The Jones Group Inc. (ticker: JNY, exchange: New York Stock Exchange (.N))
News Release -
15-Feb-2006
Jones Apparel Group, Inc. Reports Fourth Quarter and Full Year 2005 Financial Results
Provides 2006 Outlook and Update on Strategic Review
Board Declares Quarterly Cash Dividend of $0.12 Per Share and Increases
Stock Repurchase Authorization by $250 Million
NEW YORK, Feb. 15 /PRNewswire-FirstCall/ -- Jones Apparel Group, Inc.
(NYSE: JNY) today reported results for the fourth quarter and full year 2005.
Revenues increased to $1,221.0 million for the fourth quarter ended December
31, 2005, from $1,082.9 million for the fourth quarter of 2004. Revenues for
the full year 2005 increased to $5,074.2 million, from $4,649.7 million for
the full year 2004.
Earnings per share were $0.48 for the fourth quarter of 2005, as compared
to $0.28 for the fourth quarter of 2004. Earnings per share were $2.30 for
the full year 2005, as compared to $2.39 for the full year 2004. Excluding
the impact of expenses related to the Company's restructuring and strategic
operating initiatives, earnings per share were $0.51 and $2.48 for the fourth
quarter and full year 2005, respectively. These results included a $5.7
million reversal of income tax accruals resulting from the favorable
resolution of various foreign and state income tax audits.
Peter Boneparth, President and Chief Executive Officer, stated, "We were
very pleased with our fourth quarter performance versus the prior year period.
We realized better than expected results in our licensed businesses and our
Gloria Vanderbilt moderate apparel business, as well as our luxury Barneys
retail stores. We noted improvement in the selling of our footwear products
and were also satisfied with the performance of our apparel product lines. We
were pleased with our Barneys luxury stores, which posted an 8.0% comparable
store sales increase for the fourth quarter, bringing the full year comparable
store sales increase to 10.8%. Our footwear and ready to wear stores posted a
2.8% comparable store sales increase for the fourth quarter, resulting in a
0.2% decrease for the full year."
Wesley R. Card, Chief Operating and Financial Officer, commented, "Our
inventory levels at December 31, 2005 were $650.0 million, compared to $664.2
million at December 31, 2004. Our accounts receivable were $458.4 million at
year-end, compared to $448.3 million at December 31, 2004. We generated full
year operating cash flow of $427.4 million and our debt to total
capitalization ratio at December 31, 2005 was 30.1%. As of December 31, we
had $129.5 million of short-term borrowings and $273.4 million of outstanding
letters of credit against $1.75 billion of committed bank lines, allowing us
continued significant financial flexibility."
"During the quarter, we repurchased common stock totaling $35.9 million or
1.25 million shares, resulting in 2005 full year common stock repurchases of
$235.2 million or 7.6 million shares. At December 31, 2005, $56.2 million
remained available for repurchase under previous authorizations by the
Company's Board of Directors. On February 14, 2005, the Board authorized an
additional $250 million for future stock repurchases," Mr. Card continued.
Mr. Boneparth added, "2005 was a challenging year, given the uncertain
economic conditions, coupled with the consolidation of our two largest
wholesale customers, and we expect 2006 to provide continued similar
challenges. However, we have been very proactive in making many strategic
changes to the business that will better position us for the future:
- We settled all outstanding litigation with Polo Ralph Lauren
Corporation and also sold the Polo Jeans Company business to them.
We intend to pursue opportunities to expand the product offerings of
our various brands, as well as evaluate strategies to redeploy the
cash proceeds of this transaction, including acquisitions and share
repurchase, or a combination of the two.
- We completed a strategic review of our operations and are
implementing leading best practices in operations and finance. We
have earmarked targeted cost reductions of $100 million to be
realized over the next two years.
- We realigned our executive management team to better execute growth
opportunities in each of our businesses and to facilitate the
execution of the strategic operating initiatives.
