Don't Be a Denim Dummy -- Eat at Joe's Jeans

Source: Joe's Jeans.

There's still money to be made in blue jeans, and Joe's Jeans (NASDAQ: JOEZ  ) is making it happen. The designer denim specialist opened sharply higher on Friday after posting another unexpected quarterly profit.

Net sales soared 56% to hit $48.2 million in its fiscal second quarter, but that's not the impressive part of Joe's Jeans' report. In fact, that's actually a bit disappointing. Analysts were holding out for closer to $49 million on the top line, and it's important to remember that the reported growth is not organic. 

Joe's Jeans acquired Hudson Clothing Holdings back in September, and that new subsidiary contributed $17.9 million in wholesale net sales and $0.8 million on the e-tail front for the quarter. Back that out and Joe's Jeans posted a decline of 5% in organic sales. Adding three new retail locations over the past year and a 1% uptick in comps weren't enough to offset the large drop in its organic wholesale business.

However, the market's still cheering the report -- and an analyst is even upgrading Joe's Jeans -- based on how the addition of Hudson is helping to improve its operations. Operating profit improved by 55% and net income nearly doubled to $2.3 million or $0.01 a share. This may not be much of a profit given the larger number of diluted shares outstanding these days, but analysts were forecasting a deficit of $0.03 a share. This is actually the third quarter in a row that finds Joe's Jeans in the black with Wall Street 

B. Riley & Co. moved to upgrade the stock this morning on the bottom-line surprise. The analyst's rating is going from neutral to buy and its price target is getting jacked up from $1.30 to $1.70. The market's clearly setting aside the organic sales decline. The stock opened 21% higher this morning. 

Joe's Jeans took a gamble last summer in acquiring the company behind Hudson Jeans for roughly $97.6 million in cash and convertibles notes, but that premium denim line's access to new retail partners, obvious cost-saving synergies, and having a second high-end brand are proving valuable now at a time when Joe's flagship business is softening at the wholesale level.

Investors will want to keep an eye on how Joe's Jeans is holding up on the organic front until September rolls around, but if Joe's Jeans comes through with another quarterly profit  for the new period -- and analysts are once again stubbornly betting on a deficit -- this may be a bottom-line growth story anyway. Joe's Jeans is the right fit for Mr. Market today.

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  • Report this Comment On July 11, 2014, at 10:54 PM, z06forum wrote:

    Synergies to kick in Q3 and 4 this year along with new product launches in Q3 that are on trend with Athleisure these days. This should drive new up beat exposure to the brand.

    10 million in savings full year due to synergies is a huge bottom line bonus for the company. Makes it even more attractive to VC and conglomerates.

    TowerBrook Capital Partners bought True Religion in 2013 and VF Corporation bought 7 for all Mankind in 2007.

    Joes/Hudson were the next top 3/4 global brands by popularity and still publicly traded. I would think that either of the 2 could come in and buy J/H for 250-350 Million and get greater synergies among other premium denim helping the bottom line.

    I think it will happen and it will be just a matter of time. J/H needs to get decent margins and on a growth pattern first. Joes is still not overly mainstream just yet. Athleisure will help IMO. Joes should be trading at 1.80-2.25 IMO

  • Report this Comment On July 12, 2014, at 12:14 AM, nhan0035 wrote:

    Rick Munarriz got the story twisted the way he wanted.

    Joe Jean CEO & CFO have made the right decision to acquired Hudson Clothing and has increased sale by 56% to hit $48.2 mil. Joe Jean has beat analyst forecast by $.04 and come out $.01 positive. Not many American apparel Clothing company can be success in consumer good sector. And yes it's ANOTHER unexpected quarter profit. How many CEO can made this happened more then one.

    What is the motive for Rick Munarriz trashed Joe Jean??? He can write this article in a positive way. but he spin the facts 180 degree.

    No body work for free. I don't care if you are having any position of any Joe Jean stock or not. Or he was employed by Motley Fool to write this article.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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9/4/2015 3:59 PM
JOEZ $0.17 Down +0.00 -0.64%
Joe's Jeans, Inc. CAPS Rating: **