The Jones Group Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 1.13 | About: The Jones (JNY)

The Jones Group (NYSE:JNY)

Q1 2013 Earnings Call

May 01, 2013 8:30 am ET

Executives

Wesley R. Card - Chief Executive Officer and Director

John T. McClain - Chief Financial Officer

Richard Dickson - Chief Executive Officer of Branded Businesses and President of Branded Businesses

Analysts

Jennifer Black - Black & Company Inc., Research Division

Janet Kloppenburg

David J. Glick - The Buckingham Research Group Incorporated

Kristina M. Westura - Telsey Advisory Group LLC

Operator

Ladies and gentlemen, thank you for standing by. Welcome to The Jones Group First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, the 1st day of May 2013.

On this call, the company will be making forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, about its business. These statements are based on current expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

For a detailed discussion of these risks and uncertainties and other important factors that could cause actual results to differ materially from the company's expectations, the company directs your attention to its annual report on Form 10-K for the fiscal year ended December 31, 2012, including but not limited to, the Statement Regarding Forward-Looking Disclosure and Item 1A-Risk Factors therein, and to its other filings with the Securities and Exchange Commission.

The company does not undertake to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise. Before we begin, the company would like to point out that, once again, this quarter, supplemental slides are available on the company's website for download.

I will now turn the conference over to Wesley Card, Chief Executive Officer. Please go ahead, sir.

Wesley R. Card

Thank you, operator. Good morning, everyone. Earlier this morning, we reported our first quarter results for 2013. Total revenues came in at $1.009 billion, which is an 8% increase over last year and overall was in line with the revised guidance we issued last week. Operating income decreased to $34 million from the $53 million we reported last year. This resulted primarily from disappointing results in our Sportswear business and our Direct Retail channel, as well as the impact of the cold weather, which prevailed during the quarter, both in the U.S. and Europe, which inhibited sales of spring product. Adjusted earnings per share was $0.15 and compares to the $0.31 we reported last year.

As is widely known at this point, the cold weather did have a very negative impact on sales of spring merchandise in the first quarter. While cold water -- cold weather carry over seasonal product sales such as boots were very strong, new spring items, including Fashion Apparel and Footwear were weaker. Jeanswear, particularly long denim, bottoms and casual pants sold well, and that was evidenced by the strength in that Jeanswear segment.

Just to -- some of the highlights by our various segments in the quarter are as follows: The strongest segment was Domestic Wholesale Jeanswear. We registered the largest improvement in operating results in this category was resilient throughout the quarter, and as you recall, all of last year. Our products were very well received by consumers. And as I noted, the long bottoms and casual pants really benefited from the cold weather. Based on the positioning we have in the stores and product innovation, we believe this segment's going to continue to perform well as we go through 2013.

The next largest segment in the quarter, Domestic Wholesale Footwear & Accessories, also showed improved operating results in the quarter, although Retail sales were not quite at the pace of last year. Retail performance in all of the Footwear businesses were challenged by the cold weather. And sandals and other spring fashions just didn't open up until we are now getting into the warmer weather and didn't perform as they did in the first quarter of 2012, which if you remember, was a very warm period. Handbags and Jewelry were strong performers in the quarter.

Our International Wholesale and Retail segments posted lower results in the previous year and represent primarily Footwear & Accessories. Here too, very cold weather, as well as the continued weakness in economic conditions in Europe, impacted on retail sales. Domestic Wholesale Sportswear continued to be our most challenged segment. And while results are reflective of a difficult product category in general at Retail, our spring fashion products did not resonate with our targeted consumer. And as you recall, we had the same issues as we came through last fall's period as well.

As we've noted on prior calls, The Jones New York product line fashion quotient was dialed up too aggressively and that's going to carry through second quarter. For this coming second half, we made major structural and design changes in the line, which Richard Dickson will discuss further down in the call.

Finally, our domestic retail segment also had a disappointing quarter. This is reflective of the impact of the colder weather in the promotional environment, as well as The Jones New York product issues I mentioned above, which also carries into our outlet stores.

As we reported last week, we've taken some significant actions to improve profitability of our wholesale business and to really accelerate the efforts to turn around our domestic retail chain.

In summary, we're going to be reducing expenses in some of the support functions and accelerate in the retail store closing schedule from 50 to 170 underperforming stores. These actions combined are expected to improve profitability by approximately $40 million at a onetime cash cost of approximately $34 million to $54 million, plus a noncash cost of about $6 million.

In general, we're maintaining our overall conservative approach to planning in the current economic environment and it still remains unclear how consumer discretionary spending's going to develop in 2013. We certainly can react quickly as and if the environment improves. So at this point, I'm going to turn the call over to John McClain for his financial review. John?