Our growth strategy for 2006 and beyond is to continue our strategic
partnership with our wholesale customers. Further, we continue to explore our
own vertical retail opportunities through our Barneys flagship and co-op
concept stores, as well as our own footwear and ready to wear stores. We plan
to continue opening store locations under new concepts, such as Anne Klein,
and to introduce accessories store locations during 2006. We expect the growth
in our retail channel of distribution to continue to provide further
diversification and balance. This strategy has been effective and has reduced
the sales concentration to our largest wholesale customer, Federated
Department Stores, to represent 19% of gross sales in 2005, as compared to 26%
in 2004."
As announced on February 3, 2006, we completed the sale of the Polo Jeans
Company business to Polo Ralph Lauren Corporation and settled all of the
outstanding litigation related to the Lauren licensed business. The
allocation of proceeds resulted in $255 million realized on the sale of Polo
Jeans (subject to adjustments based on final inventory levels), and $100
million on the litigation settlement. As a result of the sale of the
business, the Company transferred certain assets, including inventory and
store fixtures to Ralph Lauren Corporation and will allocate $356.7 million in
goodwill to the transaction. In the first quarter of 2006, Jones Apparel
expects to record a non-cash net loss on the sale of the business of
approximately $140 million and an after tax gain of approximately $60 million
related to the litigation settlement, or a combined after tax loss of
approximately $80 million. The after tax cash proceeds from the sale of the
business and the settlement of the litigation are expected to be approximately
$350 million. The Company will continue to provide various third party
services to Polo Ralph Lauren Corporation under a transition services
agreement for a period of up to one year. During that period, the Company
will continue to produce denim product in its manufacturing facility in
Durango, Mexico, and provide distribution services from its El Paso, Texas
distribution center.
Mr. Boneparth added, "We estimate 2006 net revenues to be in a range of
$4.65 billion to $4.75 billion (exclusive of the Polo Jeans Company business).
As we previously stated, we are targeting 2006 adjusted earnings per share to
be equal to or exceed 2005 adjusted earnings per share of $2.48, after
excluding the impact of the sale of the Polo Jeans Company business (which
contributed approximately $42 million, or $0.22 earnings per share), and the
favorable tax adjustments and Canadian tax repatriation realized in 2005
($0.07 earnings per share) to result in $2.19 in comparable 2005 earnings per
share."
Update of Strategic Operating Review and Initiatives
Mr. Boneparth concluded, "We are very pleased with the progress of our
strategic operating review and initiatives that are well underway. An update
on those initiatives is summarized below. We anticipate that we will realize
cost reductions of approximately $30 million in 2006, which will serve to
offset the impact from the Federated-May consolidation."
- Supply Chain Management
- We closed our Bristol, PA distribution center during December
2005. The units have been absorbed within other distribution
centers within our network. We realized a charge in the fourth
quarter of $3.6 million related to severance and other employee
related matters.
- We selected the SAP Apparel and Footwear Solution as our
enterprise resource planning system, which will ultimately be
implemented company-wide utilizing one universal platform. SAP
will be integrated with the UGS product development management
system, which is currently being implemented across the apparel
businesses.
- We are actively implementing process changes to more effectively
utilize the capabilities of third party manufacturers and to
increase pre-production collaboration efforts, thereby increasing
speed to market and improving margins. This has already been
achieved in many of our moderate businesses and is being
implemented in the better businesses.
- Manufacturing
- We have substantially completed the restructuring of our owned
manufacturing facilities in Mexico. In connection with this
restructuring, we recorded $12.2 million of pre-tax costs during
2005, which included: (i) $5.3 million of one-time termination
benefits, (ii) $3.2 million of losses on the sale of property,
plant, and equipment, (iii) $2.6 million of contract termination
costs and, (iv) $1.1 million of legal and other associated costs.
- Upon completion of the Polo Jeans Company transition services
agreement, we will be evaluating our remaining manufacturing and
distribution facilities.
