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The Jones Group (NYSE:JNY)

Q2 2013 Earnings Call

July 31, 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

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Robert S. Drbul - Barclays Capital, Research Division

Jennifer Black - Black & Company Inc., Research Division

David J. Glick - The Buckingham Research Group Incorporated

Janet Kloppenburg

Rick B. Patel - Stephens Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to The Jones Group Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, the 31st day of July 2013. On this conference 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 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's 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 second quarter results for 2013. Total revenues were $846 million compared with revenues of $855 million last year and in line with our expectations. While revenues were within range, operating income decreased to $18 million from the $40 million reported last year. The resulting adjusted earnings per share were $0.02, which was well above our expectations and compares to the $0.22 we reported last year.

Let's think back on the general retail environment in the quarter. Spring sales, as you recall, had opened up very slowly due to the unseasonably cold weather at the beginning the quarter. As a result, second quarter retail sales were even more promotional than usual in the U.S. and Europe, impacting many of our brands across segments, especially in the Footwear and Sportswear business. With a shorter window to sell seasonal items, promotions were used to clear merchandise quickly.

In general, retailers are ordering conservatively for the second half of the year to keep inventory balances in line. I'm now going to review just the highlights of our business in the quarter. Our strongest segment in the quarter was, once again, Domestic Wholesale Jeanswear, which registered the largest improvement in both revenues and operating results. The Jeanswear category has been resilient throughout the entire first half of the year and our brands and products have been very well received by consumers with seasonal fashion items performing well, even in the shorter window created by the colder weather. Given our positioning and product innovation, we continue to have confidence that Jeanswear will outperform during the remainder of 2013.

Our next largest revenue generator this quarter, Domestic Wholesale Footwear & Accessories showed lowered revenues and operating profits in the quarter. Sales slowed, particularly in the better zone, as retailers addressed the higher inventory levels and shorter windows, resulting from colder weather early in the quarter. Handbags and Jewelry were strong performance, and our Stuart Weitzman business operating at luxury -- entry-level luxury also had a very strong performance in the second quarter.

In International Wholesale, we saw a strong increase as shipments to our licensed partners worldwide grew in the period. However, on the other side of that, the International Retail segment and Europe, in particular, remained more promotional. The Luxury business in Europe however, particularly in the U.K. and London, remained resilient and continues in that vein into the second quarter.

As we anticipated, Domestic Wholesale Sportswear continued to be our most challenged segment. Initiatives are well underway to improve profitability in this area, as Richard will discuss later in the call. While our results do reflect the difficult category in general, as has been widely reported, we're continuing to feel the impact of our spring fashion products, which frankly, didn't resonate with our target consumer. As anticipated on the last call, the Jones New York brand had a difficult second quarter as we move to decisively clear the remaining product and reset the brand in the coming weeks for fall.

For fall, we've made major structural and design changes, which Richard will cover. Early reads on our return to the brands DNA are very encouraging.

Finally, our Domestic Retail segment also had a disappointing quarter as a result of the poor Footwear environment in general, the slow start to spring and some start-up losses in our Kurt Geiger and Brian Atwood retail operations in the U.S. However, there are a few bright spots. Within the mix of stores, our Nine West and Easy Spirit outlet chains were solidly profitable. Our e-commerce business also netted strong sales and a positive profit, which show the results of our initiatives to bolster direct to consumer.

And our Jones New York outlet chain, which is an important part of the Jones brand, had a significant decline in comp store sales in April, flattened out in May, and are now comping up strongly in mid-single digits in June into July, with the newer product. And so we're very encouraged by the results there.

As we reported last quarter, we've taken significant actions to improve profitability and accelerate efforts to turn around our Sportswear business in our domestic retail chain. These actions, combined, are expected to improve annual profitability by approximately $40 million when we get to mid-2014, and we're well on track to achieve these results.

We're maintaining an overall conservative approach to planning in the current economic environment, and remain somewhat unclear how consumer discretionary spending will develop into 2013, although economic conditions do appear to be slowly improving worldwide and we're seeing some interesting reactions to early fall product reaching the stores in Sportswear and Footwear.

I'm now going to turn the call over to John for his financial review. John?

John T. McClain

Thanks, Wes, and good morning, everybody. This morning, we reported results for the second quarter of 2013 and on a GAAP basis, we had a net loss of $3 million or $0.05 per share, as compared with net income of $8 million or $0.10 per share last year. 2013 second quarter includes pre-tax charges of $7 million, the majority of which relate to the acquisitions of Kurt Geiger and Robert Rodriguez and various restructuring actions. 2012 quarter included net charges of $15 million, mostly related to unused property, severance, asset impairment and acquisition-related liabilities.

The remainder of my discussion will focus on the comparative financial performance of our businesses for the periods discussed and 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 $0.02 for the second quarter 2013 as compared with $0.22 per share in the prior year.

For the quarter, total company net revenues were down modestly to $846 million compared with $855 million last year and within the range of guidance provided during the first quarter call. For the quarter, our Jeanswear business was our strongest performer with a 21% increase over the prior year.

International Wholesale and International Retail businesses were also strong performers, with sales increases of 18% and 4%, respectively.

In our Other businesses, the results were flat to down, largely attributable to the continued difficult economic climate, the unusual weather patterns, product performance in certain categories and the continuance of a highly promotional retail environment. Our gross margin was 35.6% compared with 38.2% in the prior year, and was within the range of guidance previously provided.

Margin decline from the prior year of 260 basis points was driven largely by the mix of business, product performance issues and generally, a customer driven only by promotion.

SG&A was $283 million compared with $286 million last year. This was $7 million below the bottom end of my guidance. Of That difference, $3 million was a shift in the timing of expense from 2Q into 3Q; $2 million was a benefit from the restructuring actions occurring earlier than we had estimated; and $2 million resulted from general expense control.

Factored altogether, total company operating income was $18 million versus $40 million last year, operating margins were 2.2% versus 4.7% last year. The balance sheet and cash flow, accounts receivable were $312 million at the end of the quarter versus $327 million in the prior year, down 5%. Accounts receivable turn on an annualized basis was 8.12x compared to 8.07x last year. Portfolio remains very healthy from an aging perspective.

Inventory was $541 million at the end of the quarter versus $468 million in the prior year, up about 15%. The increase here is mostly due to 2 things: timing and replenishment. Goods were received earlier this year for the upcoming fall and holiday seasons due to some changes made in our supply chain and also due to the timing of our fiscal calendar. This quarter end, this year -- excuse me, the quarter end this year is 6 days later than in 2012, which resulted in more second half goods being received in the current quarter. Replenishment balances in several divisions were up this year due to program expansion and product performance. We continue to respond to the evolving sales trends and order conservatively and liquidate any slower-turning goods.

Inventory turn on the annualized basis was 4.63x compared with 4.72x last year. For the period, we generated $2 million of operating cash flow compared with $124 million last year. This change was driven mostly by larger investment in working capital this year, higher tax and interest payments and lower earnings. We continue to closely monitor our cash flow results and focus on maintaining a strong balance sheet.

In the second quarter, we repurchased approximately 381,000 of our shares for about $5.5 million, representing an average price of $14.42 per share. Year-to-date, we've repurchased approximately 1.145 million shares for $14.5 million, at an average price of $12.68 a share.

Total debt was $952 million. We ended the quarter with approximately $81 million of cash and our ratio of debt to total capitalization, net of cash, was 47.2%.

Now I'd like to discuss the second quarter results for each of our business segments, and this information can be found in the slides that we posted to our website.

In Domestic Wholesale Sportswear, which includes the Suits and Dress businesses, revenues were $133 million compared with $175 million last year, which can be largely attributed to a decline in our Jones and Anne Klein brands.

Segment operating profit margin was negative 6% compared with 5.3% in the prior year. Gross margins were down significantly in Sportswear, resulting from higher customer support, due in large part to product performance, which Richard will elaborate on. And gross margins in the Suit business were up significantly year-over-year, due to continued strong performance of the Suited Separates business.

In Domestic Wholesale Jeanswear, we continue to experience strong performance in this business, with revenues of $183 million compared with $151 million last year, an increase of 21%. Majority of the increase was driven by the core of the business, Gloria Vanderbilt, l.e.i., Jessica Simpson and private label.

Segment operating profit margin for the quarter was 7.9% compared with 5.2% last year. The improvement in margin can be attributed to an increase in volume on a fixed base of cost, coupled with improved product performance and inventory control.

Domestic Wholesale Footwear and Accessories, second quarter revenues were $182 million versus $195 million last year. This reflects a revenue decrease in Footwear, an increase in Handbags and flat performance in Jewelry. The Footwear business, Bandolino and Nine West, had the biggest declines, while Easy Spirit was up. In Handbags, Anne Klein and Nine West were up.

Segment operating profit margin for the quarter was 1.6% compared with 4.6% last year. The main drivers of the decrease were a soft retail environment, some product performance and the impact of a higher level of shipments in Q1 on retailers' inventory positions.

In International Wholesale, which includes all international shipments of Sportswear, Footwear and Accessories, revenues were $89 million versus $75 million last year, an increase of 17%. We experienced significant increases in Nine West and Stuart Weitzman footwear and in Jones Sportswear to Mexico.

Segment operating profit margin for the quarter was 13% compared with 12.9% last year.

The Domestic Retail, which includes our U.S. Footwear, both full-price and outlet, ready-to-wear outlets and e-commerce, second quarter revenues were $148 million compared with $151 million last year. Results reflect approximately 45 fewer stores this quarter than last year, and a same-store sales increase of 1.8%.

Same-store sales of Footwear were down 0.5%, a result of a 4.8% decrease in malls and a 2.4% increase in outlets. In Apparel same-store sales were down 4.5%, while on e-commerce, comp sales increased 16%.

Segment operating margin was negative 3.7% versus 0.2% last year. As expected, we had small start-up losses in the new stores for Kurt Geiger and Brian Atwood, and that totaled about $2 million this quarter. The remainder of the decline in performance is related to product performance in the Jones New York outlets and Nine West full-price stores.

Stuart Weitzman store saw improved results this year that are profitable for the quarter. All other concepts were roughly flat year-over-year and across all concepts, inventories were clean at quarter end.

