Through its domestic wholesale jeanswear business, Jones Group (NYSE:JNY) offers a broad array of jeanswear, skirts, pants, shorts, jackets, casual tops, dresses, sweaters and casual sportswear for women, juniors and girls. The company mainly focuses on fits, fabrics and finish, and launches new collections four times a year. This segment accounts for more than 15% of the company’s value, according to our model for the company.
The company’s domestic jeanswear business had been struggling for the past few years due to a competitive retail environment, reduced shipments of main brands and a change in retail strategies at JC Penney and Macy’s. Revenues declined from $815 million in 2009 to $746 million in 2012. However, the segment has registered significant growth in the first nine months of fiscal 2013 due to an increase in demand resulting from design enhancements. We believe that Jones Group can sustain this growth in the future with firm inventory control and increased product variety.
Our price estimate for Jones Group stands at $ 12, implying a discount of about 25% to the market price.
Revenues Have Declined Historically
Domestic wholesale jeanswear revenues increased slightly from $815 million in 2009 to $820 million in 2010 driven by increased shipments of Jessica Simpson product line, Nine West jeans and Gloria Vanderbilt products. The growth was partially offset by lower shipments of the company’s products to Wal-Mart (NYSE:WMT) due to increased competition and price compression.
The segment’s revenues tumbled by almost 46% to $773 million in 2011 due to decreased shipments of Gloria Vanderbilt, Energie and l.e.i product lines. This was attributable to a reduction in replenishment program shipments compared with the prior period’s high replenishment volume along with a decline in replenishment orders from a major customer. A challenging retail environment in junior tops and some product assortment issues also contributed to the decline. In 2012, domestic wholesale jeanswear’s revenues further decreased by 27% primarily on lower customer orders for Jones New York resulting from poor product performance and the discontinuation of Jones New York suit product line. A decline in shipments of Kasper, Le Suit and Grane, and fewer shipments of Erika and Bandolino due to a change in retail strategies at JC Penney and Macy’s, also negatively impacted revenues. 
However, This Year Has Been A Turnaround
Although this business has been challenging for Jones Group in recent years, it has grown substantially in 2013. It registered a robust 38% revenue growth in the first quarter and followed it up by a 20% increase in the second, and 6% in the third. This is attributable to solid growth from Gloria Vanderbilt, l.e.i., Jessica Simpson and private label brands. Lower promotional activities, better inventory control and compelling customer response to design enhancements helped fuel their demand. As a result, Gloria Vanderbilt has now become the leading brand in its wholesale locations such as Bon-Ton, Belk, Kohl’s and Sears. Earlier this year, the company launched the Gloria Vanderbilt Active line, featuring t-shirts, tank tops, leisure ware, performance pants and track jackets in 800 stores. It was well received. The Jones Group planned to add this product line to another 400 stores by fall, which suggests that growth will most likely continue. Overall, denim now contributes about 12% to the company’s revenues and its comparable sales have grown by triple digits during the last year. 
Going forward, we believe that domestic jeanswear wholesale will continue to perform well as the retailer continues to add new product lines across its major wholesale locations. Its partnership with retail giant Wal-Mart (NYSE:WMT) will also assist the segment’s growth.Notes: