The Jones Group Inc. (ticker: JNY, exchange: New York Stock Exchange (.N))
News Release -
26-Jul-2006
Jones Apparel Group, Inc. Reports Second Quarter 2006 Financial Results NEW YORK, July 26 /PRNewswire-FirstCall/ -- Jones Apparel Group, Inc.
(NYSE: JNY) today reported results for the second quarter ended July 1, 2006.
Revenues totaled $1,074.1 million versus $1,176.4 million for the second
quarter of 2005. The decrease in revenues was primarily attributable to the
sale of the Polo Jeans Company business during the first quarter of 2006.
Polo Jeans Company contributed $69.3 million in revenues during the prior year
comparable period.
Earnings per share were $0.32 for the second quarter of 2006, as compared
to $0.46 in the same period last year. Excluding the impact of severance and
other expenses related to the strategic operating initiatives, and expenses
relating to the settlement of litigation concerning a license agreement,
adjusted earnings per share for the second quarter of 2006 versus the prior
year comparable period was $0.45 and $0.48, respectively, as detailed in the
accompanying schedule.
Peter Boneparth, President and Chief Executive Officer, stated, "Our
adjusted second quarter results were stronger than we had anticipated,
primarily due to the continuation of similar trends that we experienced during
the first quarter. The better wholesale apparel business expanded its
operating profit margin by over 200 basis points, benefiting from improved
gross margins and lower operating expenses versus the year ago period.
Additionally, our collective moderate apparel business maintained its
operating margin on a year-over-year basis and exceeded plan. While the
operating margin performance of the wholesale footwear business was basically
even with the prior year period, challenges within our handbag and costume
jewelry businesses combined to have a negative overall effect on the business
segment. Comparable store sales from our owned footwear and ready-to-wear
stores (excluding Barneys New York) were down 0.8%. We were very pleased with
the performance of our Barneys New York luxury retail business, which
generated a comparable store sales increase of 8.9% in the quarter as it
continues to exceed our expectations."
Efthimios P. Sotos, Chief Financial Officer, commented, "Inventory at July
1, 2006 totaled $585.7 million, compared to $661.7 million at the end of the
prior year period. Accounts receivable at the end of the second quarter was
$410.1 million, compared to $509.2 million at the end of the prior year
period. We ended the quarter with $794.5 million of funded debt and, net of
$88.4 million cash on hand, our debt to book capitalization ratio was 21.4%,
down from 32.0% in the prior year period. Our operating cash flow for the
first six months of 2006 was $261.1 million, an improvement of $109.0 million
versus the comparable period in 2005, as our working capital planning remained
disciplined."
Mr. Boneparth added, "We remain very pleased with the results of our
strategic operating initiatives, which are well underway. As the financial
results within our wholesale better apparel business demonstrate, we are
achieving substantial improvements and cost reductions within the areas of
pre-production, supply-chain management, customer service and compliance, and
non-merchandise purchasing. We also remain on plan with the phased
implementation of a single enterprise resource management system during the
fourth quarter of this year. After 12 months of reviewing our business
operations and implementing process improvements, we remain very comfortable
with our stated cost reduction goal of approximately $30 million in 2006 and
over $100 million annually by the end of 2007. These business improvements
will serve to offset the impact from the department store consolidations and
to expand our future operating margin."
Mr. Boneparth concluded, "Overall, we were very pleased with the Company's
first half financial performance as we achieved meaningful business
improvements that allowed us to exceed our plan. We believe we are heading in
the right direction, and remain very comfortable with the long-term prospects
of the Company. However, we are not immune from the many near-term
uncertainties that continue to impact our industry. In particular, volatile
consumer spending patterns, consolidation in our wholesale distribution
channel, historically high fuel prices and increased interest rates, combine
to form meaningful obstacles for the back half of 2006. While we expect to
continue achieving business process improvements, we feel it is prudent to
maintain a cautious outlook for the remainder of the year. As such, we
continue to target 2006 full year adjusted earnings per share of $2.19, which
is consistent with our prior guidance. Over the long term, we remain
confident in our multi-brand, multi-channel business model, which serves as
the cornerstone of our strategy."
