A tight rein on expenses and inventories led Jones Apparel Group Inc. to a double-digit increase in third-quarter profits despite sales that declined nearly as rapidly.
Jones said Wednesday that profits rose 11.4 percent to $30.4 million, or 36 cents a diluted share, for the three months ended Oct. 3 from $27.3 million, or 33 cents, in the year-ago quarter. Adjusted earnings per share, excluding severance and restructuring costs linked to store closures, was 46 cents, 19 cents above analysts’ estimates.
Total revenues for the quarter were down 11.3 percent to $855.7 million from $964.7 million, which included an 11 percent decline in sales to $843.9 million. By category, revenues for wholesale better apparel fell 18.1 percent to $287.2 million, while wholesale footwear and accessories sales were down 18.5 percent to $242 million. Revenues for wholesale jeanswear inched up 0.7 percent to $204.6 million. Retail revenues fell 3.6 percent to $167 million as comparable-store sales decreased, in line with the overall retail environment.
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Boosting the quarter’s results was a 10.3 percent decline in sales, general and administrative costs from a year ago to $243.5 million. The apparel firm has exited 69 retail sites to date, and is on track to shutter a total of 265 locations by the end of 2010.
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Despite the earnings “beat,” revenues fell short of analysts’ expectations by more than $11 million, contributing to a $1.06, or 6 percent, decline in Jones’s shares to $16.63.
Wesley R. Card, president and chief executive officer, told WWD that he was optimistic for next year, stating a turning point could possibly come in the second quarter of 2010. For now, he sees costume jewelry as a strong category for the fourth quarter as consumers seem to be pulling back on handbag purchases.
“I see some positive movement, but [the fourth quarter] is hard to forecast. As we go through it, I think merchandise will clear very well. In January there will be less inventory at clearance and retailers will open February much leaner [in inventory] than they were last year,” Card said.
He added retailers might end the holiday season wishing they didn’t cut their fourth-quarter inventories as much as they did, but noted that scarcity might prove advantageous.
“The problem before was that no one was selling enough at the first markdown. People were waiting for more markdowns and supply and demand weren’t matching up. Now we are weaning consumers off [discounting] naturally,” Card explained.
He attributed SG&A cuts, in part, to initiatives involving more efficient systems, but said he expects some costs, such as health care and some compensation, to rise next year.
For the nine months, income fell 23.8 percent to $43.8 million, or 51 cents a diluted share, from $57.5 million, or 68 cents, a year ago. Total revenues decreased 7.9 percent to $2.56 billion from $2.77 billion.