In International Retail, which includes all retail stores outside of the U.S. and includes Kurt Geiger, Stuart Weitzman, Jones Canada and Jones Spain, second quarter revenues were $101 million compared with $97 million last year, an increase of 4%, and we had increases at Kurt Geiger, Stuart Weitzman and Jones Spain.

Segment operating margin was 1.7% versus 5.4% last year. Product performance and the unusually cold weather during the quarter, coupled with a challenging economic environment impacted each of these markets.

An update on the status of the restructuring actions that we discussed last quarter. We've closed 39 of the targeted 170 doors. We continue to believe that the annual run rate and savings will be about $40 million, $13 million of which we'll be realized in 2013. We had previously estimated the 2013 benefit at about $11 million.

And we're lowering the estimate of the total cost of these actions to a range of between $40 million and $50 million versus the original estimate of $40 million to $60 million. We've been successful in negotiating some favorable lease exits, and we'll keep you informed of our progress throughout the year.

Our guidance for 2013 will continue to focus on the indicators of performance that we consider somewhat predictable. And based on our current view of business, we believe the total company net revenue will be in the range of $3.79 billion to $3.89 billion. For full year revenue guidance on each of the segments, please refer to the slides we've posted to the website.

For the third quarter, we expect consolidated revenues to be in the range of $1 billion to $1.03 billion; and gross margins, we anticipate the highly promotional environment will continue throughout 2013; and estimate our gross margins will be in the range of 35.3% to 35.5%. For the third quarter, we estimate margins to be in the range of 34.5% to 35.5%.

Forecasting SG&A expenses for 2013 in the range of $1.19 billion to $1.22 billion, and for the third quarter, we estimate SG&A to be in the range of $290 million to $305 million.

We've included some additional information regarding our projections for the year in the slides on the website.

And finally, for 2013, our target for adjusted operating cash flow, which excludes the cash required for the April restructuring actions, is approximately $110 million. Assuming that the cash for these restructuring charges totals about $15 million this year, we expect to end 2013 with about $100 million in cash, nothing drawn on our revolver and no other debt coming through until November 2014.

That concludes my comments, and I'll turn the call over to Richard. Richard?

Richard Dickson

Thank you, John. So I'll now provide you with an update on the brands and our related initiatives to improve performance.

As you know, the Sportswear segment has been particularly tough for us, especially with Jones New York, and we're implementing major strategic changes for the brand that we believe will be more impactful than the initial negative effects. The Jones New York brand is being reorganized to reflect the wealth of learning gained in the past several quarters and to reconnect with the brand's large and loyal customer base. We employed extensive consumer research to identify an optimal brand offering. We returned the design focus of the brand to career wear. We expanded the strongest core offerings and rebalanced price value equation versus our competition. We've thoroughly streamlined our better sportswear operation for improved integration and efficiency, and we have strengthened the brand's competitive presence in polished casual with a much improved lifestyle offering. These changes have been vetted with consumers and retailers, and we are encouraged by the positive responses. Design has been strengthened, overall, with George Sharp, now leading across every segment of the brand, ensuring new cohesiveness and recapturing the brand's core D&A. Here too, our retail partners have been overwhelmingly positive and optimistic in their support.

The new centerpiece of the brand's commitment to polished modern career wear is JonesWorks, designed with an extensive consumer input to be relevant for today's workplace. The new product has recently hit select Jones New York outlet stores, and while very early, sales have substantially exceeded plan with 10% sell through in the first week. JonesWorks will launch nationally next month backed by a smart new high-profile marketing campaign created by Trey Laird and featuring style icon, Carolyn Murphy.

Another strategic initiative for the brand, Jones New York Activewear, will launch next month in 250 doors, expanding to 400 by the end of fall. This new line of great-looking casual career wear further extends Jones New York relevance to an increasingly casual workplace and into the weekend. Early retailer feedback has been very encouraging. We're also growing the importance of destination items as we rebuild the Jones New York brand. Both Easy Care and Platinum suiting continue to be strong core drivers at retail, with Jones New York Jeans rapidly gaining momentum.

Today, denim already represents 12% of the brand's wholesale business. And at Jones New York retail outlets, denim comps are up triple digits versus a year ago.

The ongoing strength of these destination items, coupled with the more relevant and strategic new product offerings and marketing coming online for fall season, represent a major milestone in the transformation of the Jones New York brand.

To make a brand competitive and healthy, there are 3 things that you must get right: product, price, and marketing. I'm confident with the new offerings coming online and the already strong destination item program that Jones New York has got the product right. I'm confident that after extensive consumer research and competitive analysis, that the brand has dramatically improved its price value equation and will improve it even further in 2014. And I'm confident that with new consumer insights and brilliant creative ideas, that the upcoming brand marketing will be very engaging and effective.

Like Jones New York, Anne Klein continues to face Sportswear category challenges. But because the brand continues to be a strong, valuable intellectual property around the world, we have been able to greatly diversify the brand and lessen the impact of the Sportswear downturn. During the second quarter, brand sales were driven by the continuing strong performance of dresses, up double digits at wholesale, and handbags, including a destination item hit, the Anne Klein perfect tote. We're continuing to mine Anne Klein intellectual property for new opportunities, with the focus on developing apparel penetration in the U.S. while growing the brand in the international marketplace.

