Jones Group (NYSE:JNY) is scheduled to release its Q1 fiscal 2013 earnings on May 1. We expect good results from its international business backed by the popularity of Kurt Geiger and Stuart Weitzman brands. In domestic market, the retailer is consolidating its underperforming retail network, and that should result in an improvement in its store productivity and margins. Jones Group is also taking some important steps to revive its main brand Jones New York, and it will be interesting to see if these efforts have any impact on the Q1 results. However, the recent payroll tax increase and prolonged cold weather could have a mitigating impact on the results.
Popular Emerging Brands Will Help International Retail Business
Jones Group’s emerging brands Stuart Weitzman and Kurt Geiger have registered considerable growth since their acquisition. Revenues from these brands increased by about 30% in fiscal 2012, and accounted for 18% of Jones Group’s overall revenues. As these brands are quite popular, we expect them to generate solid growth in this quarter as well. The company acquired Stuart Weitzman, a high-end footwear brand, back in 2010.  With high attention to detail and the use of unique materials, Stuart Weitzman has created a strong position for itself in the luxury footwear market over the past 26 years.  Recently, designer Stuart Weitzman became the second person ever to receive a Lifetime Achievement Award from Footwear News.  Such events not only add to the brand’s image, but also indicate the brand’s existing popularity.
In this quarter, we expect Jones Group to start realizing profits from its launch of Stuart Weitzman’s first international e-commerce site in Q4 fiscal 2012, which allowed customers across 50 countries to shop for the brand online. Additionally, we’ll also watch for updates on Jones Group’s eight Stuart Weitzman stores planned for India, Canada and China in 2013.
Kurt Geiger is one of the most popular luxury footwear brands in Europe and sells more than 10 pairs of shoes every minute in the U.K.  It sells more shoes than any other footwear retailer in the region. In the last quarter, the brand’s revenues increased by 9%, driven by strong gains from Europe despite the tough economic environment. We expect its strong performance to continue in this quarter as well.
International retail business constitutes more than 20% of the company’s value, according to our estimates.
Store Consolidation In The U.S. Will Help Productivity And Margins
Although the company’s domestic retail segment’s revenues have been declining since 2009 due to aggressive store consolidation, the store productivity has gone up.  While the store count declined from 901 in 2009 to 569 in 2012, daily revenue per store increased from $1,811 to $2,448. The retailer is now looking to slow its consolidation as it plans to close only 50 stores in 2013, as opposed to 103 in 2012. ((Jones Group’s Q4 fiscal 2012 earnings transcript, Feb 13 2012)) We expect Jones Group to have closed some stores in the first quarter of 2013, which should reflect as improved profitability and slightly higher margins.
However, a number of apparel retailers have seen low demand for their products in the recent past, due to prolonged cold weather. The month of March was the coldest since 1996 and the most snowiest since 2002.  We believe that this could have a negative impact on Jones Group’s U.S. retail and wholesale business.
Domestic retail business constitutes slightly more than 20% of the company’s value, according to our estimates.
Can Jones New York Show Signs Of Revival?
Jones Group reported weak results for its domestic wholesale sportswear segment last year due to reduced shipments of Jones New York. Revenues from this brand decreased by 11% in fiscal 2012, due to a weaker-than-expected response to its fashion styles, the brand’s exit from J.C. Penny and the 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.
Although we expect the weakness to continue, Jones Group is taking some steps for Jones New York’s revival. Some of the brand’s product segments such as Easy Care, Platinum suitings and Signature denims have performed well throughout fiscal 2012.  The retailer is looking to push these products for the brand’s growth, and is re-balancing its merchandise mix to increase the proportion of its performing products. Additionally, Jones Group is looking to focus on specific fashion-based apparel. The company’s management stated that keeping Jones New York’s prices competitive will be one of the key growth strategies. 
Jones New York contributes a little less than 20% to the Jones Group’s revenues.
Our price estimate for Jones Group stands at $ 13.5, implying a premium of about 5% to the market price.Notes:
- Jones Group’s SEC filings [↩] [↩]
- Jones Group’s Q4 fiscal 2012 earnings transcript, Feb 13 2012 [↩] [↩] [↩] [↩]
- Lifetime Achievement: Stuart Weitzman, Footwear News, Nov 26 2012 [↩]
- Kurt Geiger – A Shining Example Of A Sole Trader, The Independent, Jan 23 2011 [↩]
- Prolonged Winter Puts Retail Sales in Deep Freeze, CNBC, March 31 2013 [↩]