The Jones Group Inc. (ticker: JNY, exchange: New York Stock Exchange (.N))
News Release -
25-Oct-2006
Jones Apparel Group, Inc. Reports Third Quarter 2006 Financial Results NEW YORK, Oct. 25 /PRNewswire-FirstCall/ -- Jones Apparel Group, Inc.
(NYSE: JNY) today reported results for the third quarter ended September 30,
2006. Revenues totaled $1,241.0 million versus $1,327.5 million for the third
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 $78.4 million in revenues during the prior year
comparable period. Excluding Polo Jeans Company, the prior year revenues were
$1,249.1 million.
Earnings per share were $0.56 for the third quarter of 2006, as compared
to $0.65 in the same period last year. Excluding the impact of severance and
other expenses related to the strategic operating initiatives, adjusted
earnings per share for the third quarter of 2006 versus the prior year
comparable period was $0.63 and $0.76, respectively, as detailed in the
accompanying schedule. Included in the prior year period results were two
items that were recorded as reductions of Selling, General and Administrative
expenses: (i) $5.1 million from Saks Incorporated related to pre-acquisition
issues involving our Anne Klein business, and (ii) $5.2 million from a
landlord repurchase of a Nine West retail store operating lease. In addition,
Polo Jeans Company contributed $12.3 million in operating profit during the
prior year period.
Peter Boneparth, President and Chief Executive Officer, stated, "Our
adjusted third quarter results were better than we had anticipated, primarily
due to the continuation of similar trends that we experienced during the first
half of the year. The better wholesale apparel business expanded its
operating profit margin by over 150 basis points, benefiting from improved
gross margins and lower operating expenses versus the year ago period.
Additionally, our collective denim businesses (which include Gloria Vanderbilt
and l.e.i.) experienced an approximate 100 basis point operating margin
expansion, and the moderate sportswear business achieved its planned operating
margin target for the period. We are encouraged with the continual
improvements within our wholesale footwear and accessories businesses
particularly with the quarter-over-quarter sales increases of our Nine West,
Anne Klein, and circa Joan & David footwear brands. Comparable store sales
from our owned footwear and ready-to-wear stores (excluding Barneys New York)
increased 5.1% versus the prior year period. We were also very pleased with
the performance of our Barneys New York luxury retail business, which
generated a comparable store sales increase of 12.4% in the quarter as it
continues to exceed our expectations."
Efthimios P. Sotos, Chief Financial Officer, commented, "Accounts
receivable at the end of the third quarter was $572.3 million, compared to
$649.1 million at the end of the prior year period. Inventory at September
30, 2006 totaled $676.2 million, compared to $731.0 million at the end of the
prior year period. We ended the quarter with $984.9 million of funded debt
and, net of $34.3 million cash on hand, our debt to book capitalization ratio
was 27.0%, down from 34.0% in the prior year period. Our operating cash flow
for the nine months ended September 30, 2006 was $161.2 million, an increase
of $59.6 million versus the comparable period in 2005, as our working capital
planning remained disciplined. During the quarter, we repurchased
approximately 2.8 million shares of common stock in the open market at an
aggregate cost of $86.7 million, or $30.87 per share."
Mr. Boneparth added, "We continue to be pleased with the progress and
tangible 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 beginning in November of this year. After 15 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
nine month financial performance as we achieved meaningful business
improvements that allowed us to exceed our plan. We believe we are heading in
the right direction as we are seeing solid performance at retail of our core
apparel and footwear brands including, Jones New York, Nine West, Anne Klein,
Gloria Vanderbilt and circa Joan & David. However, we are not immune from the
many near-term uncertainties that continue to impact our industry. As such,
we continue to monitor the risks associated with volatile consumer spending
patterns, consolidation in our wholesale distribution channel, historically
high fuel prices and increased interest rates, which combine to form
meaningful challenges. We remain cautiously optimistic for the remainder of
the year and are affirming our 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 Board of Directors approved a 17% increase in the quarterly cash
dividend from $0.12 per share to $0.14 per share, which is available to all
common stockholders of record as of November 17, 2006 for payment on December
1, 2006.
The Company will host a conference call with management to discuss these
results at 9:00 a.m. eastern time today, which is accessible by dialing
412-858-4600 or through a web cast at www.jny.com. The call will be recorded
and made available through November 2, 2006 and may be accessed by dialing
877-344-7529. Enter account number 397483.
