An Evaluation Of Joe's Jeans' First Quarter Earnings Call

| About: Joe's Jeans (JOEZ)

Joe's (JOEZ) had an amazing quarter; net sales up 23%, retail store sales up 40%, same store sales up 22%, wholesale sales up 19% and operating income up 244%. Margins were up only slightly because of issues getting the quality of manufacturing in Mexico up to standard. To compensate, some of the 55 colors line had to be made in the U.S. Mr. Crossman (NYSE:CEO), and Mr. Sandhu (NASDAQ:CFO) noted that the quality issues had been resolved and that Joe's is pretty far along in getting all the production back to Mexico. (See earnings call transcript.)

The Else line was fully deployed in February to the initial Macy's (M) locations and was responsible for $1.5 million in sales during the month. These numbers beat the expectations of Joe's and Macy's executives. In fact it was beating the plan by 20%-30% per week. Joe's has plans to double the number of stores, triple the number of orders, and increase the in store presentations in time for the fall fashion lines. Else is made in China so was not in danger of the quality issues that were resolved in Mexico. Initially concern was mentioned about the ability to meet demand with the Else line. When asked later, the response was the reason for not increasing the number of summer stores or orders was so that the manufacturers in China had enough lead time to produce the required quantities.

Looking forward, I see next quarter revenues in the $33-$37 million range with similar growth numbers and an increasing contribution from the Else line as it begins to take hold and word of mouth. I think we'll see margins increase slightly as the rest of the manufacturing moves down to Mexico. I expect that a close eye will be kept on the quality so that it remains to standard and that no substandard products are shipped to stores.

I think we could see 2012 revenues come in between $125-$135 million as Joe's continues to grow and expand its main line and retail operations as well as the Else line to additional Macy's stores. According to Yahoo! Finance analysts were expecting EPS of $0.01 for fiscal year 2012. As long as there's no regression, Joe's has already done that. I think EPS will be in the $0.04-$0.06 range for 2012. I'm increasing my current estimate and I think shares could be closer to $3.00/each from my earlier estimate of $2.00. Overall it was a great quarter and I'm looking forward to seeing the momentum continue.

Disclosure: I am long JOEZ.