Jones Apparel: Room to Grow -- Barron's

Oct.22.06 | About: The Jones (JNY)

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

For Jones Investors, the Price Is Right by Kopin Tan

Highlighted companies: Jones Apparel Group Inc. (NYSE:JNY), Liz Claiborne Inc. (LIZ), Federated Department Stores Inc. (FD)
Summary: Despite an embarrassing, unsuccessful 5-month attempt at selling itself, Jones Apparel Group Inc. (JNY) shares have jumped more than 11% to $33/share. Jones operates in four business segments: wholesale better apparel, wholesale moderate apparel, wholesale footwear and accessories, and retail. Its brands include Jones New York, Anne Klein, and the luxury retailer Barneys; wholesale is about 75% of their bottom line. In the wake of their humiliation, and in a bid to lift profitability, Jones is overhauling its management, which could very well result in its beating the Street's current EPS forecasts of $2.22 for 2006 and $2.54 for '07. Jones reports Q3 earnings Wednesday, allowing investors to gauge how JNY will be affected by the recent Federated Department Stores Inc. (FD)/May merger, resulting in about 90 fewer stores carrying Jones' merchandise; FD accounts for 20% of JNY's sales. Barron's suggestions to Jones: (1) Expand retail store base: JNY plans to open 15 Anne Klein stores, and retail revenues to rise to 32% overall. Some feel they could do more. (2) Increase international presence: Currently < 10% of sales are outside the U.S.; competitors average 28%. (3) Jones' core customers are aging: They need to bring in "their children and grandchildren" by acquiring hip brands that carry superior gross margins. Bottom line: Jones' Jones Apparel 5-yr Weekly Chartcentralized business model allows it to keep costs low. Current P/E is 13, in line with rival Liz Claiborne Inc. (LIZ). If JNY can beat earnings forecasts in coming quarters, its multiple could expand, and shares could reach $40.
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