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, the loss on the sale of the Polo Jeans Company business,
restructuring costs and the costs associated with the termination of certain
licensing agreements. 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. (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;
- 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
THIRD QUARTER
2006 2005
Net sales $1,221.6 98.4% $1,312.6 98.9%
Licensing income (net) 14.4 1.2% 14.9 1.1%
Service income 5.0 0.4% - -
Total revenues 1,241.0 100.0% 1,327.5 100.0%
Cost of goods sold 795.0 64.1% 866.1 65.2%
Gross profit 446.0 35.9% 461.4 34.8%
SG&A expenses 334.1 26.9% 321.8 24.2%
Loss on sale of Polo Jeans Company
business - - - -
Income from operations 111.9 9.0% 139.6 10.5%
Net interest expense and financing
costs (12.2) (1.0%) (19.5) (1.5%)
Equity in earnings of unconsolidated
affiliates 1.1 0.1% 1.0 0.1%
Income before taxes 100.8 8.1% 121.1 9.1%
Provision for income taxes 37.8 3.0% 44.3 3.3%
Income before cumulative effect of
change in accounting principle 63.0 5.1% 76.8 5.8%
Cumulative effect of change in
accounting for share-based
payments, net of tax - - - -
Net income $63.0 5.1% $76.8 5.8%
Shares outstanding - diluted 112.4 117.6
Earnings per share - diluted
Income before cumulative effect of
change in
accounting principle $0.56 $0.65
Net income $0.56 $0.65
NINE MONTHS
2006 2005
Net sales $3,481.5 98.6% $3,813.0 99.0%
Licensing income (net) 35.9 1.0% 40.2 1.0%
Service income 12.9 0.4% - -
Total revenues 3,530.3 100.0% 3,853.2 100.0%
Cost of goods sold 2,227.7 63.1% 2,458.5 63.8%
Gross profit 1,302.6 36.9% 1,394.7 36.2%
SG&A expenses 990.2 28.0% 991.3 25.7%
Loss on sale of Polo Jeans Company
business 45.1 1.3% - -
Income from operations 267.3 7.6% 403.4 10.5%
Net interest expense and financing
costs (39.5) (1.1%) (56.4) (1.5%)
Equity in earnings of unconsolidated
affiliates 2.9 0.1% 2.8 0.1%
Income before taxes 230.7 6.5% 349.8 9.1%
Provision for income taxes 107.1 3.0% 131.2 3.4%
Income before cumulative effect of
change in accounting principle 123.6 3.5% 218.6 5.7%
Cumulative effect of change in
accounting for share-based
payments, net of tax 1.9 0.1% - -
Net income $125.5 3.6% $218.6 5.7%
Shares outstanding - diluted 113.8 120.2
Earnings per share - diluted
Income before cumulative effect of
change in
accounting principle $1.09 $1.82
Net income $1.10 $1.82
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 THIRD QUARTER NINE MONTHS
2006 2005 2006 2005
Net income (as reported) $63.0 $76.8 $125.5 $218.6
Provision for income taxes 37.8 44.3 107.1 131.2
Cumulative effect of change
in accounting principle - - (1.9) -
Loss on sale of Polo Jeans
Company business - - 45.1 -
Items affecting segment
income:
Denim/manufacturing
restructuring 1.0 15.2 1.0 15.2
Manufacturing
inefficiencies and other
fees - 3.6 - 11.9
Severance and other
expenses related to
strategic review, and
certain one-time items 11.7 0.4 40.5 0.4
Adjusted income before
taxes 113.5 140.3 317.3 377.3
Adjusted provision for
income taxes 42.6 51.3 119.0 141.5
Adjusted net income $70.9 $89.0 $198.3 $235.8
Earnings per share - diluted
(as reported) $0.56 $0.65 $1.10 $1.82
Provision for income taxes 0.34 0.38 0.94 1.09
Cumulative effect of change
in accounting principle - - (0.01) -
Loss on sale of Polo Jeans
Company business - - 0.40 -
Items affecting segment
income:
Denim/manufacturing
restructuring 0.01 0.13 - 0.13
Manufacturing
inefficiencies and other
fees - 0.03 - 0.10
Severance and other
expenses related to
strategic review, and
certain one-time items 0.10 - 0.36 -
Adjusted income before taxes 1.01 1.19 2.79 3.14
Adjusted provision for income
taxes 0.38 0.43 1.05 1.18
Adjusted earnings per share -
diluted $0.63 $0.76 $1.74 $1.96
Breakdown of items affecting
segment income by segment:
Wholesale better apparel $9.3 $0.1 $16.9 $0.1
Wholesale moderate apparel 1.1 18.8 1.8 27.1
Wholesale footwear and
accessories 0.1 0.1 14.9 0.1
Retail 0.9 - 4.7 -
Licensing, other &
eliminations 1.3 0.2 3.2 0.2
Total $12.7 $19.2 $41.5 $27.5
Adjusted segment margins
Wholesale better apparel 16.0% 14.3% 15.2% 12.9%
Wholesale moderate apparel 7.5% 9.1% 9.7% 10.8%
Wholesale footwear and
accessories 13.3% 17.9% 12.4% 14.8%
Retail 4.4% 7.5% 5.6% 7.8%
Total 10.0% 12.0% 10.0% 11.2%
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
All amounts in millions
September 30, October 1,
ASSETS 2006 2005
CURRENT ASSETS:
Cash and cash equivalents $34.3 $29.4
Accounts receivable, net of
allowances of $42.3 and $53.2 for
doubtful accounts, discounts,
returns and co-op advertising 572.3 649.1
Inventories 676.2 731.0
Deferred taxes 49.6 56.9
Other current assets 84.2 82.6
