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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 2008 JNY received over $3.6 billion in revenue, down 6.0% from 2007[2] and ended 2008 with a net loss of $765 million, which was greatly impacted by non-cash impairment charges to the company's goodwill.[3] Aside from these changes, JNY's sales struggled in 2008 as the U.S. continued to endure the recession that began in late 2007,[4] as consumers cut back on spending. In the long-term as a brand-holdings company, JNY faces a fundamental challenge in its business model as department stores continue to increase their emphasis on private label merchandise instead of products from branded manufacturers such as JNY.
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 revenue declined 6.0% to $3.6 billion in 2008, down from $3.8 billion in 2007.[2]
- JNY's total revenues declined in 2007 (5.8%) and 2008 (6.0%) as the company 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.[1]
- The company swung to a net loss in 2008 as the company had to absorb non-cash impairment charges of $838 million to goodwill and trademark values in accordance with accounting policies related to sales and profit projections.[3]
| Jones Apparel Group | 2006 | 2007 | 2008 |
| Revenue ($M) | $4,087 | $3,849 | $3,616 |
| Gross Margin | 34.6% | 32.2% | 32.5% |
| Operating Margin | (5.4%) | (0.7%) | (20.2%) |
| Sales Change | (9.8%) | (5.8%) | (6.0%) |
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 (30% of 2008 revenue)[5]: 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 $1.1 billion to net sales in 2008, down 0.2% from 2007.[5]
- Wholesale Jeanswear (22%)[5]: 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 $797 of company sales in 2008, down 19.1% from 2007.[5]
- Wholesale Footwear and Accessories (26%)[5]: 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 1.8% decline in sales in 2008 to $938 million.[5]
- Retail (20%)[5]: 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.[1] The retail segment contributed $730 million to sales in 2008, down 3.1% from 2007.[5]
- Licensing and Other (1%)[5]: 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 $53 million in revenue in 2008, down 0.6% from 2007.[5]
Trends and Forces
JNY Faring Better Than Its Letting On in the Recession?
With a full-blown recession in the U.S.[4] that has crippled sales for many retailers and manufacturers, it seems JNY hasn't fared much differently, as total revenues declined 6.0% in 2008.[2] The biggest driver of this decline was in the Wholesale Jeanswear segment, which experienced a 19.1% decline in sales ($189 million) from 2007 to 2008.[5] 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.[5] Excluding this decline from the comparison, the Wholesale Jeanswear segment actually increased sales $49.8 million[5][2] Additionally, the rest of JNY's segments combined experienced only a 1.5% decline in sales ($44 million) which would have been more than offset by the increase in Wholesale Jeanswear excluding the discontinued/repositioned brands. 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.[3] These non-cash charges totaled over $838 million and excluding these charges, JNY's net loss of $765 million in 2008 would have been a net profit.[3] Despite augmenting the firm's net loss, these impairment charges were simply accounting activities and did not affect the cash flows of the organization and in the long-term may not have any significant impact on JNY's ability to operate.
Department Stores Turning to Private Labels
Department stores are increasingly seeking to distinguish themselves by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain. Private label brands are produced by third-party manufacturers but sold under the brand name of the retailer. Not only do exclusive and private label brands differentiate retailers, they offer higher profit margins for retailers than comparable merchandise from branded manufacturers. Due to these advantages, many department stores have been increasing their investment in exclusive and private labels and, in turn, these brands have been taking shelf space away from branded manufacturers like Jones Apparel Group. This trend poses a threat to JNY's business model and JNY may have to shift more of its attention to its own specialty stores in order to make up losses in shelf space in department stores.
Competition
As a firm that operates a portfolio of brands in the apparel and accessories space, JNY faces direct competition from comparable holding companies such as Liz Claiborne (LIZ) and Phillips-Van Heusen (PVH). Liz Claiborne owns brands such as Liz Claiborne, Juicy Couture and Lucky Brand. Phillips-Van Heusen holds brands such as Calvin Klein, IZOD, Van Heusen and Kenneth Cole. In addition to these holding companies, each of JNY's brands face competition from a variety of sources. Many of JNY's brands face competition from other department store mainstays such as Polo Ralph Lauren (RL) and department store-owned private labels.
| Company | Revenue ($M) | Gross Margin | Operating Margin | Net Income (Loss) | Revenue Growth (Decline) from FY07 |
| Jones Apparel Group | $3,616 | 32.5% | 0.0% | ($765) | (6.0%) |
| Liz Claiborne (LIZ) | $3,985 | 47.8% | 0.0% | ($952) | (10.3%) |
| Phillips-Van Heusen (PVH) | $2,425 | 49.1% | 12.7% | $183 | 16.0% |
References
- ↑ 1.0 1.1 1.2 1.3 Jones Apparel Group (JNY) 10-K 2008, Impairment Losses, pg. 34
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 Jones Apparel Group (JNY) 10-K 2008, Selected Financial Data, pg. 26
- ↑ 3.0 3.1 3.2 3.3 Jones Apparel Group (JNY) 10-K 2008, Impairment Losses, pg. 34
- ↑ 4.0 4.1 WSJ.com, "NBER Makes It Official: Recession Started in December 2007", December 1, 2008
- ↑ 5.00 5.01 5.02 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 5.11 5.12 5.13 Jones Apparel Group (JNY) 10-K 2008, Revenues, pg. 32
- ↑ Phillips-Van Heusen (PVH) 10-K, Results of Operations, pg. 41
- ↑ Liz Claiborne (LIZ) 10-K 2008, Selected Financial Data, pg. 38
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