After three straight quarters of revenue decline, Jones Group (NYSE:JNY) posted solid results for Q4 fiscal 2012. The retailer reported 9% revenue growth driven by significant growth in international retail, domestic jeanswear wholesale and domestic footwear wholesale segments.  Jones Group’s Q4 growth can be partly attributed to strong brand performance and partly to a weak comparable period of Q4 fiscal 2011.
However, store consolidation in the U.S. and lower shipments of Jones New York continued to offset some of the growth. The emerging brands such as Stuart Weitzman and Kurt Geiger continue to drive international sales, and the retailer is making efforts to improve sales of Jones New York.
Emerging Brands Helping International Retail Results
Revenues from Jones Group’s international retail business grew by 11% in Q4 fiscal 2012, driven by strong performance of its emerging brands – Stuart Weitzman and Kurt Geiger.
Jones Group acquired Stuart Weitzman (a high end footwear brand) back in 2010, and it has been performing well since.  The brand’s revenues increased by 7% in fiscal 2012. With high attention to detail and the use of unique materials, Stuart Weitzman has created a strong position for itself in luxury footwear market over the past 26 years.  Recently, the designer Stuart Weitzman became the second person ever to receive Lifetime Achievement Award from the footwear news.  Such events not only add to the brand’s image, but also help the brand’s popularity. In an effort to expand internationally, the retailer launched Stuart Weitzman’s first international e-commerce site in the fourth quarter. This will allow customers across 50 countries to shop for the brand online. Additionally, Jones Group has eight Stuart Weitzman stores planned for India, Canada and China in 2013.
Jones Group’s Kurt Geiger brand reported an increase of 9% in its revenues in Q4 fiscal 2012, driven by strong gains in Europe.  As a popular luxury footwear brand in Europe, Kurt Geiger was able to perform well despite the tough economic environment.
Overall, revenues from these two emerging brands were up by 30% in fiscal 2012, which partly included the additional revenues from Kurt Geiger (acquired in June, 2011).  Their revenue share has increased from 14% in 2011 to 18% in 2012, and we expect the trend to continue. 
The international retail segment constitutes about 25% of the company’s value according to our estimates.
Store Consolidation Partially Offsetting Revenue Growth But Will Help Margins In The Longer Run
Continuing the previous trend, the domestic retail segment revenues decreased by 7.5% in the fourth quarter of fiscal 2012 due to store consolidation.  Jones Group has been closing down several of its underperforming stores over the past few years. The retailer closed 103 stores during fiscal 2012 and plans to close 50 more locations this year. 
The intent behind this strategy is to improve the store profitability, and the retailer has been successful in doing so. While the store count came down from 901 in 2009 to 569 in 2012, daily revenue per store increased from $1,811 to $2,448.  As store consolidation slows down and productivity continues to improve, the negative impact on revenue growth will fade. In long term, we expect positive impact on margins due to increased efficiency.
Domestic retail segment constitutes about 20% of the company’s value according to our estimates.
Jones Group’s Efforts To Improve Its Jones New York Brand Should Help
Jones Group’s weak results over the first three quarters of fiscal 2012 can be attributed to reduced shipments of Jones New York. Revenues from this brand were about 11% lower in fiscal 2012, due to weaker than expected response to its fashion, the brand’s exit from J.C. Penny and lack of competitive pricing.  J.C. Penny dropped Jones Group’s brands when it adopted a strategy to sell low priced merchandise throughout the year.
Some of Jones New York’s product segments such as Easy Care, Platinum suitings and Signature denims have performed well.  The retailer is looking to push these products to revive the brand’s growth.
Jones Group is rebalancing its merchandise mix to increase the proportion of its performing products. Additionally, rather than stuffing its store with fashion products, Jones group is looking to focus on specific fashion products. The company’s management stated that keeping Jones New York’s prices competitive will be one of the key strategies for the brand’s growth.  These efforts should help Jones Group in the future if the retailer is able to optimize the product mix.
Jones New York contributes a little less than 20% to the retailer’s revenues.
Our price estimate for Jones Group stands at $14, implying a premium of about 15% to the market price.Notes: