The Jones Group (NYSE: JNY) is one of those apparel retailers that operates under the radar, being a small-cap company in a very fragmented industry. It focuses on women's apparel, footwear, and accessories, and its top brands include Jones New York, NineWest, and Rachel Roy. 

Where we're at now
Unseasonably warm weather has led to Jones Group offering a higher number of promotions in order to drive sales. This also led to a high level of markdowns. This means that margins have been squeezed of late, but there's room for improvement. Operating margins are just over 1% for the trailing twelve months, a far cry from the 10% investors saw prior to the financial crisis. As a result, Jones Group is up only 5% over the last five years, while the S&P 500 is up 90%.

Where we're headed
On the flipside, the company has savings initiatives that should help push margins higher. Jones expects to save $13 million this year, and then $40 million in 2014 with said initiatives. This comes as the retailer plans to close 170 stores. 

Jones could also be at an inflection point with regard to its products. Jones is looking to balance out its product portfolio in an effort to take some of the pressure off its sportswear business, which includes Jones New York and Anne Klein. This involves turning its focus to some of its other 35 brands.

And one of the nice things about Jones Group versus some of its peers is that it has a broad range of offerings. These include casual sportswear, dress wear, lifestyle wear, and jeans. In addition to clothes, Jones also offers footwear, jewelry, and handbags.

The other big opportunity is international expansion: less than 20% of sales are derived from international markets. And what's encouraging is that its international segment appears to be gaining traction. During the second quarter, the international wholesale division enjoyed the best improvement in operating results across all segments.

Strength beyond apparel
The footwear and handbag segments should see an impressive comeback as the broader economy gains strength. These key products also carry higher retail margins. Jones markets and sells footwear and accessories via its specialty retail stores. And these items are not offered to wholesale customers, they are exclusive to Jones' retail stores.

The other notable area of improvement for Jones is jeans. Its jean segment, which includes Gloria Vanderbilt and l.e.i. Jeanswear, saw revenue rise 20% last quarter on a quarter-over-quarter basis, and operating margin widened by 2.6%.

Guess? (GES -0.27%) is one of the leaders in the jean market, but leaves a lot to be desired. It's trying to fend off market share losses from changing consumer preferences, which includes an increase in skinny jeans sales. One of the recent trends to take off has been skinny jeans, and many of the other retailers are already out in front. This includes the likes of American Eagle and Lucky Brand jeans, which offers skinny jean styles. The other thing that makes Guess? a less-than-stellar investment is its exposure to Europe. Over 35% of revenues are generated in the slow-growth, and still troubled, European continent. Given the competition Guess? is seeing in its jeans brands and the fact that its PEG ratio is 2.5, it's tough to see a reason to invest in Guess?   

Meanwhile, Fifth & Pacific (KATE) is another notable apparel and accessory retailer. It operates key brands Kate Spade and Lucky Brands. Lucky Brands is Fifth's jeans offering. Meanwhile, Kate Spade remains Fifth's top revenue generator. And as the economy rebounds, Kate Spade should see a marked improvement, as it tends to be heavily tied to discretionary spending. That said, Fifth's brands should not pose a meaningful threat to Jones' brands. 

Juicy Couture has been one of the blemishes on Fifth's portfolio. Revenue and earnings have been in steep decline, but it appears the company is addressing the issue: Fifth is selling off the Juicy brand to Authentic Brands Group for $195 million. This move makes Fifth an interesting investment, and worth a deeper look. 

Foolish bottom line
The beauty of Jones is that the company is still cheap, even though there's speculation of a potential buyout. Private-equity firm, KKR, is trying to buy Jones Group. If that happens, it will be for a premium.

The apparel retailer is trading at 0.34 times sales, well below the industry average of 1.5. It also pays a modest 1.39% dividend. In short, Jones is an underrated apparel play that should reward investors over the long-term, assuming it stays public.