Jones Group (NYSE:JNY) recently reported its Q3 fiscal 2012 earnings with mixed results for its different business segments. While the revenues from its segments described as other declined, its international retail, footwear & accessories wholesale and jeanswear wholesale registered growth.  The revenue growth for these segments was aided by good performance of brands such as Gloria Vanderbilt, Kurt Geiger, Nine West and Stuart Weitzman.
However, the overall revenues for Jones Group declined by 1% as compared to the same quarter last year due to closing of its stores in the U.S. and the tough economic condition of the international market, particularly Europe.  The reduction in Jones New York Shipments and change in the retail strategy of JC Penny continue to negatively impact the revenues.  We expect these factors to influence the overall sales in the next quarter as well.
Store Closing will Impact The Revenues
The domestic retail segment revenues decreased by 7% in this quarter and moreover, have been on a downslide since 2009.  As a part of its strategy, Jones Group has closed down several of its underperforming stores to improve the overall store economics. The retailer started the fiscal 2012 with 672 domestic retail outlets and ended Q3 with 587 stores, a 100 less than the store count in the same quarter last year.  Jones Group is planning to further close down 15 stores by the end of fiscal 2012.  Hence, we expect the revenue decline to continue in the next quarter as well. According to our estimates, the domestic retail segment constitutes about 23% of the company’s values.
Good Brand Performance Can Drive Future growth
The international retail segment revenues registered an increase of 6% mainly driven by the promising performance of Kurt Geiger and Stuart Weitzman.  On the other hand, international wholesale segment revenues decreased by 5% due to the effects of slow European economy.  However, the positive sales contribution of $2 million from the recently acquired Brain Atwood business had a slight mitigating effect on the revenue decline of the wholesale business.  Driven by the performance of these brands, we expect the international business to pick up as the economic condition in Europe improves. These two segments cumulatively contribute about 25% to the company’s value according to our estimates.
The revenues from domestic wholesale sportswear reduced due to the reduction in shipments of Jones New York and change in JC Penny’s retail strategy.  These factors have impacted the revenue growth in the previous quarters as well and we expect this trend to continue in the upcoming quarter.  Meanwhile, Rachel Roy product line sales improved by 5%.  This gives an indication that even amidst the declining revenues, individual brands are performing well and this can fuel Jones Group’s long term growth. Moreover, the jeanswear wholesale segment encountered revenue growth of 7% driven by Gloria Vanderbilt and Nine West. 
The gross margins for Jones Group dipped marginally from 35.8% in Q3 2011 to 35.2% in this quarter due to an increase in promotional activities and manufacturing costs.  The retailer expects the highly promotional environment to continue in the upcoming quarter and put pressure on the margins.  While the strong brand performance seems to be a valuable driver for the future growth, we expect the aforementioned trends to continue in the next quarter.
Our price estimate for Jones Group stands at $14, implying a premium of about 15% to the market price.Notes: