Are Jones Group’s Expansion Plans Helping?

by Trefis Team
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JNY
Jones Group
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The Jones Group (NYSE:JNY) is a multi-brand specialty retailer that offers apparel, footwear and accessories through its retail and wholesale stores. Since emerging markets provide ample opportunity for the U.S. retailers, Jones Group is looking to strengthen its international footprint by expanding further in China and the Middle East. At the same time, it is shutting its underperforming retail stores in the U.S. to improve store economics. While the idea is to get the best out of every market, are these strategies actually helping Jones? We look into some important metrics to find out.

See our complete analysis for Jones Group

Expanding International Footprint: Surge In Revenues But A Decline In Revenue Per Store

In the past few years, Jones has significantly grown its international retail and wholesale footprint. The retailer increased its international store count from 37 in 2009 to 315 in 2011. [1] This resulted in a substantial increase in Jones Group’s international revenues, which grew from $40 million to $260 million during the same period.

The company’s acquisition of British luxury shoe brand Kurt Geiger and the introduction of Stuart Weitzman to the European market were the primary growth drivers. However, at the same time, the daily revenue per international store declined from $2,800 to $2,200. [1] This can be attributed to more sales from outlet stores (discount stores) and addition of 58 concession locations. Nevertheless, Jones has picked up some pace recently as the international retail segment was able to hold onto its growth amid mixed results from the retailer’s various divisions. This growth was led by a strong performance from Stuart Weitzman and Kurt Geiger. We expect a notable improvement in store economics of Jones’ international stores going forward.

The company further plans to add 34 stores in international markets, including China and the Middle East, by middle of fiscal 2013. [1] We believe that China is an important market for the retailer due to its growing middle class and demand for western products. The international retail segment constitutes about 27% of the Jones Group’s value, according to our estimates.

Domestic Store Consolidation – Declining Revenues But Improving Productivity

Closing underperforming stores is one of the important initiatives taken by the retailer in the U.S. The trend has been highly visible in the past couple of years with Jones closing down 142 and 87 stores in 2010 and 2011, respectively. [1]

During the first nine months of fiscal 2012, the retailer closed 85 stores in the U.S. and plans to close another 15 stores in the last quarter. While the closures are aimed at improving the company’s profitability, they will also lead to a short-term revenue decline in the domestic retail segment. For instance, Jones Group reduced the store count from 901 in 2009 to 672 in 2011, resulting in a revenue decline of close to $17 million. [1] However, the daily revenue per domestic store increased from $1,800 to $2,300.

As the domestic store consolidation slows down, we expect improved store economics to drive revenue as well as margin growth for Jones Group.

The domestic retail segment constitutes about 22% of the Jones Group’s value, according to our estimates.

Our price estimate for Jones Group stands at $14, implying a premium of about 20% to the market price.

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Notes:
  1. Jones Group’s SEC filings [] [] [] [] []
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