Turning now to our Footwear brands. Here, we also faced challenges during the quarter, but the issues were more circumstantial and addressable. This spring, the domestic footwear category experienced an unanticipated shift to more casual styles that impacted our brand, particularly Nine West, where assortments emphasize previously strong dress styles at retail. In addition, a lingering winter and a bad weather slowed sell-through industry-wide during the important sandal season. Nine West outlets faired a little better, with second quarter comps up slightly, driven by sandals and casual styles. We've made immediate corrections to the assortments for fall and are also taking significant strategic steps to mitigate the risk of unanticipated trend and seasonal challenges in the future. We can't control the weather or predict every cultural shift, but we're determined to learn and act decisively on every challenge we face with the objective of being the most strategic and best-prepared portfolio in the industry.

Despite the convergence of negative factors in the second quarter, strong positives in other aspects of the business point to the fundamental strength and resilience of our Footwear business, overall, and particularly, the intellectual property power of the Nine West brand. In a quarter where the domestic Footwear component of the brand was impacted by the trend shift, Nine West benefited from strong double-digit performance in Handbags. Nine West Jewelry also performed well in the second quarter, and we've added an important expansion of Bon-Ton in late July.

Licensing, another strategic growth area for Nine West, was up in the second quarter, with particular strength in global markets from Canada, to the UAE and India. Nine West continues to inspire a portfolio-wide evolution of marketing with a strong emphasis on a more strategic and effective spending and a focus on innovative media. The brand has created a significant presence and momentum in social media, driven by both Channel 9, our digital network for shoe lovers and now one of YouTube's top fashion networks, as well as Facebook initiatives that took Nine West beyond the 1 millionth fan milestone in the second quarter.

Moving on to Easy Spirit, which had another strong quarter, thanks to both our focus on relevant design and a category trend towards more casual, comfortable styles. Second quarter sales were up across all major channels, including outlet and e-comm.

At Wholesale, sales were up versus last year, led by the trajectory of the e360 line in the second quarter. And at full price retail, Q2 comps were also up, overall, driven by the new athletic and casual styles.

In the past few years, we've become a major player in the important global designer Footwear business, led by Kurt Geiger and Stuart Weitzman, and we continue to implement strategies to create new value and growth opportunities for these properties. Kurt Geiger continued to deliver year-over-year growth in the U.K. luxury segment, despite lingering softness in the EU economy, by maintaining a strategic focus on luxury and e-commerce as key drivers. And while Kurt Geiger is opening additional stores in [indiscernible] Germany, we are also accelerating Geiger's broader international expansion plans, including intensifying its U.S. presence at wholesale accounts like Nordstrom, expanding wholesale in key Asian markets, as well as building out a sophisticated e-commerce strategy for Europe and Asia, encompassing all price tiers in more than 60 countries.

Stuart Weitzman also performed well in the second quarter, with overall sales, wholesale, retail and e-commerce all up double digits.

At Stuart Weitzman stores, comp store growth, both domestically and internationally, was up, as store openings continued on plan with another 40 freestanding stores scheduled to open in the next 15 months, including the much-anticipated Milan flagship in September. This fall, look for Stuart Weitzman marketing to emphasize brand leadership in fashion that functions, extreme runway looks that incorporate signature Weitzman comfort features like stretch and zippers for the increased wearability.

Innovative products will be supported by a global marketing campaign, launched in September, that extends the brand's successful collaboration with Kate Moss and Mario Testino.

Taking a look now at Denim, which has been, and continues to be, a great success story for us across brands, with promising momentum and strategic plans for future growth. Our 2 principal Jeanswear brands, Gloria Vanderbilt and l.e.i, have each been successfully revitalized. And recent design enhancements were well received in the second quarter by consumers and retailers alike. Gloria Vanderbilt continues to demonstrate how effectively new relevance and momentum can be breathed into a mature brand. And today, it's a leading brand wherever it's sold, including Bon-Ton, Belk, Kohl's and Sears.

Building on the strength, the brand launched Gloria Vanderbilt active earlier this year in the 800 doors and will expand to 1,200 doors for fall 2013. The rollout continues today, with a focus on high-volume, core performance items like t-shirts, tank tops, leisure, performance pants and track jackets.

The l.e.i brand also had a great second quarter, with sales up 28% versus last year, thanks to investment in design that is now resonating with consumers and the tremendous partnership that we have with Walmart.

Additionally, we're leveraging our expertise in denim across the portfolio to grow our other brands. Rachel Rachel Roy denim is growing rapidly. In just 40 doors this spring the brand will expand its denim offering to 200 doors for fall on robust double-digit sell-through.

This October, Robert Rodriguez will also debut a denim offering called RND by Robert Rodriguez. Highly anticipated, RND should launch in Neiman Marcus, Saks, Nordstrom, Bergdorf, Intermix and Harrod's, just to name a few.

We're taking advantage of our Jeanswear expertise to strategically create denim opportunities throughout our portfolio. And we've developed specific growth plans to further increase the scope and contribution of denim in 2014.