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 August
11, 2006 for payment on August 25, 2006.
The Company will host a conference call with management to discuss these
results 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 3 and may be accessed by dialing
877-344-7529. Enter account number 393649.
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 and the costs associated with the termination of certain
licensing agreements 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.
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. The Company also markets directly to consumers through our chain
of specialty retail and value-based stores, and operates the Barneys New York
chain of luxury stores. The Company's 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. The Company primarily contracts for
the manufacture of its products through a worldwide network of quality
manufacturers. The Company has capitalized on its nationally known brand names
by entering into various licenses for several of its 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 the
Company does not manufacture. For more than 30 years, the Company has built a
reputation for excellence in product quality and value, and in operational
execution.
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;
- uncertainties associated with the exploration of a possible sale of
the Company's business, including uncertainties as to the occurrence
or terms of any such transaction;
- 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, advertising and
transportation;
- 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 for the fiscal year ended December 31, 2005, including, but not limited
to, the Statement Regarding Forward-Looking Disclosure and Item 1A - Risk
Factors 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
2006 2005
Net sales $1,059.7 98.7% $1,165.4 99.1%
Licensing income (net) 9.7 0.9% 11.0 0.9%
Service income 4.7 0.4% - -
Total revenues 1,074.1 100.0% 1,176.4 100.0%
Cost of goods sold 667.7 62.2% 741.9 63.1%
Gross profit 406.4 37.8% 434.5 36.9%
SG&A expenses 336.6 31.3% 329.1 28.0%
Loss on sale of Polo Jeans Company
business - - - -
Income from operations 69.8 6.5% 105.4 9.0%
Net interest expense and financing
costs (12.1) (1.1%) (17.9) (1.5%)
Equity in earnings of unconsolidated
affiliates 0.9 0.1% 0.9 0.1%
Income before taxes 58.6 5.5% 88.4 7.5%
Provision for income taxes 22.0 2.0% 33.6 2.9%
Income before cumulative effect of
change in accounting principle 36.6 3.4% 54.8 4.7%
Cumulative effect of change in
accounting for share-based
payments, net of tax - - - -
Net income $36.6 3.4% $54.8 4.7%
Shares outstanding - diluted 113.5 120.2
Earnings per share - diluted
Income before cumulative effect of
change in accounting principle $0.32 $0.46
Net income $0.32 $0.46
Percentages may not add due to rounding.
SIX MONTHS
2006 2005
Net sales $2,259.9 98.7% $2,500.4 99.0%
Licensing income (net) 21.6 0.9% 25.2 1.0%
Service income 7.9 0.3% - -
Total revenues 2,289.4 100.0% 2,525.6 100.0%
Cost of goods sold 1,432.7 62.6% 1,592.4 63.1%
Gross profit 856.7 37.4% 933.2 36.9%
SG&A expenses 656.2 28.7% 669.5 26.5%
Loss on sale of Polo Jeans Company
business 45.1 2.0% - -
Income from operations 155.4 6.8% 263.7 10.4%
Net interest expense and financing
costs (27.3) (1.2%) (36.8) (1.5%)
Equity in earnings of unconsolidated
affiliates 1.8 0.1% 1.8 0.1%
Income before taxes 129.9 5.7% 228.7 9.1%
Provision for income taxes 69.3 3.0% 86.9 3.4%
Income before cumulative effect of
change in accounting principle 60.6 2.6% 141.8 5.6%
Cumulative effect of change in
accounting for share-based
payments, net of tax 1.9 0.1% - -
Net income $62.5 2.7% $141.8 5.6%
Shares outstanding - diluted 114.5 121.4
Earnings per share - diluted
Income before cumulative effect of
change in accounting principle $0.53 $1.17
Net income $0.55 $1.17
Percentages may not add due to rounding.
JONES APPAREL GROUP, INC.
