An 8.6 percent drop in sales left Jones Apparel Group with total revenues of $891 million for the first quarter ended April 4. Sales fell in all segments of the company except wholesale jeanswear.
The gross profit margin remained the same at 32.9 percent, but income from operations fell by 65.7 percent to $13.7 million, and net income fell drastically, plunging by 98.5 percent to $300,000. The quarterly results include a non-cash impairment charge of about $21 million, or $14 million after tax, as well as a charge of $14 million, or $9 million after tax, for various cost-saving initiatives. Adjusted for these and other special items, net income dropped to $23.8 million from $31.5 million in the same period a year ago.
The company’s wholesale footwear and accessories division had a 13.2 percent drop in sales to $236.9 million. Its profit margin declined to 6.7 percent from 8.3 percent.
Its retail operations, which include the Nine West chain of shoe shops, had a loss of $58.4 million on sales of $141.2 million, but excluding extraordinary charges, the loss was limited to $34.9 million. This compared with a loss of $24.8 million on sales of $158.9 million in the year-ago period. On a comparable store basis, retail sales declined by 10.6 percent during the latest period.
Reacting to these poor results, the company has decided to exit about 225 locations in 2009 and 2010. It expects that the measures will improve results by $3 million in 2009, by $14 million in 2010 and by $20 million in 2011. These figures are in addition to the future capital expenditures that will not be outlayed.
In addition the planned store closures, Jones Apparel implemented staff reductions and other cost-cutting programs in the first quarter that should result in $20 million in savings per year. For the full year 2009 Jones Apparel sees a $13 million benefit ($9 million after tax) from the trims.
The group will continue to test and evaluate new concepts, such as its ShoeWoo stores. It has begun to sell a special line of New Balance shoes developed specifically for Nine West, and it has decided to launch next August a new contemporary line of sportswear, footwear and accessories under the Rachel Rachel Roy brand name.
The management points out that the group ended the quarter with $194 million in cash, about the same as last year, but it wants to reduce its outstanding debt by more than $240 million, while extending its bank facilities until April 2012. It plans to do so by negotiating a new secured credit facility for up to $650 million, replacing an existing $600 million facility, and by redeeming $250 million in notes due in November 2009. The expiration date for the related tender offer has been extended from May 1 to May 6, as only about 97 percent of the notes have been tendered.