- General and Administrative Areas
- We completed a review of all general and administrative support
areas, and will implement best practices in connection with the
migration of our system platforms to SAP.
The Company's Board of Directors has declared a regular quarterly cash
dividend of $0.12 per share to all common stockholders of record as of
March 3, 2006 for payment on March 17, 2006.
The Company will host a conference call with management to further review
this press release at 8:30 am eastern time today and 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 February 23. The recorded call may be
accessed by dialing 877-344-7529 and entering account number 384850.
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 costume
jewelry under 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,"
"expect," "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 involves 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;
-- 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 in an
increasingly competitive environment for such acquisitions, acquire
such businesses on reasonable financial and other terms;
-- 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 general quota has expired on apparel products (while China has
agreed to safeguard quota on certain classes of apparel products
through 2008, political pressure will likely continue for restraint
on importation of apparel);
-- the Company's ability to successfully implement new operational and
financial computer systems; 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
All amounts in millions except per share data
FOURTH QUARTER (Unaudited)
2005 2004
Net sales $1,201.6 98.4% $1,062.0 98.1%
Licensing income (net) 19.4 1.6% 20.9 1.9%
Total revenues 1,221.0 100.0% 1,082.9 100.0%
Cost of goods sold 785.3 64.3% 714.2 66.0%
Gross profit 435.7 35.7% 368.7 34.0%
SG&A expenses 341.9 28.0% 301.2 27.8%
Income from operations 93.8 7.7% 67.5 6.2%
Net interest expense and financing
costs 18.7 1.5% 14.7 1.4%
Equity in earnings of unconsolidated
affiliates 0.4 0.0% 1.8 0.2%
Income before taxes 75.5 6.2% 54.6 5.0%
Provision for income taxes 19.8 1.6% 20.5 1.9%
Net income $55.7 4.6% $34.1 3.1%
Shares outstanding - diluted 116.4 123.6
Earnings per share - diluted $0.48 $0.28
FULL YEAR
2005 2004
Net sales $5,014.6 98.8% $4,592.6 98.8%
Licensing income (net) 59.6 1.2% 57.1 1.2%
Total revenues 5,074.2 100.0% 4,649.7 100.0%
Cost of goods sold 3,243.8 63.9% 2,944.4 63.3%
Gross profit 1,830.4 36.1% 1,705.3 36.7%
SG&A expenses 1,333.2 26.3% 1,176.9 25.3%
Income from operations 497.2 9.8% 528.4 11.4%
Net interest expense and financing
costs 75.1 1.5% 49.3 1.1%
Equity in earnings of unconsolidated
affiliates 3.2 0.1% 3.8 0.1%
Income before taxes 425.3 8.4% 482.9 10.4%
Provision for income taxes 151.0 3.0% 181.1 3.9%
Net income $274.3 5.4% $301.8 6.5%
Shares outstanding - diluted 119.2 126.5
Earnings per share - diluted $2.30 $2.39
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:
FOURTH QUARTER
(Unaudited) FULL YEAR
2005 2004 2005 2004
Net income (as reported) $55.7 $34.1 $274.3 $301.8
Provision for income taxes 19.8 20.5 151.0 181.1
Denim restructuring (3.0) - 12.2 -
Manufacturing inefficiencies and
other fees 2.0 - 13.9 -
Logistics network 3.6 - 3.6 -
Strategic review 3.9 - 4.3 -
Adjusted income before taxes 82.0 54.6 459.3 482.9
Adjusted provision for income taxes 22.3 20.5 163.9 181.1
Adjusted net income $59.7 $34.1 $295.4 $301.8
Earnings per share - diluted (as