CONSOLIDATED OPERATING RESULTS
(UNAUDITED)
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:
All amounts in millions
except per share data SECOND QUARTER SIX MONTHS
2006 2005 2006 2005
Net income (as reported) $36.6 $54.8 $62.5 $141.8
Provision for income taxes 22.0 33.6 69.3 86.9
Cumulative effect of change
in accounting principle - - (1.9) -
Loss on sale of Polo Jeans
Company business - - 45.1 -
Items affecting segment
income:
Manufacturing
inefficiencies and other
fees - 4.6 - 8.4
Severance and other
expenses related to
strategic review, and
certain one-time items 22.4 - 28.7 -
Adjusted income before taxes 81.0 93.0 203.7 237.1
Adjusted provision for income
taxes 30.4 35.3 76.4 90.1
Adjusted net income $50.6 $57.7 $127.3 $147.0
Earnings per share - diluted
(as reported) $0.32 $0.46 $0.55 $1.17
Provision for income taxes 0.20 0.27 0.60 0.71
Cumulative effect of change
in accounting principle - - (0.01) -
Loss on sale of Polo Jeans
Company business - - 0.39 -
Items affecting segment
income:
Manufacturing
inefficiencies and other
fees - 0.04 - 0.07
Severance and other
expenses related to
strategic review, and
certain one-time items 0.20 - 0.25 -
Adjusted income before taxes 0.72 0.77 1.78 1.95
Adjusted provision for income
taxes 0.27 0.29 0.67 0.74
Adjusted earnings per share -
diluted $0.45 $0.48 $1.11 $1.21
Breakdown of items affecting
segment income by segment:
Wholesale better apparel $5.6 $- $7.6 $-
Wholesale moderate apparel 0.2 4.6 0.7 8.4
Wholesale footwear and
accessories 11.9 - 14.8 -
Retail 3.2 - 3.8 -
Licensing, other &
eliminations 1.5 - 1.8 -
Total $22.4 $4.6 $28.7 $8.4
Adjusted segment margins
Wholesale better apparel 9.8% 7.7% 14.8% 12.2%
Wholesale moderate apparel 8.9% 9.0% 10.8% 11.6%
Wholesale footwear and
accessories 9.5% 11.1% 11.8% 13.2%
Retail 10.0% 11.6% 6.2% 8.0%
Total 8.6% 9.4% 10.0% 10.8%
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
All amounts in millions
July 1, 2006 July 2, 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $88.4 $35.3
Accounts receivable, net of
allowances of $33.8 and $45.2 for
doubtful accounts, discounts,
returns and co-op advertising 410.1 509.2
Inventories 585.7 661.7
Deferred taxes 54.0 57.7
Other current assets 74.8 80.0
TOTAL CURRENT ASSETS 1,213.0 1,343.9
Property, plant and equipment, at
cost, less accumulated depreciation
and amortization 337.6 309.9
Goodwill 1,740.5 2,100.6
Other intangibles, less accumulated
amortization 824.7 831.0
Other assets 50.2 55.7
$4,166.0 $4,641.1
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $- $123.3
Current portion of long-term debt
and capital lease obligations 3.9 357.8
Accounts payable 266.7 282.0
Income taxes payable 51.8 41.0
Accrued expenses and other current
liabilities 146.9 160.8
TOTAL CURRENT LIABILITIES 469.3 964.9
NONCURRENT LIABILITIES:
Long-term debt and obligation
under capital leases 790.6 791.1
Deferred taxes 189.8 167.7
Other 115.9 91.4
TOTAL NONCURRENT LIABILITIES 1,096.3 1,050.2
TOTAL LIABILITIES 1,565.6 2,015.1
STOCKHOLDERS' EQUITY 2,600.4 2,626.0
$4,166.0 $4,641.1
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 1,
2006
Revenues from external customers $229.3 $267.9 $203.2
Intersegment revenues 32.9 0.9 10.4
Total revenues 262.2 268.8 213.6
Segment income $20.1 $23.6 $8.3
7.7% 8.8% 3.9%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
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 six months ended July
1, 2006
Revenues from external customers $567.0 $600.0 $431.1
