DFBG Centric Brands (delisted)

California-based Joe's Jeans Inc. (JOEZ) posted breakeven results in the fourth quarter of fiscal 2011, missing the Zacks Consensus Estimate of 2 cents and the year-ago quarter's earnings of one cent per share. The lower-than-expected result was primarily due to higher advertising and other expenses related to the launch of 55 Color campaign during the quarter.

Joe's Jeans’ net sales rose 8% year over year in the quarter to $25.4 million. The upside in sales was due to improved performance of the retail segment and stabilization in the wholesale business.

Net sales for the wholesale segment remained flat year over year at $19.5 million due to a reduction in women's sales channels, partially offset by an upside in men’s and international sales channel. Joe's Jeans experienced a year-over-year growth of 27% in men’s domestic business, driven by solid demand and expansion in its distribution channel. Women's business is also improving on the back of a revamped core line, the 55 Colors program and a few good collection items.

Net sales at the Retail segment surged 44% to $5.9 million, attributable to 17 to 22 new store openings and same-store sales growth of 12%.

International sales were also up in the double-digit range during the quarter, driven by solid performance in France and in U.K, where Joe's Jeans recently signed a new distribution agreement.

During the quarter, Joe's Jeans gross profit inched up 1% to $11.7 million, but gross margin contracted 300 basis points (bps) to 46%, attributable to margin contraction at the wholesale business. Gross margin for the wholesale segment fell 600 bps to 40%, but the same escalated 400 bps to 65% at the retail segment benefiting from increased pricing and lower promotional costs.

The company reported an operating loss of $0.1 million in the fourth quarter of 2011 compared with an operating income of $1.9 million in the prior-year period.

During the quarter, Joe's Jeans opened a new store in New York City and remains focused on unit growth in 2012. Management expects the pace of new store openings in 2012 to be faster than 2011 and plans to open 10 new stores in 2012.

Our Take

Joe's Jeans, engaged in the design, development, and marketing of apparel products worldwide, remains optimistic regarding 2012 and is undertaking several efforts to drive the performance, enhance wholesale business margin by shifting production to Mexico where pricing is low, restructure European office into a distributor model and build out international distribution beyond Europe.  Additionally, to drive sales, company will launch a new brand called ELS.

However, the estimates have not budged in the last 30 days, implying that the analysts do not see any near-term catalysts. The Zacks Consensus Estimates for 2012 are pegged at 3 cents. 

Joe's Jeans currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. Joe's Jeans peers include The Jones Group Inc. (JNY) and True Religion Apparel Inc (TRLG).

 
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