Jones Apparel Desperate, Sells to Wal-Mart

Jones Apparel is the latest in a long line of struggling companies to decide to sell at Wal-Mart. While in some cases Wal-Mart is seen as a last stop before bankruptcy, the retailer’s low-quality image can also be damaging for a brand’s value. Dell also recently signed such a deal in efforts to avoid financial shoals, and tween sensation Hannah Montana inked an exclusive deal with the company in a move that some worried jeopardized the brand’s cache. Jones appears to be in worse shape than some others, and seems to be partnering with Wal-Mart in a last-ditch effort to cut its losses.

The new acquisition may be part of Wal-Mart’s restructuring of its apparel department. Back in January, the Springdale Morning News reported:

Sources said that uncertainty is rampant among the apparel staff, who fear Wal-Mart’s interest in new labels would reduce the number of in-house staff needed for apparel operations. Apparel employees have been openly fearful their jobs may be eliminated or transferred, the sources said.

Loss-Plagued Jones Apparel To Sell l.e.i. Only at Wal-Mart [Wall Street Journal]

Inc. will sell its moderately priced l.e.i. brand aimed at teenage girls exclusively in Wal-Mart stores, as part of a broader strategy by the beleaguered company to ink exclusive deals with big chains.

Jones Chief Executive Wes Card said in an interview that by selling only to Wal-Mart Stores Inc.—instead of to several retailers, including Kohl’s Corp., J.C. Penney Co. and Macy’s Inc.—the company will “dramatically increase” sales of the label, estimated at $98 million in 2007. At Wal-Mart, l.e.i. could generate sales of $100 million in the second half of 2008 alone, after the apparel line hits 3,000 stores this summer, he said.

Yesterday, Jones also said its fourth-quarter loss narrowed to $89.8 million. Excluding a gain from the sale of its upscale Barneys New York retail chain and other one-time items, earnings were nine cents a share, beating the mean estimate by analysts surveyed by Thomson Financial for seven cents a share.

The l.e.i. deal comes as retailers are cutting orders for midtier brands sold by multiple chains, pushing their own private labels and demanding exclusive brands from vendors in an attempt to differentiate themselves from competitors. Polo Ralph Lauren Corp.’s new American Living brand is now arriving at J.C. Penney stores. And Liz Claiborne Inc. announced last month that it would license its Dana Buchman brand to Kohl’s.

Jones’s higher-priced “better” sportswear brands, such as Anne Klein and Jones New York, will continue to be sold at multiple chains, Mr. Card said.

Yesterday, Jones said earnings from continuing operations in 2008 will likely be in the range of $1.25 to $1.50 a share, compared with last year’s $1.26 a share.

Jones shares jumped $1.70, or 11%, to $17.15 in 4 p.m. New York Stock Exchange composite trading.

Posted by Alex Goldschmidt on Thursday, February 14, 2008

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