Intersegment revenues 70.7 2.2 22.5
Total revenues 637.7 602.2 453.6
Segment income $86.7 $64.1 $38.6
13.6% 10.6% 8.5%
Loss on sale of Polo Jeans
Company business
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
Licensing,
Other &
Retail Eliminations Consolidated
For the fiscal quarter ended July 1,
2006
Revenues from external customers $363.3 $10.4 $1,074.1
Intersegment revenues - (44.2) -
Total revenues 363.3 (33.8) 1,074.1
Segment income $33.1 $(15.3) 69.8
9.1% 6.5%
Net interest expense (12.1)
Equity in earnings of
unconsolidated affiliates 0.9
Income before provision for
income taxes $58.6
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 six months ended July
1, 2006
Revenues from external customers $668.5 $22.8 $2,289.4
Intersegment revenues - (95.4) -
Total revenues 668.5 (72.6) 2,289.4
Segment income $37.6 $(26.5) 200.5
5.6% 8.8%
Loss on sale of Polo Jeans
Company business (45.1)
Net interest expense (27.3)
Equity in earnings of
unconsolidated affiliates 1.8
Income before provision for
income taxes $129.9
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
JONES APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
All amounts in millions Six Months Ended
July 1, 2006 July 2, 2005
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $62.5 $141.8
Adjustments to reconcile net
income to net cash provided by
operating activities, net of sale
of Polo Jeans Company business:
Loss on sale of Polo Jeans
Company business 45.1 -
Cumulative effect of change in
accounting for share-based
payments (3.1) -
Depreciation and amortization 50.2 51.8
Equity in earnings of
unconsolidated affiliates (1.8) (1.8)
Provision for losses on accounts
receivable 0.8 1.3
Deferred taxes 10.6 29.6
Other items, net 1.3 (0.5)
Changes in operating assets and
liabilities:
Accounts receivable 47.9 (62.5)
Inventories 35.1 1.9
Prepaid expenses and other
current assets 15.5 (12.0)
Other assets 2.3 4.2
Accounts payable 9.9 20.6
Income taxes payable (2.4) 10.9
Accrued expenses and other
liabilities (12.8) (33.2)
Total adjustments 198.6 10.3
Net cash provided by operating
activities 261.1 152.1
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net proceeds from sale of Polo
Jeans Company business 350.6 -
Capital expenditures (64.9) (37.6)
Payments related to Barneys
acquisition - (4.1)
Acquisition of intangibles - (0.1)
Other 0.1 0.3
Net cash provided by (used in)
investing activities 285.8 (41.5)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net (repayments) borrowings under
credit facilities (129.5) 54.0
Redemption at maturity of 7.875%
Senior Notes (225.0) -
Principal payments on capitalized
leases (2.3) (2.5)
Debt issuance costs - (0.4)
Purchases of treasury stock (125.1) (155.6)
Dividends paid (27.2) (24.2)
Proceeds from exercise of employee
stock options 13.3 8.9
Excess tax benefits from share-
based payment arrangements 1.8 -
Net cash used in financing
activities (494.0) (119.8)
EFFECT OF EXCHANGE RATES ON CASH 0.6 (0.5)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 53.5 (9.7)
CASH AND CASH EQUIVALENTS,
beginning of period 34.9 45.0
CASH AND CASH EQUIVALENTS, end of
period $88.4 $35.3
SOURCE Jones Apparel Group, Inc.
/CONTACT: Efthimios P. Sotos, Chief Financial Officer of Jones Apparel
Group, Inc., +1-215-785-4000; or Media Contact, Joele Frank and Sharon
Goldstein of Joele Frank, Wilkinson Brimmer Katcher, +1-212-355-4449, for
Jones Apparel Group, Inc./
/Web site: http://www.jny.com /
(JNY)
|
The Jones Group Inc.