John T. McClain

Thanks, Wes, and good morning, everyone. As you all are aware, we reported our preliminary results last week and updated you on the actions we have taken and will be taking over the coming months within our businesses. This morning, we officially reported results for the first quarter of 2013 and they're in line with our report last week. On a GAAP basis, we had net income of $1 million and earnings per share of $0.01 as compared with a net loss of $1 million and a loss per share of $0.01 last year. The 2013 first quarter includes pretax charges of $17 million, the majority of which relate to the restructuring actions we detailed last week. The 2012 quarter included charges of $40 million, of which $28 million related to the acquisition of Stuart Weitzman and $12 million mostly related to restructuring actions.

The remainder of my discussion will focus on the comparative financial performance of our businesses for the periods discussed. Therefore, all income statement-related references or net results are on an adjusted basis. Adjusted results exclude the impact of costs and other items we do not consider relevant for period-over-period comparisons. On this basis, adjusted EPS was $0.15 for the first quarter of 2013 as compared with $0.31 per share in the prior year. 2013 first quarter included noncash foreign exchange charges related to the translation of intercompany loans from British pounds and Canadian dollars into U.S. dollars of about $0.05 a share, while the 2012 quarter had a $0.03 per share benefit. Excluding these foreign exchange impacts, adjusted EPS would be $0.20 and $0.28 per share in 2013 and '12, respectively.

For the first quarter, total company net revenues were slightly over $1 billion compared with $936 million last year, an increase of 8% and within the range of guidance previously provided. For the quarter, our Jeanswear business was our strongest performer, with a 39% year-over-year increase. Domestic Wholesale Footwear & Accessories and our International Retail businesses also were strong performers for the quarter, with sales increases over 7%. In our Other businesses, the results were flat to down, largely attributable to the continued difficult economic climate, unusually cold weather, product performance in certain categories and the highly promotional retail environment.

Our gross margin was 34.6% compared with 36.7% in the prior year and was below our estimate for the quarter by about 90 basis points. The margin decline from the prior year of 210 basis points was driven largely by the mix of business, product performance issues and generally, a customer driven only by promotion. We believe that the recently announced changes we're making are focused on tight inventory control will favorably impact margins.

SG&A was $315 million compared with $291 million last year and within the range of guidance previously provided. Of the increase, approximately $10 million relates to the changes in foreign exchange rates, about $8 million relates to the operations of new businesses, such as Brian Atwood retail and wholesale designer business and Kurt Geiger, both the domestic retail and new concessions in Germany. The remainder of the expense increase relates to increased volume and inflation. As a result, total company first quarter operating income was $34 million versus $53 million last year, and operating margins of 3.4% versus 5.6%.

On the balance sheet and cash flow, accounts receivable were $446 million at the end of the first quarter versus $459 million in the prior year, down 3%. Accounts receivables turn on an annualized basis was flat at about 8.2x in both periods. The portfolio remains very healthy from an agent perspective. Inventory was $498 million at the end of the quarter versus $473 million in the prior year, up 5%. And as you would expect, the increase was driven mostly by Jeanswear, where sales and trends are up. We continue to respond to the evolving sales trends and order conservatively, and liquidate any slower-turning goods. Inventory turn on an annualized basis was 5.1x compared with 4.9x last year.

For the period, cash flow from operations used $137 million compared to a $60 million used last year. The change was driven mostly by a larger investment in working capital this year, higher interest in tax payments, as well as just by some timing payment differences. We continue to closely monitor our cash flow results to focus on maintaining a strong balance sheet. The first quarter, we repurchased about 763,000 of our shares for about $9 million, representing an average price of $11.81 per share. Total debt was $1.02 billion, including $65 million drawn on our revolver to fund the growth of the business. This revolver was repaid in April. We ended the quarter with approximately $45 million of cash, and the ratio of debt to total capitalization net of cash was 49.6%.

Now I'd like to discuss the first quarter results for each of our business segments, and this information can be found on the slides that we posted to our website. Domestic Wholesale Sportswear, which includes our suits and dress businesses, first quarter revenues were $217 million compared with $234 million last year. Sportswear were down primarily in the Jones and Anne Klein brands, while we're also down in both the Suits and Dress businesses. Segment operating profit margin for the first quarter was 6.3% compared with 11.6% last year. The gross margins were down significantly in Sportswear and Dresses, resulting from higher allowances, due in large part to product performance, which Rich will elaborate on.

While in Suits, gross margins were up significantly year-over-year due to the strong performance of the Suit and Separates business. Domestic Wholesale Jeanswear, we continue to experience a significant turnaround in the business from last year, with revenues of $257 million compared with $185 million last year, an increase of 39%. The majority of the increase was in Gloria Vanderbilt, l.e.i and Nine West. Segment operating profit margin for the quarter was 13.6%, compared with 9.6% last year. The improvement of margin can be attributed to an increase in volume on a base of fixed cost, coupled with improved product performance and inventory control.

We also had a strong quarter in Domestic Wholesale Footwear & Accessories, which includes our domestic Footwear and Jewelry and Handbag businesses. First quarter revenues were $241 million this year versus $226 million last year, an increase of 7%. Revenues increased in each of the Footwear, Handbag and Jewelry businesses. The Footwear business, Nine West, Anne Klein and Easy Spirit were the best performers. On Handbags, it was Nine West and Anne Klein. And in Jewelry, it was Givenchy. Segment operating profit margin for the quarter was 9.4% compared with 9.1% last year. Product performance was the main driver in the improved operating margin, and profit margins were up in each of the businesses.

In International Wholesale, which includes all the international shipments of Sportswear, Footwear & Accessories, first quarter revenues were $73 million this year, flat to last year, reflecting the continuing difficult global economic conditions. Segment operating profit margin for the quarter was 9.8% compared with 13.6% last year, reflecting lower gross margins in the majority of the recurring businesses and the startup investment in the Brian Atwood business. In Domestic Retail, which includes our U.S. Footwear, both full price and outlet, our ready-to-wear outlets and our e-commerce sites, first quarter revenues were $126 million compared with $128 million last year. Results reflect 5 additional days in the fiscal quarter this year as our quarter -- this year ended on April 6, approximately 70 less stores this quarter than last year, and a same-store sales decrease of 2.9%. Same-store sales in Footwear were down 3.8%, a result of a 5.4% decrease in malls and a 2.6% decrease in outlets.

In Apparel, same-store sales were down 14%. On our e-com business, comp sales increased 18%. Segment operating profit margin was negative 21% versus negative 16% last year. We have small startup losses as expected in the new stores for Kurt Geiger and Brian Atwood that total about $3 million this quarter. The remainder of the decline in performance is related to The Jones New York outlets, which is primarily due to product performance, while all other concepts were roughly flat year-over-year. In all concepts, we were focused on ending the quarter with a clean inventory, which we did.

As we announced last week, we'll be closing approximately 170 doors over the next 12 to 15 months, which includes the 50 previously announced stores. Upon completion of the restructuring, we expect to operate a total of approximately 435 domestic doors, and about 350 of which will be outlets. The 435 total doors also include about $45 million emerging brand doors such as Stuart Weitzman, Kurt Geiger and Brian Atwood.

During the first quarter, we closed 25 doors, and we'll continue to closely monitor all retail store locations. In International Retail, which includes all the retail stores outside of the U.S. and includes Kurt Geiger, Stuart Weitzman, Jones Canada and Jones Spain, first quarter revenues were $84 million compared with $78 million last year, an increase of 8%, and this increase was due in large part to the additional number of days in the this year's fiscal quarter and to an increase in comp sales in the Kurt Geiger business and luxury, and in the Internet, and an increase in the number of concessions. Segment operating margin was negative 7.8 versus negative 4.4 last year, and unusually cold weather during the quarter, coupled with the challenging economic environment, impacted each of these markets.

Our guidance for 2013 will continue to focus on the indicators of performance that we consider somewhat predictable. Based on our current view of the business, we believe that the total company net revenue will be in the range of $3.8 billion to $3.95 billion. The full year revenue guidance on each of the segments, please refer to the slides we've posted to the website.

For the second quarter, we expect consolidated revenue to be in the range of $820 million to $850 million. The gross margins, we anticipate that the highly promotional environment will continue to throughout the year and our gross margins will be in the range of 35.9% to 36.1%. For the second quarter, we estimate margins to be in the range of 35.2% to 36.0%. We're forecasting SG&A expenses for 2013 in the range of $1.2 billion to $1.25 billion. For the second quarter, we estimate that SG&A will range from $290 million to $305 million. We've included some additional information regarding our projections for the year in the slides on our website. And finally for 2013, our target for adjusted operating cash flow is about $125 million. This excludes cash that may be required for the restructuring charges we announced last week. And assuming that the cash used for those charges totals about $30 million this year, and again, it may be less but using $30 million as an assumption, we expect to end 2013 with over $100 million in cash, nothing drawn on our revolver and no debt coming due until November of 2014. That concludes my comments, and I'll turn the call over Richard. Richard?

Richard Dickson

All right. Thank you, John. My practice on this call is to give you an update on the progress of the brand building across our portfolio. Today, in light of recent announcements, I'll focus primarily on Jones New York, followed by brief updates on Anne Klein and Nine West, where much of our restructuring efforts are taking place and which together represent about 44% of total company sales in the first quarter.

