Jones Apparel continues to evaluate new concepts

01 May '09

6 min read

Jones Apparel Group Inc reported results for the first quarter ended April 4, 2009. Revenues for the first quarter of 2009 were $891 million, as compared with $975 million for the first quarter of 2008. The decrease in revenues of 8.6% was reflective of overall economic conditions that are affecting retail sales and was realized across all of the Company's segments except wholesale jeanswear, which reported increased revenues of 3.4% compared with the prior year.

The Company reported adjusted earnings per share ("EPS") of $0.28 for the first quarter of 2009, as compared with adjusted earnings per share of $0.37 in the same period last year. These results exclude the non-cash impairment of assets related to the planned closure of certain Company-owned retail stores, the related impact of severance and other expenses related to this strategic restructuring, and certain other charges (see reconciliation of adjusted earnings to reported earnings in the accompanying schedule).

As reported under generally accepted accounting principles ("GAAP"), the Company reported earnings per share of $0.00 for the first quarter of 2009, as compared with earnings per share of $0.23 for the same period last year. The 2009 first quarter results include, among other items, non-cash retail store asset impairment charge of approximately $21 million ($14 million after tax) related to Company operated stores within the retail segment and a charge of $14 million ($9 million after tax) related to other cost savings initiatives.

Wesley R. Card, Jones Apparel Group President and Chief Executive Officer, stated: "Given the overall economic environment, we were satisfied with our first quarter results, which reflect the actions we have taken to control expenses and manage our capital. Our wholesale jeanswear segment performed well; however, our other wholesale businesses were impacted by reduced orders and higher markdown support in the continuing promotional environment. Our own chain of retail stores was impacted by the slowing retail sales trend and promotional environment and registered a 10.6% decrease in comparable store sales during the quarter."

Retail Improvement Strategy and Cost-Reduction Initiatives
The Company reevaluated its Company operated retail store strategy given economic conditions and trends, and has adopted a plan to right-size the retail portfolio, with the goal of enhancing segment profitability and improving return on invested capital. As part of this strategy, the Company plans to exit approximately 225 locations throughout 2009 and 2010 and will also continue to test and evaluate new concepts, such as ShoeWoo.

As a matter of course, the Company continually evaluates its portfolio of stores, and now is an opportune time to take action as this plan can be adopted with the use of minimal cash expenditures. The Company anticipates expense savings and the elimination of unprofitable store locations to improve results by $3 million in 2009, $14 million in 2010 and $20 million in 2011. These actions will also reduce future capital expenditures relating to such locations.

In addition to the retail improvement strategy, the Company implemented additional cost savings actions during the first quarter to further align the Company's cost structure with anticipated demand levels and to preserve financial flexibility. The cost savings initiatives underway, which are in addition to those implemented in 2008, largely include personnel reductions, and are expected to result in annual savings of approximately $20 million. Such actions began during the first quarter and the Company expects that full year 2009 will benefit by approximately $13 million ($9 million after tax).

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