In recent calls ,I've mentioned the growth of our online business versus last year. In the context of several brands, that growth continued in the second quarter, including Jones New York, was up over 30%; Nine West, also up over 30%; Stuart Weitzman, up over 50%; and Easy Spirit at 20%; and lastly, Kurt Geiger was up over 13%.

e-commerce strength across our portfolio has provided strong indicators of the significant upside potential that we have in this channel. Leveraging this potential is a key strategic priority for us and many important initiatives are underway. The most public of which has been the hiring of a senior e-commerce director to develop, lead and champion this critical segment of The Jones Group. With experienced leadership in place, e-commerce development is quickly accelerating.

And earlier this month, we made another important addition to our leadership team and strategic capability with Janet Carr, joining us in the new position of EVP of Strategy. Janet had a strategic planning of both Coach and the Gap, and was most recently the COO of Ghurka. The depth of her experience and strategic insight has already had significant impact.

Going into fall, we have a lot to be optimistic about. The work to get us to this point has been thoughtful and strategic and I'm excited to see the new programs in place come to fruition and continue the transformation of our brands. Over to you, Wes.

Wesley R. Card

Thanks, Richard. I am pleased that we're making progress, but at the same time, I do recognize that our results require substantial improvement. We've been taking decisive action with our plan to improve profitability, and I remain confident that our product issues are being largely addressed. We will begin to see improved performance this fall and throughout the back half of the year, though it will take some time to realize the full effects of our efforts.

As a final note, we will not be taking questions on the market rumors and press reports regarding possible strategic projects or M&A activity. Our long-standing policy is to not comment on such matters and I want to reaffirm that at this point. We would appreciate that you keep your questions focused on our second quarter results and operations.

Operator, we'll now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Robbie Ohmes of Bank of America.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Two questions. One was just the gross margin guidance for the third quarter. I think you guys said 34.5% to 35.5%, which I think would be down a little bit year-over-year. I'm just -- can you just give us more detail on what the puts and takes are for the third quarter gross margin? Is it timing? Are you still clearing leftover seasonal that didn't work out well for you? And then the second question, it looked like l.e.i. had very strong growth, I think, if I look at your presentation. What drove that and how sustainable is the growth trend in l.e.i?

Wesley R. Card

I'll take the second part. First, Rob, on l.e.i, we had -- we've got a really good collaborative effort in the works now with Walmart. The product has been compelling. We've seen better terms, better margins, so we're pretty excited about the opportunity there and the collaboration, and we'll continue to work on that as we move forward. John, you want to comment on the margin?

John T. McClain

Yes, Rob. I think the biggest thing is how we've targeted the Jones product in full. And in order to be more competitive with the competitors on the floor, we have moved price points down. So that has the biggest impact on margins when compared to last year.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Just a follow up on that more competitive pricing. Is your -- is the Jones -- if you look at the Jones brand in aggregate, what's the floor space look like? Are you sort of staying the same, are you being moved around, or are you getting larger with these initiatives you're putting in place for fall?

Richard Dickson

Robbie, it's Richard. It depends on the account, but for the most part, we're retaining our space. We have fantastic relationships with our retailers. They're incredibly supportive and confident in the brand and the direction that we're taking. And at this point, we're holding our space and we are, in fact, looking to enhance it in some cases, in key doors visually with the new creative materials being sent out to stores.

Wesley R. Card

Yes, I think, Rob, I'll just add to that. Where we're strategically moving out of doors, is the smaller doors with the higher markdown level. So I think we're in a good assortment of doors at this point that enhance the performance. And in connection with the margin, what we're not reflecting is a major improvement in the turn and retailing reduction and markdowns coming from better sellthroughs, both at regular price and first markdown. The price situation was affecting us more on first markdown, where you really need to turn in order to make margin. And we're really optimistic about that. We don't have a big benefit of that built into the forecast because we felt we should be relatively conservative as we move forward.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Got it. And then just one more question. Can you guys just talk about Stuart Weitzman and remind us what the global footprint for Stuart Weitzman looks like in terms of wholesale strategy versus retail, versus outlets? And where you see the growth coming over the next few years for that brand globally?

John T. McClain

We said that we think that the biggest avenue by far, Rob, is international and the bulk of that will be through licensed stores, with licensees as we see great opportunities throughout Asia. And then I think globally, we see a big opportunity in e-comm.

Operator

Your next question is from Bob Drbul of Barclays.

Robert S. Drbul - Barclays Capital, Research Division

I guess, Wes or John, can you talk a little bit about your appetite for share repurchase, what are your plans and in these numbers today, do you have any additional money set aside for share repurchase program?

John T. McClain

Bob, we never forecast ahead on share repurchases. We have authorization left. I always forget how much it is, but I think it's in excess of 100, I believe. And we've said we'll be opportunistic and right now, we think, as our share price comes up, obviously, it's not as attractive as it had been when we were repurchasing. But we consider that a good use of capital as we go forward.

Robert S. Drbul - Barclays Capital, Research Division

And John, the $2 million benefit you had this quarter on the restructuring earlier than you anticipated, what happened there? And as you look at the additional, I think you said $11 million this year. Is there an opportunity for some of that $40 million to be also realized sooner than you had previously anticipated?

John T. McClain

No. What the $2 million really resulted from was, there were associates that were exited earlier than had been anticipated; and that the flow of everything for the rest of year, I think, could it be $1 million dollars, one way or the other, sure, but I don't think it would significantly vary.

Robert S. Drbul - Barclays Capital, Research Division

And within the business, are there any sort of pockets of inventory that are lingering, that you are concerned about that needed additional attention as you look into the back half of the year?

John T. McClain

No, definitely not. I'm glad you asked that question because the change in the quarter end was significant because as we look in the first month of -- excuse me, first week of any month, we're receiving a lot more goods than we're shipping out. As we ship, it tends to be back half of the month weighted, so that was a significant piece. But when I talked about receiving goods earlier, in general, we had been receiving some goods in certain divisions late in the shipping window, which then can cause you to have overtime in your distribution centers and cause you more to be moving goods out. So we've been really working hard to make sure we're bringing goods more evenly throughout that process, which in this quarter just resulted in this uptick. But the age of inventory is definitely good. We have been very aggressive and moving that stuff out and turning it to cash. We meet on that still every single month, with every business unit and we're all over it. So no, I think -- and I think it'll probably even out a little bit more as we get to the end of the third quarter, and certainly, by the end of the year.

Operator

Our next question is from Jennifer Black of Jennifer Black & Associates.

Jennifer Black - Black & Company Inc., Research Division

I wondered if you could talk a little bit about QMack in some detail. How many doors will you be in for holiday? I think it was 150 for fall. And is this an all-door concept for Macy's or do you know yet? That's my first question.

Richard Dickson

Jennifer, it's Richard. So on QMack, we are in the early stages of launching. In fact, we just shipped to some initial doors, with Macy's reaction has been very good. Solid, solid sell-throughs, some real early earnings in terms of style and direction. We are launching, as you mentioned this fall, in 150 doors. We have incredible visual space and great support from Macy's as well. And with an anticipated successful launch, the brand will have a rollout in 2014 that will extend to potentially beyond 400 doors. And as you know, and perhaps everybody else, just as a reminder, QMack was a collaboration that we had with Macy's based on their request for us to help them create new momentum in brands in the Impulse category. With the success of Rachel Rachel Roy and the confidence that we have in that, we've developed QMack, which will be a new brand, launching with Macy's exclusively. And we anticipate lots of excitement, and we'll share more updates as the launch rolls forward.

Jennifer Black - Black & Company Inc., Research Division

Great. And then this one might also be for you, I don't know. I wondered if you could talk about Jones New York versus JonesWorks. I'm wondering if you can shrink the Jones line really to denim, easy care, replenishment, suits and JonesWorks. And I'm just wondering if it's -- what your thoughts are on that and -- as far as shrinking the whole brand, but coming out with a much more profitable brand.

Richard Dickson

Sure. Well, Jennifer, as you know, we have, over the last several years, really been emphasizing what we'll call destination product items. And that's really based on the insight and the mathematical recognition that what's really worked for Jones are key item strategies, such as Easy Care and Platinum suiting. And over the course of the last several years, in fact, we've re-architected and adjusted the brand to really overemphasize, if you will, core items, such as Easy Care, Platinum suiting and with the introduction of JonesWorks, it really takes a suiting concept and extends it out into a whole system of dressing. This all really ultimately sort of redefines the brand and to some extent, lessens our dependency on what has been fashion. It doesn't mean that we're walking away from fashion at all, in fact, we're pretty excited about the fashion moving forward based on all the consumer insights and the new design direction. But as a percentage of our total, it would be much less and will be much less dependent on the volatility that by the very nature fashion represents. Least of which, in terms of core items, has been denim, which we successfully launched a little over a year ago as part of the core item program and addressing the new work environment in terms of casual workwear. It's been incredibly successful, as I mentioned, now over 12% of our business. And we believe the harmony of all of this will represent real opportunity, not only for stabilization, but for potential growth moving forward as the brand launches much more extensively into '14 with all of this harmony in place.

Jennifer Black - Black & Company Inc., Research Division

Great. My last question is about Nine West. I just wondered how you feel about the fashion component. You talked about that the market was moving to a more casual, I guess, fashion and I wondered if you had any early reads on the Boot business?

Richard Dickson

So we've been -- as again mentioned, it was a quick trend in terms of the marketplace moving to casual. Nine West has been traditionally a recognized dress shoe house with pumps and open toed dress shoes being primarily the volume driver for us, which we continue to have and future, but ultimately the movement to casual, we weren't necessarily as ready for in this quarter. But moving forward into fall, we've adjusted and made some quick reaction with early reads on boots and booties, which has been phenomenal during the summer and we expect will continue with pretty strong performance in the fall. And frankly, learnings from our brands like Stuart Weitzman, the boot business has been just on fire and consistent deliverables, particularly in the 5050 boot, which is the iconic branded item that Stuart is well known for and continues to get incredible exposure and grow. So I think we're really set up for fall well. We show in August for spring, which we're excited about. And I think that we're going hit many of the trends that we're learning right now, and moving forward, be even more prepared for trends to follow.

