This Apparel Company Has Two Ways to Reward Shareholders
Retailer and apparel-maker Jones Group (NYSE: JNY) is at a crossroads. The company has too many brands, which has left it with little growth and declining retail sales. Jones Group is currently exploring a possible sale of the entire company or the divestment of individual brands. Several upcoming events could power shares higher and make the stock a buy.
Jones Group owns over 35 brands in six business segments. The segments include: designer, contemporary, better, bridge, moderate, and juniors. Popular brands from Jones Group include Nine West, Jones New York, and Anne Klein. At the end of 2012, Jones Group had 185 specialty retail stores and 409 outlet stores. Several of these under-performing locations are scheduled to be closed over the next two years.
Recently, Jones Group announced the launch of its new QMack brand. The new clothing line, which will focus on millennial customers, will be sold exclusively at Macy's stores across the country. The line promises to allow customers to "mix and mack" tops and bottoms to create trendy outfits for the younger generation. Products will include blazers, mini-skirts, blouses, dresses, and cardigans.
Prices for the new line will range from $29 to $299, which represents a strong entry point that could appeal to a higher end millennial shopper. The company's partnership with Macy's perfectly fits this price point and target customer. In fact, Macy's turned to Jones Group to appeal to this demographic.
"When Macy's approached us with the opportunity to create a new brand with a premiere placement on Macy's impulse floor, we saw this as an ideal occasion to combine our respective strengths and appeal to the millennial girl," said Richard Dickson, president and CEO of Jones Group.
The brand has begun selling in 150 Macy's locations and online at macys.com, with more stores set to be added in the future. Jones Group will also feature the new brand in the September issue of Vogue magazine.
One option for Jones Group to provide a boost to its stock price is to sell-off one or multiple brands. Jones Group owns over 35 brands, making it hard to focus on inventory and marketing for each individual business. This over-sized portfolio has also made it hard for the company to expand its international push.
In fiscal 2012, Nine West made up 24% of the company's sales, while Jones New York made up 18% of last year's sales. After that, the other brands make up small total percentages of sales and fail to differentiate themselves in importance. Nine West may be in for another strong year with a new fall lineup featuring 26 new pairs of shoes. The new lineup will be featured in the September issue of InStyle magazine.
Jones Group should keep its Nine West brand and work on selling-off other brands. Fifth & Pacific (NYSE: FNP) made a similar move. The former owner of Liz Claiborne sold its namesake brand to J.C. Penney in an attempt to focus on strong-growing brands. Fifth and Pacific is now left with Juicy Couture, Lucky Brand, Kate Spade, and Adelington Design.
The sale of brands by Fifth and Pacific has helped the company reward shareholders. Since the January 2012 announcement, shares of Fifth and Pacific are up over 150%. The sale allowed Fifth and Pacific to show off its growing brands, expand internationally, and improve its balance sheet. These reasons all represent an opportunity for Jones Group investors, if the company follows a similar path in offloading brands.
Become a licensor
One way Jones Group can transform itself would be a push into brand licensing. Jones could begin to license the use of its brands to certain stores. This would cut inventory costs, and generate higher profit margins and steady income for the company. Iconix Brand (NASDAQ: ICON) has seen great success doing this.
Iconix Brand Group owns Candie's, Bongo, Joe Boxer, Rampage, Mudd, and Zoo York. The company licenses the brands to department stores and retailers under contracts. Most of the contracts are long term and have set dollar minimums paid to Iconix no matter how well the products sell in stores. Iconix takes care of the brand management and some of the marketing, while the licensee is responsible for manufacturing, delivery, and inventory management of the products.
Iconix Brand has had success with this model and is beginning to see its strong portfolio pay off in international markets. Jones Group could have similar success if it started licensing its brands and collecting payments from retailers. The company could then expand internationally through joint ventures, similar to Iconix' strategy.
Shares of Iconix are up 47% on the year and trade near 52-week highs. Revenue is expected to climb 22% in fiscal 2013, with earnings per share also climbing an expected 32%.
Analysts expect Jones Group to post earnings per share of $0.82 for fiscal 2013, a sharp decline from the $1.24 reported a year ago. Revenue is expected to grow only 0.8% to $3.8 billion. In fiscal 2014, earnings per share are expected to grow to $1.11. Revenue is predicted to hit approximately $3.9 billion, a 1.7% increase. Shares trade at 19 times 2013 expected earnings and 14 times expected fiscal 2014 earnings at the time of writing.
The new focus on millennial shoppers could be a huge positive for Jones Group, a company that has struggled to find growth. The company has too many brands, but soon may reward shareholders by selling-off brands and unlocking asset value. At only 14 times next year's earnings, Jones Group shares look relatively cheap. Take a high flyer on this retail play, or consider investing in Iconix Brand, a company that has found a way to monetize its brands domestically and internationally.
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The article This Apparel Company Has Two Ways to Reward Shareholders originally appeared on Fool.com.
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