reported) $0.48 $0.28 $2.30 $2.39
Provision for income taxes 0.17 0.17 1.27 1.43
Denim restructuring (0.03) - 0.10 -
Manufacturing inefficiencies and
other fees 0.02 - 0.12 -
Logistics network 0.03 - 0.03 -
Strategic review 0.03 - 0.04 -
Adjusted income before taxes 0.70 0.45 3.86 3.82
Adjusted provision for income taxes 0.19 0.17 1.38 1.43
Adjusted earnings per share - diluted $0.51 $0.28 $2.48 $2.39
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
All amounts in millions
December 31, 2005 December 31, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $34.9 $45.0
Accounts receivable, net of
allowances of $41.2 and $46.2 for
doubtful accounts, discounts,
returns and co-op advertising 458.4 448.3
Inventories 650.0 664.2
Deferred taxes 52.5 68.2
Other current assets 88.5 70.5
TOTAL CURRENT ASSETS 1,284.3 1,296.2
Property, plant and equipment, at
cost, less accumulated depreciation and
amortization 312.1 303.6
Goodwill 2,097.3 2,125.0
Other intangibles, less accumulated
amortization 827.5 768.2
Other assets 56.6 57.8
$4,577.8 $4,550.8
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $129.5 $69.2
Current portion of long-term debt
and capital lease obligations 227.8 134.0
Accounts payable 256.5 259.3
Income taxes payable 54.2 23.7
Accrued expenses and other current
liabilities 168.5 197.7
TOTAL CURRENT LIABILITIES 836.5 683.9
NONCURRENT LIABILITIES:
Long-term debt and obligation
under capital leases 789.8 1,016.6
Deferred taxes 175.9 135.0
Other 109.2 61.4
TOTAL NONCURRENT LIABILITIES 1,074.9 1,213.0
TOTAL LIABILITIES 1,911.4 1,896.9
STOCKHOLDERS' EQUITY 2,666.4 2,653.9
$4,577.8 $4,550.8
JONES APPAREL GROUP, INC.
SEGMENT INFORMATION
All amounts in millions
Wholesale Wholesale Wholesale
Better Moderate Footwear &
Apparel Apparel Accessories
For the fiscal quarter ended
December 31, 2005 (Unaudited)
Revenues from external customers $312.3 $265.8 $230.0
Intersegment revenues 29.9 0.6 10.9
Total revenues 342.2 266.4 240.9
Segment income $6.3 $8.3 $26.4
1.8% 3.1% 11.0%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the fiscal quarter ended
December 31, 2004 (Unaudited)
Revenues from external customers $328.4 $260.2 $239.2
Intersegment revenues 31.9 3.0 13.1
Total revenues 360.3 263.2 252.3
Segment income (loss) $(5.3) $10.7 $26.7
-1.5% 4.1% 10.6%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the year ended December 31, 2005
Revenues from external customers $1,438.2 $1,265.2 $978.6
Intersegment revenues 144.5 4.6 41.5
Total revenues 1,582.7 1,269.8 1,020.1
Segment income $166.5 $89.1 $141.8
10.5% 7.0% 13.9%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
For the year ended December 31, 2004
Revenues from external customers $1,493.2 $1,315.3 $1,002.4
Intersegment revenues 146.9 13.0 58.3
Total revenues 1,640.1 1,328.3 1,060.7
Segment income $160.1 $142.6 $164.2
9.8% 10.7% 15.5%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
Licensing,
Other &
Eliminations
Retail Consolidated
For the fiscal quarter ended
December 31, 2005 (Unaudited)
Revenues from external customers $393.5 $19.4 $1,221.0
Intersegment revenues - (41.4) -
Total revenues 393.5 (22.0) 1,221.0
Segment income $49.1 $3.7 93.8
12.5% 7.7%
Net interest expense (18.7)
Equity in earnings of
unconsolidated affiliates 0.4
Income before provision for
income taxes $75.5
For the fiscal quarter ended
December 31, 2004 (Unaudited)
Revenues from external customers $234.0 $21.1 $1,082.9
Intersegment revenues - (48.0) -
Total revenues 234.0 (26.9) 1,082.9
Segment income (loss) $31.0 $4.4 67.5
