 65.2% 834.5 64.4%
Gross profit 461.4 34.8% 461.6 35.6%
SG&A expenses 321.8 24.2% 297.2 22.9%
Income from operations 139.6 10.5% 164.4 12.7%
Net interest expense and financing
costs 19.5 1.5% 11.9 0.9%
Equity in earnings of unconsolidated
affiliates 1.0 0.1% 0.7 0.1%
Income before taxes 121.1 9.1% 153.2 11.8%
Provision for income taxes 44.3 3.3% 57.4 4.4%
Net income $76.8 5.8% $95.8 7.4%
Shares outstanding - diluted 117.6 125.0
Earnings per share - diluted $0.65 $0.77
NINE MONTHS
2005 2004
Net sales $3,813.0 99.0% $3,530.6 99.0%
Licensing income (net) 40.2 1.0% 36.2 1.0%
Total revenues 3,853.2 100.0% 3,566.8 100.0%
Cost of goods sold 2,458.5 63.8% 2,230.2 62.5%
Gross profit 1,394.7 36.2% 1,336.6 37.5%
SG&A expenses 991.3 25.7% 875.7 24.6%
Income from operations 403.4 10.5% 460.9 12.9%
Net interest expense and financing
costs 56.4 1.5% 34.6 1.0%
Equity in earnings of unconsolidated
affiliates 2.8 0.1% 2.0 0.1%
Income before taxes 349.8 9.1% 428.3 12.0%
Provision for income taxes 131.2 3.4% 160.6 4.5%
Net income $218.6 5.7% $267.7 7.5%
Shares outstanding - diluted 120.2 127.4
Earnings per share - diluted $1.82 $2.11
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:
THIRD QUARTER NINE MONTHS
2005 2004 2005 2004
Net income (as reported) $76.8 $95.8 $218.6 $267.7
Provision for income taxes 44.3 57.4 131.2 160.6
Denim restructuring 15.2 - 15.2 -
Manufacturing inefficiencies 3.6 - 11.9 -
Strategic review 0.4 - 0.4 -
Adjusted income before taxes 140.3 153.2 377.3 428.3
Adjusted provision for income taxes 51.3 57.4 141.5 160.6
Adjusted net income $89.0 $95.8 $235.8 $267.7
Earnings per share - diluted (as
reported) $0.65 $0.77 $1.82 $2.11
Provision for income taxes 0.38 0.46 1.09 1.26
Denim restructuring 0.13 - 0.13 -
Manufacturing inefficiencies 0.03 - 0.10 -
Strategic review - - - -
Adjusted income before taxes 1.19 1.23 3.14 3.37
Adjusted provision for income taxes 0.43 0.46 1.18 1.26
Adjusted earnings per share - diluted $0.76 $0.77 $1.96 $2.11
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
All amounts in millions
October 1, 2005 October 2, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $29.4 $45.9
Accounts receivable, net of
allowances of $53.8 and $58.5 for
doubtful accounts, discounts,
returns and co-op advertising 649.1 685.8
Inventories 731.0 627.7
Deferred taxes 56.9 67.0
Other current assets 82.6 73.0
TOTAL CURRENT ASSETS 1,549.0 1,499.4
Property, plant and equipment, at
cost, less accumulated depreciation and
amortization 306.2 257.6
Goodwill 2,098.2 1,842.5
Other intangibles, less accumulated
amortization 829.2 773.4
Other assets 56.5 52.3
$4,839.1 $4,425.2
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $378.5 $732.0
Current portion of long-term debt
and capital lease obligations 227.9 134.6
Accounts payable 268.2 256.3
Income taxes payable 63.4 44.7
Accrued expenses and other current
liabilities 185.7 161.0
TOTAL CURRENT LIABILITIES 1,123.7 1,328.6
NONCURRENT LIABILITIES:
Long-term debt and obligation
under capital leases 790.5 264.9
Deferred taxes 175.7 121.7
Other 95.5 52.7
TOTAL NONCURRENT LIABILITIES 1,061.7 439.3
TOTAL LIABILITIES 2,185.4 1,767.9
STOCKHOLDERS' EQUITY 2,653.7 2,657.3
$4,839.1 $4,425.2
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 October
1, 2005
Revenues from external customers $396.7 $337.8 $262.2
Intersegment revenues 41.7 1.1 9.6
Total revenues 438.4 338.9 271.8
Segment income $62.6 $12.2 $48.5
14.3% 3.6% 17.8%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the fiscal quarter ended October
2, 2004
Revenues from external customers $435.4 $349.0 $319.4
Intersegment revenues 43.1 3.5 13.5
Total revenues 478.5 352.5 332.9
Segment income $65.7 $40.2 $49.8
13.7% 11.4% 15.0%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the fiscal nine months ended
October 1, 2005
Revenues from external customers $1,125.9 $999.4 $748.7
Intersegment revenues 114.6 4.0 30.6
Total revenues 1,240.5 1,003.4 779.3
Segment income $160.2 $80.8 $115.4
12.9% 8.1% 14.8%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the fiscal nine months ended
October 2, 2004
Revenues from external customers $1,164.8 $1,055.0 $763.3
Intersegment revenues 115.0 10.1 45.2
Total revenues 1,279.8 1,065.1 808.5
Segment income $165.5 $131.8 $137.5
12.9% 12.4% 17.0%
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 October
1, 2005
Revenues from external customers $315.9 $14.9 $1,327.5
Intersegment revenues - (52.4) -
Total revenues 315.9 (37.5) 1,327.5
Segment income $23.6 $(7.3) 139.6
7.5% 10.5%
Net interest expense (19.5)
Equity in earnings of
unconsolidated affiliates 1.0
Income before provision for
income taxes $121.1
For the fiscal quarter ended October
2, 2004
Revenues from external customers $178.0 $14.3 $1,296.1
Intersegment revenues - (60.1) -
Total revenues 178.0 (45.8) 1,296.1
Segment income $10.2 $(1.5) 164.4
5.7% 12.7%
Net interest expense (11.9)
Equity in earnings of
unconsolidated affiliates 0.7
Income before provision for
income taxes $153.2
For the fiscal nine months ended
October 1, 2005
Revenues from external customers $939.1 $40.1 $3,853.2
Intersegment revenues - (149.2) -
Total revenues 939.1 (109.1) 3,853.2
Segment income $73.5 $(26.5) 403.4
7.8% 10.5%
Net interest expense (56.4)
Equity in earnings of
unconsolidated affiliates 2.8
Income before provision for
income taxes $349.8
For the fiscal nine months ended
October 2, 2004
Revenues from external customers $546.3 $37.4 $3,566.8
Intersegment revenues - (170.3) -
Total revenues 546.3 (132.9) 3,566.8
Segment income $47.4 $(21.3) 460.9
8.7% 12.9%
Net interest expense (34.6)
Equity in earnings of
unconsolidated affiliates 2.0
Income before provision for
income taxes $428.3
JONES APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
All amounts in millions Nine Months Ended
October 1, 2005 October 2, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $218.6 $267.7
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 76.9 83.1
Equity in earnings of
unconsolidated affiliates (2.8) (2.0)
Dividends received from
unconsolidated affiliates 1.3 2.0
Provision for losses on accounts
receivable 0.5 0.2
Deferred taxes 37.4 20.4
Loss on redemption of Zero Coupon
Convertible Senior Notes - 8.4
Other 5.8 2.5
Changes in operating assets and
liabilities:
Accounts receivable (200.7) (271.8)
Inventories (66.3) (3.1)
Prepaid expenses and other
current assets (5.0) (21.9)
Other assets 3.7 (4.5)
Accounts payable 8.3 14.9
Income taxes payable 33.3 45.3
Accrued expenses and other
liabilities (9.4) (57.8)
Total adjustments (117.0) (183.0)
Net cash provided by operating
activities 101.6 84.7
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments related to Maxwell acquisition (0.1) (249.3)
Payments related to Kasper acquisition - (37.8)
Payments related to Barneys acquisition (4.1) -
Capital expenditures (60.6) (39.4)
Acquisition of intangibles (0.1) -
Other (0.1) 1.6
Net cash used in investing activities (65.0) (324.9)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit
facilities 309.2 732.0
Redemption of Zero Coupon Convertible
Senior Notes - (446.6)
Redemption at maturity of 8.375%
Senior Notes (129.6) -
Redemption at maturity of 7.50%
Senior Notes - (175.0)
Debt issuance costs (0.5) -
Principal payments on capitalized
leases (3.4) (4.4)
Purchases of treasury stock (199.3) (169.8)
Dividends paid (38.4) (32.5)
Proceeds from exercise of employee
stock options 10.5 32.6
Net cash used in financing activities (51.5) (63.7)
EFFECT OF EXCHANGE RATES ON CASH (0.7) (0.2)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (15.6) (304.1)
CASH AND CASH EQUIVALENTS, beginning of
period 45.0 350.0
CASH AND CASH EQUIVALENTS, end of
period $29.4 $45.9
SOURCE Jones Apparel Group, Inc.
-0- 10/26/2005
/CONTACT: Wesley R. Card, Chief Operating and Financial Officer, or
Anita Britt, Executive Vice President Finance, both of Jones Apparel Group,
Inc., +1-215-785-4000/
/Web site: http://www.jny.com /
(JNY)
CO: Jones Apparel Group, Inc.
ST: New York
IN: FAS TEX REA
SU: ERN ERP DIV CCA
JT
-- PHW005 --
5304 10/26/2005 07:00 EDT http://www.prnewswire.com
|
The Jones Group Inc.