TOTAL CURRENT ASSETS 1,416.6 1,549.0
Property, plant and equipment, at
cost, less accumulated depreciation
and amortization 366.8 306.2
Goodwill 1,740.5 2,098.2
Other intangibles, less accumulated
amortization 823.2 829.2
Other assets 51.2 56.5
$4,398.3 $4,839.1
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $191.2 $378.5
Current portion of long-term debt
and capital lease obligations 4.0 227.9
Accounts payable 285.7 268.2
Income taxes payable 64.1 63.4
Accrued expenses and other current
liabilities 172.8 185.7
TOTAL CURRENT LIABILITIES 717.8 1,123.7
NONCURRENT LIABILITIES:
Long-term debt and obligation under
capital leases 789.7 790.5
Deferred taxes 194.7 175.7
Other 122.5 95.5
TOTAL NONCURRENT LIABILITIES 1,106.9 1,061.7
TOTAL LIABILITIES 1,824.7 2,185.4
STOCKHOLDERS' EQUITY 2,573.6 2,653.7
$4,398.3 $4,839.1
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
September 30, 2006
Revenues from external customers $320.7 $287.4 $260.0
Intersegment revenues 41.9 0.9 16.0
Total revenues 362.6 288.3 276.0
Segment income $48.8 $20.4 $36.7
13.5% 7.1% 13.3%
Net interest expense
Equity in earnings of
unconsolidated affiliates
Income before provision for
income taxes
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 nine months ended
September 30, 2006
Revenues from external customers $887.7 $887.4 $691.1
Intersegment revenues 112.7 3.0 38.5
Total revenues 1,000.4 890.4 729.6
Segment income $135.6 $84.4 $75.3
13.6% 9.5% 10.3%
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 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
Licensing,
Other &
Retail Eliminations Consolidated
For the fiscal quarter ended
September 30, 2006
Revenues from external customers $357.8 $15.1 $1,241.0
Intersegment revenues - (58.8) -
Total revenues 357.8 (43.7) 1,241.0
Segment income $15.0 $(9.0) 111.9
4.2% 9.0%
Net interest expense (12.2)
Equity in earnings of
unconsolidated affiliates 1.1
Income before provision for
income taxes $100.8
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 nine months ended
September 30, 2006
Revenues from external customers $1,026.2 $37.9 $3,530.3
Intersegment revenues - (154.2) -
Total revenues 1,026.2 (116.3) 3,530.3
Segment income $52.6 $(35.5) 312.4
5.1% 8.8%
Loss on sale of Polo Jeans
Company business (45.1)
Net interest expense (39.5)
Equity in earnings of
unconsolidated affiliates 2.9
Income before provision for
income taxes $230.7
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
JONES APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
All amounts in millions Nine Months Ended
September 30, October 1,
2006 2005
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $125.5 $218.6
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 77.3 76.9
Equity in earnings of
unconsolidated affiliates (2.9) (2.8)
Dividends received from
unconsolidated affiliates - 1.3
Provision for losses on accounts
receivable 0.8 0.5
Deferred taxes 20.2 37.4
Other items, net 1.6 5.8
Changes in operating assets and
liabilities:
Accounts receivable (114.2) (200.7)
Inventories (55.5) (66.3)
Prepaid expenses and other
current assets 12.8 (5.0)
Other assets 2.4 3.7
Accounts payable 29.0 8.3
Income taxes payable 9.9 33.3
Accrued expenses and other
liabilities 12.3 (9.4)
Total adjustments 35.7 (117.0)
Net cash provided by operating
activities 161.2 101.6
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net proceeds from sale of Polo
Jeans Company business 350.6 -
Capital expenditures (115.4) (60.6)
Payments related to Barneys
acquisition - (4.1)
Payments related to Maxwell
acquisition - (0.1)
Acquisition of intangibles - (0.1)
Capital contributions to
unconsolidated affiliates - (0.7)
Other 0.1 0.6
Net cash provided by (used in)
investing activities 235.3 (65.0)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings under credit
facilities 61.7 309.2
Redemption at maturity of 7.875%
Senior Notes (225.0) -
Redemption at maturity of 8.375%
Senior Notes - (129.6)
Principal payments on capitalized
leases (3.2) (3.4)
Debt issuance costs - (0.5)
Purchases of treasury stock (211.9) (199.3)
Dividends paid (40.7) (38.4)
Proceeds from exercise of employee
stock options 19.3 10.5
Excess tax benefits from share-
based payment arrangements 2.3 -
Net cash used in financing
activities (397.5) (51.5)
EFFECT OF EXCHANGE RATES ON CASH 0.4 (0.7)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (0.6) (15.6)
CASH AND CASH EQUIVALENTS,
beginning of period 34.9 45.0
CASH AND CASH EQUIVALENTS, end of
period $34.3 $29.4
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 or Sharon
Goldstein, both of Joele Frank, Wilkinson Brimmer Katcher, +1-212-355-4449,
for Jones Apparel Group, Inc./
|
The Jones Group Inc.