Jennifer Black - Black & Company Inc., Research Division

Great. I did just think of one last thing, I'm sorry. JonesWorks, did you have any new retailers purchase the brand?

Richard Dickson

We really are working on the existing points of distribution that we have. As you know, the brand is pretty widely distributed in department stores. But certainly, the price points that we have for JonesWorks represents real opportunity for expansion pretty quickly. So as we sort of build out the line and ship it, we expect that the performance will be there. And therefore, for 2014, we'll start to get even additional doors for that. And last but not least I've mentioned, which we're really excited about, the test that we have in our outlet stores, we had some shipments of the JonesWorks product hit our stores in early July and as I mentioned, the sell-through has been terrific. Response from our sales associates, which are sort of on the front line of reaction, has been also tremendous. And even more exciting has been some consumer response and even letters that we've gotten that consumers are excited about Jones works and the return to the DNA of the brand.

Operator

Our next question is from David Glick of Buckingham Research.

David J. Glick - The Buckingham Research Group Incorporated

Wes, most of my questions have been answered. I just had kind of a general one here, a little more elaboration, if you would, on the consumer. It seems, to your point, that the economic indicators are generally pointing more positive. A lot of companies have been commenting that trends continue to be choppy, inconsistent, whether it's consumers buying bigger ticket items, which clearly, they're doing or maybe there's a lack of fashion. I'm just wondering if you could comment on what you're seeing in the second quarter and into the summer months. It just seems that the expected pent-up demand was never really released. And either the consumer isn't really motivated to spend or they're spending on other priorities. And what, if anything, does that -- implications does it have on the second half in your mind?

Wesley R. Card

Well, I think, Dave, there's a couple of trends that are encouraging. We see in the outlet stores, where people are on vacation now, most of these stores are in vacation areas. The outlet business has been solid as we went through June and right into the first part of July, or all through July and into August, as we start this week. So that's a good encouraging read. There's fall product in the outlet stores. We still obviously have some clearance from spring and summer. But the fall products are resonating. We're also seeing on our Internet sites strong double-digit comps throughout the Internet base and the consumer is clearly shifting to that channel. But good early reads on boots and on some of the fall apparel fashions, which is encouraging. So I think it feels like we should be gaining some momentum as the summer goes on. Fall product is really now starting to hit department stores and the first big shipments come at the end of July for the fall products. Everybody's resetting. We're resetting the Jones floors to encompass all the new product, really got a major initiative there to be ready for the consumer. So it just feels like those trends, early trends are encouraging in terms of where the consumer is going to be for fall. With good product, that's well priced. I think it could be a better rollout than we've had in the last couple of years.

David J. Glick - The Buckingham Research Group Incorporated

And John, just on the gross margin, I just wanted to follow up, the implied guidance suggests a material increase in Q4 and you gave us some visibility on Q3. And you at least partially addressed that question earlier. I just want to make sure I understand what gives you guys the confidence that you're going to see such a big increase in the last quarter of the year.

John T. McClain

Well, I think also, David, some of the absence of negatives that we've had in the past, that we don't expect to see again, that certainly helps. And as we look at the individual products across the various businesses and we look at the mix of businesses, I mean, it all ties together. So it is a range, but certainly, we see that the fourth quarter, we believe, will have margins moving up.

Operator

Our next question is from Janet Kloppenburg of JJK Research.

Janet Kloppenburg

I was a little bit confused about the early reads on the Suit business, Richard. Are the Suits in Macy's now? Or I mean -- I'm sorry, on the Jones New York Sportwear line, the new launch, is that in the stores right now? Is that where you're getting the read from? I wasn't quite sure. And John, I wondered about the inventory. Are you suggesting that at the end of the third quarter, it'll even out in the [indiscernible] line with revenue growth? What should we be expecting there? And I also wondered, Wes, if you expect that the Footwear business to be improved as we go forward, both in terms of revenues and margins? Or do you think it will continue to be very promotional in that segment?

Wesley R. Card

I'll start the last question, first. I think we could be set up for a good fall season, especially if the early reads on the boots and booties continue to trend throughout the fall. I think Weitzman is well positioned. We've been doing a lot of work on the assortments of Nine West. So I think we could be set for a better fall season than we had in spring. In terms of JonesWorks, I can just deal with that. The stores will be setting up starting this week, the regular department stores. We did a test in 17 doors, Woodbury Common would be a very good example, if you wanted to look at it, where we reset the floor around the core, JonesWorks product and we're off to a really good start. It's been out through most of July and into this month, and we are seeing excellent results versus what we had initially put out.

Janet Kloppenburg

Wes, that's why I'm confused. Are you selling the same product in the outlets that you're going to sell in the department stores?

Wesley R. Card

In terms of that core product, yes. We'll have similar products and...

Janet Kloppenburg

At similar pricing?

Wesley R. Card

Everything is at outlet store pricing.

Janet Kloppenburg

Okay. So you're getting a good read on it at the outlet pricing?

Wesley R. Card

Yes, excellent read initially. If you're in that area, I'd encourage you to stop in at and see it, because it's a dramatic new look to that door.

Janet Kloppenburg

Okay. I will go see it. Next week, though, right?

Wesley R. Card

It's in the outlets now.

Janet Kloppenburg

It's in the outlets now?

Wesley R. Card

They should be setting up Herald Square, I think in next week. There's products in work -- en route. Has to clear to distributions centers into the stores, but we're ready for it and have accelerated some of the larger doors.

Janet Kloppenburg

Okay. And Wes, in terms of Footwear, just in -- I'm sorry, in terms of Jeanswear, a question, I think someone might have answered it. But I think you have tougher comparison in the back half than you did in the first half, so should we expect these kinds of increases to continue? I know you gave us the numbers, John. I haven't backed into it, but should we expect this kind of momentum to be sustained?

John T. McClain

No. The issues that we had had in Jeanswear were the back half of '11 and the beginning of '12. And in the back end of '12, we were recovered from that. So no. As we compare to the third quarter of 2012, that was a pretty robust quarter.

Janet Kloppenburg

Okay, okay. But still healthy order trends there?

Wesley R. Card

Yes.

Janet Kloppenburg

Okay, great. And then just on the inventory, John?

John T. McClain

Yes, if you look at it, the second quarter with this timing is weird, having this additional week. And that's roughly a little over $20 million, probably, of the increase. So if you back that out, you roughly still at about $50-million increase. But as we get to the third quarter, we won't have that, the strange timing, and then we had started the efforts to be pulling inventory in a little bit earlier, late last year. So could there be still an increase, but I would expect it more probably low-single digits, maybe 5% increase. It's always tough because we can get some large shipments go out just 1 day ahead and they end up in our inventory and things maybe 10%, 15%. But I would certainly expect not to see the same level of increase as we get to the third quarter. We have time for one more question.

Operator

Our next question is from Rick Patel of Stephens.

Rick B. Patel - Stephens Inc., Research Division

Just a question on Wholesale Footwear. Can you just help us understand how much of the decline in the second quarter may have been weather versus an organic decline, just given some of the merchandising challenges? I'm just curious whether the biggest hurdles to that business were more internal or external in the second quarter. And also, I know you have some pretty good reads for the fall so far, but what's your general level of confidence for Footwear, given that you're coming up against some pretty tough comparisons from the back half of last year?

Richard Dickson

I'll take the first part of the question. In the context of our performance, in relation to the weather, we know, just based on our constant communication with retailers that overall, Footwear was a challenging business, particularly in the department store channel. We saw weather really impact traffic, as well as just the decision-making process, in terms of getting into the Sandal business at a time when just the weather wasn't necessarily aligned with the styles. So when that happens, you get backed up fairly quickly in the context of the daily business. And so it's hard to say, internally or externally, which was more affected other than saying the industry had a tough season. It was absolutely related to weather and we were part of that trend. On the flip side, and arguably, possibly because of the weather as well, we saw boots and booties performed exceptionally well at times that it doesn't necessarily really register. And so we anticipate that, that trend will move forward and we're pretty well set up for that for fall.

Wesley R. Card

I think when you look at the guidance and you're able to dig into it a little bit, we're projecting a slight increase in the back half in that segment. So based upon how we see our business trending or what we see in orders and things, that's what we see right now.

Rick B. Patel - Stephens Inc., Research Division

Great. And then just a question on JCPenney. Obviously, a lot of change is going on there, with the shift in strategy and management. Can you update us on what the opportunities that could arise from that may be, whether it's from a category perspective or a brand perspective?

Wesley R. Card

I think it's a little early to speculate on that from our perspective. We don't have any significant businesses at Penney's at this point. We certainly would like to tap into the new strategy as that develops, but really, we don't have anything we could report on here today as they retrench. We'll see what transpires as we move forward, but currently no plans to expand further into Penney's.

Rick B. Patel - Stephens Inc., Research Division

All right. And then last question on domestic retail, should we expect the number of store closures to remain steady each quarter or should we expect the bulk of them to happen after the end of the year? And as it relates to the stronger doors that you're playing to keep open, what's your level of confidence that you'll continue to see higher comps in those stores?

Wesley R. Card

Well, we feel pretty confident with the 50 Nine West doors roughly that will -- full-priced that will remain open with the assortments, planning, and all the sharpening up and work we're doing on remodeling, and in-store environments and customer experience, coupled with assortments. And I think the Footwear team has really done a great job with the August market which is going to open up in the next week with very well-balanced assortments that blend nicely between retail, wholesale and international. So we feel really good about the work that's being done there, both the Footwear team under Kathy Nedorostek, as well as the Retail team. So we feel pretty confident that we can start to see good improved productivity, especially in those doors because they're really in the best locations in the country. So John, you want to comment on the door closure?

John T. McClain

Yes. Through -- before the end of the year, we could see maybe another 25, then with a big group at the end of December and then the remainder will fall into '14. So when you look at it like that, by far, the large majority at the end of the year into '14.

Richard Dickson

Thanks.

John T. McClain

Thanks, everybody.

Richard Dickson

Okay, well, thank you, everybody. That concludes our call today. We appreciate your participation and look forward to keeping you updated as we move forward. Good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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