I'll then review top line progress on our designer brands, which continue to diversify our portfolio and provide growth in important segments and markets. Jones New York is the brand that has been the greatest challenge to our corporate transformation story and recent performance, but it's also a brand that's evolving rapidly and has great potential. 3 years ago, we began creating and marketing reliable, go-to products for Jones New York. It worked. These destination items, including Easy Care, denim and Platinum suitings have become an important and growing component of the brand. In the first quarter, those items were 20% of Jones New York Sportswear retail sales versus 9% only a year ago. Last year, with dramatic improvements to our design capability in place, we sought to improve the performance of the fashion component of the brand by dialing up style and it didn't work, but we learned from it. We learned that fashion only goes so far in this segment right now and that value is fundamental to the brand's target consumer. We learned that Jones New York is valued for functional fashion and great fit. And most importantly, we have gained valuable understanding of the fact that Jones New York's equities as classic, American career wear offered greater potential than we had imagined, as a foundation for innovation and growth. Particularly among the brand's current loyal consumer base, women 45 and older, who want to look fashionable. After extensive consumer research and product testing, we overhauled the pricing strategy on the brand to emphasize competitiveness and value. We adjusted designs where possible to align them with core customer expectations and the brand's DNA. And we developed our second half collection, shipping this summer, side-by-side with research. It includes a reboot of what made the brand great, a system of career dressing at the right price, targeted to build our strength and share at the heart of the $79 billion Sportswear market, and it will launch this fall. Before I say any more about the brand's future, let's look more specifically in its performance in the past quarter and its immediate challenges. Now John and Wes mentioned, the challenges facing the Sportswear category, but there are encouraging trends that we continue to build upon. The new denim with secret slimming features grew to an impressive 20% of first quarter Jones New York Signature sales. We're expanding the popular line to add a curvy silhouette and new tulle bottoms with slimming technology. Platinum suiting is growing, and in the first quarter of this year, it represented 18% of the Jones New York Collection business versus 13% last year. Looking forward, the Jones New York brand will have a difficult second quarter as we move decisively to clear out the remaining unsuccessful merchandise and reset the brand. This fall, we expect improved brand performance, driven by a more strategic mix of basics and fashion items, as well as the launch of a new collection. We've had a great reaction to this new merchandise in consumer research and from our retail partners and we greatly appreciate the retailer support and continued confidence in the brand moving forward.

Moving on to Anne Klein, which represents a significantly different brand model than Jones New York. Anne Klein has a major presence in Footwear, Handbags, Jewelry and licensed products. Over the years, the considerable global value of the Anne Klein intellectual property has allowed us to diversify the brand across multiple categories, helping stabilize the brand as challenges arise in individual categories. Of late, the brand's greatest hurdle has been Sportswear, a challenge that continued into the first quarter, although we did see positive performance for Anne Klein Sportswear at some customer accounts. To bolster the brand performance in Sportswear, Anne Klein denim, which is on trend with the more casual workplace, launched for spring 2013 in 74 doors. And based on initial selling, we expect to launch an additional 150 doors for fall of 2013. As with the new Jones New York Jeans, we're pleased to see positive early reads on denim for Anne Klein.

Beyond Sportswear, the Anne Klein brand is performing well. Anne Klein Footwear, the largest component of the brand, delivered Q1 sales at retail that were slightly higher than last year. In Q1, shipments of Anne Klein dresses were up and retail sales at Macy's, Belk and Bon-Ton were up triple digits. Handbags and Jewelry continue to do well at retail, each also up double digits versus last year. And in licensing, Anne Klein watches did well, with growth coming from the U.S. and Canada. This March, we're pleased to relaunch Anne Klein eyewear. The collection will be distributed globally starting fall 2013 in upscale optical and specialty retail channels.

Now let's take a look at our largest brand, Nine West, which we expect to contribute revenues this year comparable to Jones New York and Anne Klein combined. In the first quarter, Nine West delivered positive top line growth for the quarter, with total brand revenue up double digits versus last year. At retail, sales of pumps were up in our full price stores, while outlet sales were driven primarily by Casual Wear and Handbags. In e-commerce, we saw double-digit growth, led by Zappos, Piperlime and Macys.com. And in our own NineWest.com, Dress, Casual and Handbags, grew by double digits in first quarter versus a year ago. E-commerce continues as an emerging strength and focus for innovation on our brands. As seen with our very own Channel 9, the first digital network for shoe lovers and one of YouTube's top fashion networks, with more than 6 million network views and growing. We're leveraging the success of Channel 9 to drive commerce as a pioneer in integrated shoppable video. And if you're not familiar, shoppable video enables fans of Channel 9 to simply click through the videos to purchase. It is seamlessly easy. We've also made shoppable video available at Nine West Facebook page. We're very pleased to be evolving Channel 9 on its plan, growing it from an innovative marketing idea to a high-engagement sales vehicle, and we'll continue to update on the progress as things move forward.

