Will Jones Group Outperform Fifth & Pacific and Michael Kors?

When it comes to investing in apparel and accessories, finding a likely winner is relatively easy at this point in time. We'll take a look at three popular names in this space, including Jones Group (NYSE: JNY  ) , Fifth & Pacific (NYSE: KATE  ) , and Michael Kors (NYSE: KORS  ) , to determine which company is likely to offer the most profit potential going forward.

A quick overview of recent results
In Jones Group's third quarter, revenue declined 1.3% year over year. Domestic wholesale footwear and accessories is Jones Group's largest segment, yet its revenue remained flat on a year-over-year basis. The other two big segments for Jones Group are domestic wholesale sportswear and domestic wholesale jeanswear. The former suffered a 10.4% revenue decline, and the latter enjoyed a 5.9% revenue improvement over the year-ago quarter. Though the company's retail segment isn't as big, it can be a good demand indicator. Unfortunately, domestic retail revenue slipped 2.3%. That's the what--now let's take a look at the why.

Good news/bad news
The good news is that Jones Group's domestic wholesale jeanswear segment is performing well, primarily thanks to increased shipments of Gloria Vanderbilt and the strong retail performance of private labels. The bad news is that domestic wholesale sportswear is performing poorly, primarily due to weakness in Jones New York and Anne Klein.

Perhaps no news is good news for the company's largest segment, domestic wholesale footwear and accessories, but this segment can be broken down into strengths and weaknesses. For instance, accessories revenue improved $3.4 million year over year, thanks to increased shipments of Anne Klein handbags and jewelry, as well as Givenchy and Nine West jewelry. The introduction of B Brian Atwood handbags also played a role. On the other hand, footwear revenue slipped $3.4 million due to reduced shipments of six different brands.

As far as retail, this is tricky to read, but it's also decipherable. Retail revenue declined primarily due to the closure of underperforming locations. As of its latest report Jones Group had 562 retail locations, down from 604 in the year-ago quarter. Comps improved 2.8%, which would often indicate increased demand and customer loyalty. However, in this case, you need to look a little deeper.

This comps number includes e-commerce sales, and e-commerce comps have increased for almost every retailer in existence simply because more people shop online than they did a year ago. E-commerce comps jumped 16.6% for Jones Group, so while this might sound impressive, it's about the norm throughout the industry. If you take a closer look, you will see that footwear store comps declined 0.7%, and that apparel store comps slid 2.6%.

There's another important negative to consider.

Revenue vs. SG&A expenses
Jones Group's SG&A expenses have been outpacing its revenue over the past five years:

JNY SG&A Expense (TTM) Chart

JNY SG&A Expense (TTM) data by YCharts

If you're considering an investment in Jones Group, there's a decent chance that you will also be looking at Fifth & Pacific as a potential alternative.

Fifth & Pacific recently agreed to the early termination of its flagship store lease in exchange for $51 million. This was a strategic move that should help the company fiscally. Additionally, Fifth & Pacific aims to be a leader on the social-media scene with its Snapchat campaign in the spring, in which Juicy Couture will offer Snapchat Stories. Snapchat Stories stay up for 24 hours, and Juicy Couture will be the first fashion brand to use them. Fifth & Pacific believes this move will lead to fiscal rewards and improved audience reach. This is possible. However, Fifth & Pacific still hasn't managed to cut costs enough over the long haul:

FNP Revenue (TTM) Chart

FNP Revenue (TTM) data by YCharts

As with Jones Group, Fifth & Pacific's SG&A expenses have been outpacing revenue. The good news is that another apparel and accessories company is hitting on all cylinders despite macroeconomic headwinds. If you're looking to invest in a fashionable company that's about as on-trend as it gets in regards to fashion, then you might want to consider Michael Kors. Michael Kors' revenue has outpaced its SG&A expenses with ease:

KORS Revenue (TTM) Chart

KORS Revenue (TTM) data by YCharts

That's the sign of a healthy company.

The catch
There's one thing that Michael Kors can't offer that Jones Group can, which is a potential spike in stock appreciation based on a buyout. Of course, Michael Kors wouldn't want to be bought given its rapid and continuous success. Jones Group isn't performing as well, but it clearly has a lot of value. This is why Sycamore Partners has shown interest. If a deal is done, it's expected to be for less than $16 per share, but the stock is currently trading at $14.02 per share. Jones Group had set a deadline that has since passed, but it's highly unlikely that Jones Group would decline a fair offer based on principle. 

Going steady
Jones Group might be acquired, but initiating a position based on this potential event would be somewhat of a gamble. Jones Group is showing strength in some areas but weakness in too many others. If you're investing for the long haul and you're interested in the apparel and accessories space, then you might want to take a closer look at Michael Kors. 

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  • Report this Comment On December 13, 2013, at 4:20 AM, Mayssa wrote:

    KORS has a target price of (84.25) USD on DSS daily stock select!it look to me good,what do you think?

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