13.2% 6.2%
Net interest expense (14.7)
Equity in earnings of
unconsolidated affiliates 1.8
Income before provision for
income taxes $54.6
For the year ended December 31, 2005
Revenues from external
customers $1,332.6 $59.6 $5,074.2
Intersegment revenues - (190.6) -
Total revenues 1,332.6 (131.0) 5,074.2
Segment income $122.6 $(22.8) 497.2
9.2% 9.8%
Net interest expense (75.1)
Equity in earnings of
unconsolidated affiliates 3.2
Income before provision for
income taxes $425.3
For the year ended December 31, 2004
Revenues from external customers $780.3 $58.5 $4,649.7
Intersegment revenues - (218.2) -
Total revenues 780.3 (159.7) 4,649.7
Segment income $78.4 $(16.9) 528.4
10.0% 11.4%
Net interest expense (49.3)
Equity in earnings of
unconsolidated affiliates 3.8
Income before provision for
income taxes $482.9
JONES APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
All amounts in millions Year Ended
December 31, 2005 December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $274.3 $301.8
Adjustments to reconcile net income
to net cash
provided by operating activities,
net of acquisitions:
Amortization of original issue
discount - 1.3
Trademark impairment losses - 0.2
Depreciation and other
amortization 102.8 107.7
Equity in earnings of
unconsolidated affiliates (3.2) (3.8)
Dividends received from
unconsolidated affiliates 1.3 2.0
Provision for losses on accounts
receivable 1.2 (0.8)
Deferred taxes 42.8 52.8
Loss on redemption of Zero
Coupon Convertible Senior Notes - 8.4
Losses on sales of property,
plant and equipment 5.0 3.8
Other items, net (2.2) -
Changes in operating assets and
liabilities:
Accounts receivable (11.1) 7.0
Inventories 14.5 34.8
Prepaid expenses and other
current assets (1.4) (10.5)
Other assets 4.0 (2.6)
Accounts payable (3.1) (14.7)
Income taxes payable 24.3 22.9
Accrued expenses and other
liabilities (21.8) (48.4)
Total adjustments 153.1 160.1
Net cash provided by operating
activities 427.4 461.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments related to Maxwell
acquisition - (273.5)
Payments related to Kasper
acquisition - (37.9)
Payments related to Barneys
acquisition (4.1) (261.9)
Capital expenditures (87.5) (56.6)
Acquisition of intangibles (0.1) (1.2)
Proceeds from sales of property,
plant and equipment 3.6 1.7
Other (0.5) -
Net cash used in investing
activities (88.6) (629.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit
facilities 60.3 69.2
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)
Issuance of 4.25% Senior Notes, net
of discount and issuance costs - 248.1
Issuance of 5.125% Senior Notes, net
of discount and issuance costs - 248.1
Issuance of 6.125% Senior Notes, net
of discount and issuance costs - 247.3
Repurchase of Barneys 9% Senior
Notes, including premiums paid - (112.7)
Debt issuance costs (0.6) -
Principal payments on capitalized
leases (4.4) (5.9)
Purchases of treasury stock (235.2) (201.5)
Dividends paid (52.3) (44.8)
Termination of interest rate locks - 0.2
Proceeds from exercise of employee
stock options 13.4 35.5
Net cash used in financing
activities (348.4) (138.1)
EFFECT OF EXCHANGE RATES ON CASH (0.5) 0.6
NET DECREASE IN CASH AND CASH
EQUIVALENTS (10.1) (305.0)
CASH AND CASH EQUIVALENTS, beginning
of period 45.0 350.0
CASH AND CASH EQUIVALENTS, end of
period $34.9 $45.0
CONTACT:
Wesley R. Card
Chief Operating and Financial Officer
Anita
Britt
Executive Vice President Finance
Both of Jones Apparel Group
+1-215-785-4000
|
The Jones Group Inc.