To quickly give you some highlights of the other important components of our portfolio, Easy Spirit continued its growth trajectory at Wholesale, with first quarter brand sales up 10% and Wholesale shipments up double digits versus a year ago. Easy Spirit e-commerce gained traction in the first quarter with Athletic, Casual and Dress up double digits, with increased traffic of 23%. And in denim, we continue to see strong performance across brands, including our core denim offerings, with strong growth at l.e.i and Gloria Vanderbilt. Building on the brand's strength, we launched Gloria Vanderbilt Active in February to a very enthusiastic retailer response. Jessica Simpson continues to perform well this year. In addition to expanding door counts for Jessica Simpson girls and tweens, we added 250 doors for the brand's active line and 100 new doors for the plus-size line.

Now looking at our designer brands, despite continuing softness in the EU economy, we were pleased to see Kurt Geiger deliver solid Q1 performance with overall sales up double digits versus last year. Q1 retail sales were up in the U.K., with luxury and e-commerce each posting double-digit growth, and Kurt Geiger own retail up as well. And more broadly, EU retail for the brand was also up healthy double digits. As I've mentioned in previous calls, we are seeding Jones Group brands into Kurt Geiger channels abroad with great success. In the first quarter, sales of Jones Group brands at Kurt Geiger were up 83% versus a year ago. Retail expansion continued in the first quarter, with the launch of Kurt Geiger's Bleecker Street boutique, its first in New York. Near-term, brand expansion plans include at least 6 cart [ph] staff stores, as well as high-margin promotional outlet strategies for the launch in the second half of this year.

Stuart Weitzman continues to grow branded retail, with a refreshed concept to help drive first quarter sales, up double digits globally versus a year ago. We remain highly encouraged by the growth trajectory of Stuart Weitzman and its global potential to become a mega brand in The Jones Group portfolio. Robert Rodríguez sales were up in the first quarter versus last year, as the brand readies itself for a significant launch in denim this October at specialty and luxury department stores. And Rachel Roy's designer line saw a much faster turns in the first quarter versus a year ago, with increases at Nordstrom and strong performance for Rachel Roy dresses at Neiman Marcus. The successful diffusion line, Rachel Rachel Roy available at Macy's, was up double digits in the first quarter. The brand launched denim for spring this past quarter in 40 doors and is increasing to 200 doors for fall 2013. Given strong momentum for denim overall, we believe it'll become a much more important new component of the line. And beyond clothing, Rachel Rachel Roy Jewelry continues to perform well, with first quarter revenue up 8% versus last year. We continue to invest and nurture the Brian Atwood brand. Coming off a successful launch last year, Brian's diffusion line, B Brian Atwood, is optimizing doors, pulling back, in some cases, where the brand is underperformed and adding important new channels like Zappos, where performance has been positive this spring. Earlier, I spoke of our commitment to grow both our marketing and commerce in the digital space. Reflecting this focus, we've added 2 important leaders with deep and relevant experience in key new roles. Greg Clark has joined us as Chief Marketing Officer, with experience at JCPenney and Target, a proven marketer with experience across a diverse group of brands. Greg will spearhead marketing, media and creative communications for the company. And Milt Pappas recently joined us to lead e-commerce, coming from a senior role in online retailing for Toys "R" Us, Milt's expertise lies in digital marketing and merchandising and e-com business development. Both Greg and Milt bring important new expertise to the strong and innovative leadership culture we continue to build. Thank you and I'll turn the call back over to Wes.

Wesley R. Card

Thanks, Richard. While I'm disappointed with our performance in the first quarter and our outlook for the balance of the year, I'm satisfied that we have taken strong and effective actions to enhance our future profitability and operating performance. Further, I believe our Sportswear product issues have been addressed, and we expect to see significantly improved performance in the second half of this year. Operator, at this point, we'll open up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question will come from Jennifer Black of Jennifer Black & Associates. To 14.

Jennifer Black - Black & Company Inc., Research Division

I have a few questions. I wondered first, if you could talk about your opportunity with Jewelry, as well as other small leather goods and handbags across the entire portfolio? And how large do you feel that this is, and what are your long-term goals for the Jewelry business? I think that's my first question.

Wesley R. Card

Okay. Well, let me -- Jennifer, it's Wes. Let me just comment on the second part then Richard could talk about the product opportunities. We've really have a good successful turnaround in this business in the last several years and the majority of the business is done with own brands. So it's a good extension of Nine West, Jones New York, Anne Klein, Vintage America, and so we've been able to control that part of the business for our own brand and it's -- it's from a branding standpoint, we get a much more coordinated effort. But it's a business that's highly profitable and we continue to develop throughout the branded business. Richard, you might want to comment on the product opportunities there?

