Earnings are down at Jones
Interview: Davenport---Campbell, David---Analyst
retailer beat the average analysts’ estimates by a penny a share. revenue came in lower than expected at $560 million. the company reaffirmed its current quarter forecast and says it will begin paying a dividend beginning this quarter. in the regular session, abercrombie & fitch shares, for the year up, but falling 10 cents in today’s action. in extended hours, abercrombie & fitch shares up $1.30 at $29.50. the standard & poor’s retail index up more than 1% this session. shares of target and lowe’s among the leading movers on that index today. the increase came ahead of several retail earnings reports due out this week. jones apparel group is scheduled to report before the opening bell tomorrow. and david campbell, retail analyst with davenport and company, joining us with his take on retailers. we’ll begin with jones apparel group and wanted to ask you about the earnings progress on this company. earnings per share fell 30% last quarter and are predicted to fall 36% this quarter. apart from the issue of whether they came a few pennies ahead or behind estimates, it seems that earnings are down at jones, right? what’s going on?
>> bob, earnings are down at jones. this principally reflects the transition out of the ralph lauren license, which the company initiated in 1996. this has been a very successful product for them. however, due to a licensing dispute, they’re giving that license back to its parent, polo ralph lauren. so the earnings decline will mostly reflect the transition away from that license as well as the soft retail environment for much of 2003.
>> my question for you is when you say, yes, earnings are down at jones, my bloomberg terminal says you have a buy rating on the sock. why the buy?
>> we think that earnings will recover for jones. it’s a very good company with very strong positions in the markets it participates in, namely apparel, accessories and shoes. it has very good management and once they transition out of the polo business, then we should start to see earnings recover nicely later this year into 2005 2005.
>> you’ve explained why the sparsons are hard―comparisons are hard and the loss of polo lauren business will hurt jones apparel, but what is underlying the rest of their product line to make it do better?
>> they have a leading position in each of their markets . they have market share in excess of 30% in women’s better apparel, as well as better footwear and accessories in the department stores. they are very good on products and i expect them to continue to maintain our gain market share. they’ve also made an acquisition recently of casper―kasper, the leading women’s suit maker in department stores and that will flow into their earnings in 2004. they have a lot of opportunities to increase earnings this year. >> you also follow shares of lowe’s and we’ll get data on housing starts tomorrow. tell me if that’s the kind of thing you pay attention to. you have a strong buy on lowe’s. is the strong housing data the driver for this stock? or is it more just taking share from home depot?
>> you have to remember, lowe’s is more tied to the home improvement market than to housing starts or new home sales. but certainly the strength in the housing market impacts lowe’s. we expect home improvement to continue to grow. that’s fueled by the secular trend towards home investment, as well as some other trends such as second home buying. so lowe’s continues to have a strong earnings outlook regardless of whatever the housing market is doing but certainly the housing market is a positive for the company in a macro sense.
>> you’re not particularly bullish on best buy and circuit city. tell me why.
>> we actually are bullish on best buy. we have a buy rating on best buy. best buy is the leashed in that―leader in that industry with 15% market share in the u.s. and gaining market share against competitors, including circuit city. they’ve executed extremely well and we currently recommend best buy and we believe that stock will continue to perform well this year.
>> also tractor supply company, up today, with deere hitting an all-time high. deere & company, john deere tractors. tractor supply benefiting from an overall agricultural rebound? >> they do at the margin but the majority of tractor supply customers are part-time farmers and ranchers as well as hobby farmers.
>> pseudosuburban/rural, i guess?
>> that’s right. but they have a great concept and strategy of differentiating themselves from competitors such as general merchandizing retailers.
>> our thanks.
