Jones Group (NYSE:JNY) is a multibrand specialty retailer offering footwear, accessories and apparel under brands such as Nine West, Jones New York, Kurt Geiger and Stuart Weitzman. The retailer operates its retail and wholesale channels in the U.S., Canada and Europe. In this analysis, we'll look at some of the important factors that are likely to drive Jones Group's growth.
Jones Group is leveraging the popularity of its recently acquired brands, Kurt Geiger and Stuart Weitzman, to fuel international growth. In the domestic market, it is consolidating its retail network to improve store productivity. Additionally, the retailer is taking some valuable steps to revive its main brand Jones New York. With these efforts, we believe that Jones Group’s stock is on its way to $14.
Promising Results From Popular Emerging Brands
Jones Group’s emerging brands Stuart Weitzman and Kurt Geiger have registered considerable growth since their acquisition. Revenues from these brands increased by about 30% in fiscal 2012 and accounted for 18% of Jones Group's overall revenues. As these brands are quite popular and have premium pricing, they are expected to generate a significant portion of the retailer’s revenues in the future.
The company acquired Stuart Weitzman, a high-end footwear brand, back in 2010. With high attention to detail and the use of unique materials, Stuart Weitzman has created a strong position for itself in the luxury footwear market over the past 26 years. Recently, designer Stuart Weitzman became the second person ever to receive Lifetime Achievement Award from Footwear News. Such events not only add to the brand's image but also indicate the brand's existing popularity. In an effort to expand internationally, the retailer launched Stuart Weitzman's first international e-commerce site in Q4 fiscal 2012. This will allow customers across 50 countries to shop for the brand online. Additionally, Jones Group has eight Stuart Weitzman stores planned for India, Canada and China in 2013.
Kurt Geiger is one of the most popular luxury footwear brands in Europe and sells more than 10 pairs of shoes every minute in the U.K. It sells more shoes than any other footwear retailer in the region. In its recently concluded quarter, the brand's revenues increased by 9% driven by strong gains from Europe despite the tough economic environment.
Store Consolidation Will Help Productivity and Margins
Although the domestic retail segment's revenues have been declining since 2009 due to aggressive store consolidation, the store productivity has gone up. While the store count reduced from 901 in 2009 to 569 in 2012, daily revenue per store increased from $1,811 to $2,448. The retailer is now looking to slow down this consolidation as it plans to close only 50 stores in 2013 as opposed to 103 in 2012. We expect revenue growth to pick up in the coming years along with improved profitability leading to slightly higher margins.
The consolidation strategy has resulted in higher revenue share of Jones Group's retail business, which generates higher margins than the wholesale channel (about 1.5x). The figure increased from 19% in 2010 to 26% in 2012, and we expect it to touch 33% by the end of our forecast period.
Focus on Improving Jones New York
Jones Group reported weak results for the first three quarters of fiscal 2012 due to reduced shipments of Jones New York. Revenues from this brand decreased by 11% in fiscal 2012 due to a weaker-than-expected response to its fashion, the brand's exit from J.C. Penny and the lack of competitive pricing. J.C. Penny dropped Jones Group's brands when it adopted a strategy to sell low-priced merchandise throughout the year.
However, Some of Jones New York's product segments such as Easy Care, Platinum suitings and Signature denims have performed well. The retailer is looking to push these products to revive the brand's growth. It is re-balancing its merchandise mix to increase the proportion of its performing products. Additionally, Jones Group is looking to focus on specific fashion-based apparel. The company's management stated that keeping Jones New York's prices competitive will be one of the key strategies for the brand's growth. These efforts should help Jones Group in the future if the retailer is able to optimize the product mix. Jones New York contributes a little less than 20% to the Jones Group's revenues.
Our price estimate for Jones Group stands at $14, implying a premium of about 20% to the market price.
Disclosure: No positions.