Richard Dickson

Sure. And Jennifer, as you know, we call them center core, which is, of course, Jewelry, Handbags and Footwear, has been a great growth category overall for the industry. And our Jewelry business and leadership there has really done a great job taking brands in our portfolio and driving the trend, Jones, Anne Klein, Nine West, all very strong and growing Jewelry categories for us on those brands. And also specifically, Judith Jack, Napier and Givenchy continue to be strong brands for us, and we expect that growth to continue.

Jennifer Black - Black & Company Inc., Research Division

Do you plan on launching Jewelry for Stuart Weitzman? And I think you just launched for Brian Atwood. Any comments?

Wesley R. Card

Well, we have been working with Stuart. I'm not sure the exact launch date yet, but we -- it is a distinct possibility there.

Richard Dickson

And just to further expand on that, from Wes' point, Jennifer, we also have Rachel Roy Jewelry and Rachel Rachel Roy Jewelry, which is performing well and recently launched a very limited edition collection of Brian Atwood, so our designer portfolio is leveraging the internal skill set and competency to expand the Jewelry business.

Jennifer Black - Black & Company Inc., Research Division

Okay, great. My next question is, well, your Jones works line looks great, and I wondered if you -- what kind of supplemental marketing you're doing for this launch? And do you feel this is a pivotal point for the Jones brands? And I wanted to also know if you have shown holiday?

Richard Dickson

Thank you for the compliment for the Collection. We have been getting lots of good feedback and great confidence as we launch that and shipping in July. It will be in stores in the fall. The marketing campaign is going to be very specific, really a product hero campaign, emphasizing the system itself of dressing. We've got some really exciting magazine and editorial partnerships that we're going to be announcing soon, some heavy investment, as it relates to in-store activity, merchandising and selling. And we are really looking forward to that hitting the floors as soon as possible. As it relates to some of the in-store events itself, there will be ground marketing in certain key markets, new merchandising as well to highlight it, and we anticipate a really strong and effective launch. It really takes, as we've said, sort of the greatest strength of the brand, suits, suit separates and career dressing and extends that into a bigger program. So we'll keep you updated on that.

Wesley R. Card

Yes, I think, just for clarity, because many on the phone may not use the term we've been using internally to describe it as Jones works. This is an integral part of the Jones Collection business. It's not a separate or new product line. And it's -- we advertise it that way to call attention to it. And as we've rolled it out to our retail customers. But it's an integral part and it's really very well designed, basic product but with fashion twist, but really on the Jones' DNA. And the product is well-priced. It's a great value. We've gotten excellent reactions. Some of the early pieces that we put out in the spring in the fabrications that we showed it in have been retailing very well. So we feel that the line will be more basic, but still look fashionable and present great value to the consumer when we get to fall.

Jennifer Black - Black & Company Inc., Research Division

Great. And I just one have one last question. Nice job on the denim business. I wondered if you can tell us the operating margin differentiation between Walmart versus the rest of the portfolio? And do you still -- is there still margin expansion opportunity in this division? And where do see this over the next 2 years, just the entire denim, I guess, business? And I'm not talking about Jones.

Wesley R. Card

Well, we do see growth coming and product extensions that we do in other parts of the portfolio. The lower-end business as highly leveraged off a very efficient production and design base. So there is some margin differential, but there's really a lot of leveraging of cost there because we are operating in a lower price point, lower-margin business to begin with. I think the market opportunity here is going to become -- come from developing the better product lines above, for example, Anne Klein, Robert Rodríguez, Rachel Roy, where we'll get higher margins than we do in the lower tier of the portfolio. We believe there's continued growth in Jeanswear and we'll continue to try to extend that component as part of the lifestyle into any of the brands where we believe it applies.

Operator

Our next question will come from Janet Kloppenburg with JJK Research.

Janet Kloppenburg

Just to stay on Jeanswear for a second. Is the momentum of the business looking to be quite strong all year from all of the brands? And is there an opportunity there for the kinds of trends we saw in the first quarter to continue to be maintained? I was wondering how we should we be thinking about that? And it sounds to me like it's just good sitting, stretched denim, et cetera. I was wondering how the color was performing versus last year, because I think you did very well in color. And then secondly, I wondered if you could talk about the Retail business? After you closed the 170 stores, what is the outlook for profitability in the business, Wes? And is that dependent on products improvement? Or are you shedding all of the unprofitable stores, so profitability should emerge?

