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Jones Apparel Group (JNY) |
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WIKI ANALYSIS
Jones Apparel Group (NYSE: JNY) is a multi-brand company that designs and markets women's and children's apparel, footwear, accessories, fragrances, and jewelry. These products are sold through third-party specialty retail stores and department stores, in addition to the company's own 1,017 retail stores.[1] The company’s primary brand was initially Jones New York, but over time it has acquired and/or established over 30 brands, including Nine West and Anne Klein. JNY's brands cover a range of styles: sportswear, activewear, casual apparel, fashion, and formal attire.
In 2009 JNY received $3.3 billion in revenues, a decline from its 2008 revenue of $3.6 billion. Despite this decrease in revenues, it ended the year with a net loss of $86.3 million in 2009, compared to its net loss of $765 million in 2008. JNY has faced struggles recently, as the tough economic condition in the U.S. has dampened sales as consumers cut back on spending.
Business Overview
JNY designs and markets a variety of apparel and accessories through a portfolio of differentiated brands. The company uses third-party specialty retail stores, department stores and its own stores to get its products to consumers. JNY's products are sold throughout the U.S. and Canada.
- JNY's total revenues declined from $3.6 billion in 2008 to $3.3 billion in 2009. JNY also closed its operations in Mexico and discontinuted several brands.
- JNY operates 373 specialty retail stores and 644 outlet stores in the U.S. and Canada.
- The company swung to a net loss in 2008 as the company had to absorb non-cash impairment charges of $838 million to goodwill and trademark values in accordance with accounting policies related to sales and profit projections. By avoiding this charge in 2009, JNY was able to reduce its net loss to $111 million in 2009.
Business Segments
Jones Apparel Group's brands include a range of styles of apparel, accessories, jewelry, cosmetics and other personal products. The company divides its merchandise into the following segments:
Wholesale Better Apparel (27.7% of 2009 revenue)
This segment includes sales of brands sold in third-party specialty stores and department stores. This segment includes Jones New York, Nine West and Anne Klein. The Wholesale Better Apparel segment contributed $922 million to net sales in 2009, down 16% from its 2008 revenues of $1.1 billion.[2]
Wholesale Jeanswear (24.9%)
This segment includes Jones Wear and other Jones New York spin-off brands, Gloria Vanderbilt, Energie, l.e.i., Bandolino Blu, GLO and Grane. Sales of these brands in third-party specialty retail and department stores are included in this segment. The Wholesale Jeanswear segment accounted for $828.9 million of the company's sales in 2009, a 4% increase from its 2008 sales of $797 million.[2]
Wholesale Footwear and Accessories (25.2%)
This segment is made up of smattering of brands in JNY's portfolio whose lines include footwear and accessories. Brands in this segment include Joan & David, Nine West, Easy Spirit, Dockers Women and many others. The Wholesale Footwear and Accessories segment experienced a 10.5% decline in sales in 2009, as total sales dipped from $938 million in 2008 to $840 million in 2009.[2]
Retail (20.7%)
The retail segment includes sales at all 1,017 of JNY's specialty retail and outlet stores. JNY owns and operates Nine West, Easy Spirit, Bandolino, AK Anne Klein, ShoeWoo, Jones New York and Kasper stores. The retail segment contributed $689 million in total sales in 2009, compared to its 2008 sales of $730 million.[2]
Licensing and Other (1.4%)
This segment includes revenues derived from licensing agreements that JNY engages in, by which some of JNY's brands are used on third-party manufacturers' merchandise. This segment contributed $46.8 million in total revenues for 2009, compared to $53 million in 2008.[2]
Trends and Forces
JNY Faring Better Than Its Letting On in the Recession?
With a full-blown recession in the U.S.[3] that has crippled sales for many retailers and manufacturers, it seems JNY is faring better than most retailers. The biggest driver of decline was in the Wholesale Jeanswear segment, which experienced a significant decline in total sales. Upon closer examination however, JNY discontinued or repositioned a number of its brands (Rena Rowan, Nine & Co, Pappagallo, Erika, and others) which caused a $238.8 million decline in sales. Excluding this decline from the comparison, the Wholesale Jeanswear segment actually increased sales $49.8 million. Therefore, it appears that JNY's underlying business may be surviving the recession better than thought at first glance.
Market Pressures Lead to Goodwill and Trademark Impairment Charges
Due to the down U.S. economy, JNY's sales and profit projections have fallen to reflect falling consumer demand. As such, the firm had to make impairment charges to its goodwill and trademarks in 2008 in accordance with accounting procedures. These non-cash charges totaled over $838 million and excluding these charges, JNY's net loss of $765 million in 2008 would have been a net profit. Despite augmenting the firm's net loss, these impairment charges were simply accounting activities and did not affect the cash flows of the organization and in the long-term may not have any significant impact on JNY's ability to operate.
Department Stores Turning to Private Labels
Department stores are increasingly seeking to distinguish themselves by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain. Private label brands are produced by third-party manufacturers but sold under the brand name of the retailer. Not only do exclusive and private label brands differentiate retailers, they offer higher profit margins for retailers than comparable merchandise from branded manufacturers. Due to these advantages, many department stores have been increasing their investment in exclusive and private labels and, in turn, these brands have been taking shelf space away from branded manufacturers like Jones Apparel Group. This trend poses a threat to JNY's business model and JNY may have to shift more of its attention to its own specialty stores in order to make up losses in shelf space in department stores.
Competition
As a firm that operates a portfolio of brands in the apparel and accessories space, JNY faces direct competition from comparable holding companies such as Liz Claiborne (LIZ) and Phillips-Van Heusen (PVH). Liz Claiborne owns brands such as Liz Claiborne, Juicy Couture and Lucky Brand. Phillips-Van Heusen holds brands such as Calvin Klein, IZOD, Van Heusen and Kenneth Cole. In addition to these holding companies, each of JNY's brands face competition from a variety of sources. Many of JNY's brands face competition from other department store mainstays such as Polo Ralph Lauren (RL) and department store-owned private labels.
References
- ↑ Jones Apparel Group (JNY) 10-K 2008, Impairment Losses, pg. 34
- ↑ 2.0 2.1 2.2 2.3 2.4 JNY 10-K 2009 Item 7 Pg. 40
- ↑ WSJ.com, "NBER Makes It Official: Recession Started in December 2007", December 1, 2008
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