Wesley R. Card

In terms of Jeanswear, Janet, the -- what we saw on the first quarter, all components of the business performed, virtually every label, whether it was at Walmart, Kohl's, Macy's or other department stores. All the products performed. We just had great growth. Of course last year, I think the easiest comparison was in the first quarter because the business did grow as we went throughout the year. But the -- as we got into the warmer weather now, we're starting to see some really good take-out in some of the seasonal items, capris and shorts and other items, and there's more color, obviously, turning at this point. So it's just been really strong product innovation, the washes, and everything has been updated, I think the team did a phenomenal job last year in the beginning of the year and this just kept the momentum going across-the-board. So we are very bullish.

Janet Kloppenburg

And so how does it look for fall, Wes?

Wesley R. Card

I think we look great for fall. I think we'll...

Janet Kloppenburg

Okay. Do you -- but do you have any order trends that you can talk about there? I mean, obviously, this kind of sell-through would create some reorders and some -- I think some good vibe about the brands for the back half. So I'm just wondering if we should be modeling this kind of momentum into the back half?

John T. McClain

Well, Janet, remember in the back half, last year, we started to pick up the business within there. So what we've said before, as we look into the back half of this year, the comparisons versus the prior year could get much tougher because we did pretty well in the third and fourth quarters last year. So we think there's opportunity for pickup, but certainly not to the magnitude of last -- or the first and the second quarter, which were coming up against very difficult quarters last year.

Wesley R. Card

We don't report the order rate separately. Janet, we don't report the order rate separately, but the orders have been very strong in the back half.

Janet Kloppenburg

Okay, great. And on the Retail business?

John T. McClain

Sure. On the retail, as we get through the impact of all of these -- the changes and the store closures, at that point in time, we think we'll be in a position where the forward run rate give us the opportunity to get to profitability. Remember what we've always said, there are certain number of doors that are essentially flagships that we need that serve as not only advertising in a way for us, but also as in the face of the brand for all our international licensees and Nine West when they come to the U.S. And those are very important. They tend to be in very expensive locations. So those tend to generate losses, so there's some investment that always happens from there. But we believe that the other -- the outlet concepts, et cetera would be able to offset those as we go forward, but we have to get all of the other doors closed. So if we get that in the next 12 to 15 months, in the middle of the next year, we think we have a good opportunity for that run rate to be breakeven-ish. And that does not have to require a big pickup in the economy, but it's certainly -- it would be helpful if we we're able to see some of the foot traffic come back to more normal levels because it's not only us and our businesses, but everybody's seeing traffic in all locations being significantly down. So if we can...

Janet Kloppenburg

Well, that's for sure, John. That's for sure. Just one last question. One last question is on the retail stores. Is there another chunk of stores that are marginally profitable that may be considered for closing after this round? Or do you feel like you really closed a clean house now?

Wesley R. Card

Well, it feels like we've cleaned house. I think when we finish this, we're going to have a very -- a much smaller channel of Nine West stores, but they're going to be in -- they're in best locations, and they're, for the most part, profitable, with the exception of the flagships that John had mentioned. And that's important to showcase the brand, we're showcasing -- we're intensifying the handbags, and there's been a lot of great assortment, work done in those stores and that supports the International business. So we think we're going to have a good chain there. And then the rest of the stores are primarily Nine West, Easy Spirit and Jones New York outlets stores. And once we get the product corrected in Jones, we'll -- we should be profitable and strongly profitable there. We're in the best locations, so we believe we'll be in a good spot once we finish this. We can continue then to add stores. As John said, we look at them very closely when they come up for renewal and other -- but this should position us to get back to profitability.

Operator

At this time, I'm showing no additional questions in the queue, sir.

Wesley R. Card

Okay. Anybody, we'll give you one -- anybody else -- one second before we wrap up?

Operator

We do have a follow-up question from Jennifer Black, if you'd like to take it, sir?

Wesley R. Card

Sure, would love to.

Jennifer Black - Black & Company Inc., Research Division

I was just curious to know where you were on the stores as far as the refreshment of the Nine West stores? I know that's been a priority. How many more do you have to do?

Richard Dickson

Jennifer, it's Richard. We continue to take our cues off of the Lexington Avenue prototype flagship that we built and learning a great deal from that on sort of what's working and what's not. Good news is much more is working than not and we're taking those learnings and expanding them, particularly in the doors, full price doors that will remain in the chain. You'll see some refreshes in the days ahead. There's some new concepts that we intend to infuse into those new refreshes. And as well, we've met with our international retailer base and partnerships in the shared store design merchandising and the assets with them. So we'll continue to see these refreshed rollouts really personify the brand and make those flagship stores really the gateway to the brand.

Jennifer Black - Black & Company Inc., Research Division

Okay. And then the thing I was curious about it was, are you happy with the SKU count at the Nine West stores? I mean, when you made a focus for pumps, pumps sold. And so I'm curious to know if you feel that you can edit the assortment either -- further, just how you feel about the collection?

Richard Dickson

Yes, we -- as an ongoing basis, we continue to edit, refine and define our assortments every season, taking our cues from what's selling and what's on trend. I think what we're finding to be very exciting is when we narrate to the consumer in our stores what we believe is important. So for instance, the pump walls that you've seen in some of our stores, really guide the consumer to what Nine West's voice feels is the most important asset in the store at that time. We see that working really effectively and that will help in turn build our SKU counts and line development. So narration in the store in terms of what works and where we want the consumer to focus on is going to be a continuation of the brand story.

Jennifer Black - Black & Company Inc., Research Division

Okay, great. And I just have one last one since nobody else is asking questions. Gloria Vanderbilt, you talked about Activewear and I think on the last call that you had -- I don't believe you mentioned it today?

Wesley R. Card

Yes, we did launch that. We're getting some very good early selling results. And I think it'll be something we can intensify on as we move forward with that brand.

Jennifer Black - Black & Company Inc., Research Division

And were you -- sorry.

Wesley R. Card

I said that area has been very resilient, as you know, and really a high-growth area, and we've been extending product into that zone in many of the brands, including Jones for fall, which we got a very good response to.

Operator

Yes. We have a question from David Glick of Buckingham Research Group.

David J. Glick - The Buckingham Research Group Incorporated

I had a question on the mid-tier department store channel, which -- obviously, you're out of JC -- largely out of JCPenney. You have a large portfolio of strong brands with strong department store distribution. I just wondered if you're -- if there's an opportunity to think about the mid-tier in a different way? Or maybe there's some brands that you're not maximizing in department stores that you could make very important. There's clearly a dearth of -- let me -- I'll put it another way. There's an opportunity for more strong brands in the mid-tier. And I just wondering, if you think about Penneys and Kohl's any differently and whether that's -- and given your success as l.e.i, when you want to an alternate distribution channel. Whether you think that's perhaps a strategy for you down the road?

Wesley R. Card

Well, I think there's always that opportunity, but with the larger brands that are well-penetrated. I think we feel the distribution channel right now, for example, with Jones and Nine West, really make the most sense. We would -- we're always thinking about ways to further penetrate in Kohl's, where we have a phenomenal Gloria Vanderbilt business, as well as some junior tops and other smaller business, Jewelry and Handbags. Penneys is now something to look at again, as we see how they work through their issues and if they'll be receptive to other bands as we go forward. We certainly think about it. I don't have anything to report on here today, but it's a constant discussion. One of the challenges is they -- all those stores want differentiated brands and products. So it's hard to get broad distribution on a relaunch of a brand when they really want to be exclusive and differentiated. And that, of course, that was the direction that Penneys was going. And so really -- it's not that easy to just come up with the brand to shift in there, but it's something that we've talked and think about constantly.

Operator

And we have a question from Kristina Westura from Telsey Advisory Group.

Kristina M. Westura - Telsey Advisory Group LLC

Just a couple of questions. First of all, on Kurt Geiger, just wondering if you could give us an update on how the stores are performing here in the U.S. I know the one on Bleecker Street looks great. And then also the wholesale potential for the brand?

Wesley R. Card

Yes. Well, we're excited. The Bleecker Street store just opened, where we have 3 doors open now in the U.S. Lots of great learning coming out of that. And as we gather momentum and start to build some more marketing around it and more press, as well as a Wholesale presence, we think we're going to really start to build the business here. We will be launching with Nordstrom in this summer. We'll be delivering in August in about 15 doors, plus the web, both men's and women's for Kurt Geiger. They've been very enthusiastic about the launch and we're excited about it as well. So once we get the web presence going and our Wholesale presence going and some more marketing, we believe that we've got a good potential for U.S. business to develop over time.

Kristina M. Westura - Telsey Advisory Group LLC

Terrific. And then just one question in terms of the domestic retail stores. John, are these leases that are due to expire? Are you just getting out of -- some of these doors, like how would you characterize it?

John T. McClain

Well, it's a combination of all and we'll work through the process with all the landlords. There's a lot of different ways to achieve what we want to do, so we're just starting that process now. And we'll get through that, like we said, in the next year to year -- 15 months or so.

Wesley R. Card

There will be a number of -- big, big quantity of early terminations within that number.

Kristina M. Westura - Telsey Advisory Group LLC

Okay. And then the last question will be, where do you stand on the potential for any divestiture of brands that may not make sense in the portfolio?

Wesley R. Card

Well, this -- we clearly -- and we've said this publicly, we're prepared to divest the brands and labels where we think it makes sense and we just can't comment on individual businesses or brands as a matter of course or M&A activity. So I'll just have to leave it at that.

Wesley R. Card

Okay. Well, we thank you, all, for your participation and interest this morning, and we look forward to keeping you updated as we move forward. Thank you.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

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