olympic water polo schedule 2012 Ralph Lauren Feud Muddles Outlook for Jones Apparel
While the Jones Apparel Group posted solid first quarter results this week, some analysts are wondering whether the company can sustain its performance in light of a lingering feud with Ralph Lauren.
Mr. Lauren is said to be displeased with the clothes made in his name by Jones, which reported a 17.2 percent gain in operating income on Tuesday, and contends that two of three licenses held by Jones expire at the end of the year. If he gets the licenses back, he will presumably take over production of the goods to control the quality and, perhaps, raise the profit margins.
At the heart of the dispute is the license for the Lauren brand, which last year brought in $536 million. Jones contends that the license expires at the end of 2006, but executives of Mr. Lauren’s company, Polo Ralph Lauren, argue that the license is tied to one for the less lucrative Ralph brand, which will not be renewed at the end of this year because it did not reach its $100 million sales minimum. Analysts estimate that Jones lost $5 million to $6 million last year on the Ralph brand, which generated $37 million in sales.
There has also been speculation about the third license, for Polo Jeans. While the duration of that license is not in dispute it runs until 2030 some industry insiders say that Mr. Lauren would also like to buy it back.
To Jennifer Black, an analyst at Wells Fargo Securities, the perceived uncertainty attached to the three licenses which total $1 billion in business is hurting Jones. She lowered her rating on Jones yesterday to hold from buy and issued such a scathing report that some other analysts wondered why she had not advised clients to sell.
”Fiscal year 2004 earnings are in serious jeopardy,” she wrote, ”and, at this point in time, we prefer to invest our dollars elsewhere.”
Shares of Jones Apparel closed at $28.52, about 9.4 times estimated earnings for 2003, Ms. Black said. In May 2001, they were at $47.21.
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”If it were trading at 14 times earnings, the way it did in the past, it definitely would have been a sell,” she said yesterday in an interview.
To Ms. Black, the longer the dispute with Polo Ralph Lauren drags on, the more the stock is hurt. ”As negotiations drag on, the relationship between the two companies is more susceptible to further deterioration and Polo Ralph Lauren will be more likely to take the operations in house,” she wrote.
But Todd D. Slater of Lazard disagrees. ”I don’t want to imply it’s healthy for companies to be fighting indefinitely,” he said. ”A speedier resolution is better.” But if the case goes to court, he said, Jones will have more time to produce Lauren clothes. In that event, the license may end up running out naturally because clothes for 2006 are planned nine months or a year in advance.
Ms. Black listed several reasons for reducing the stock’s rating most of which Jones disputed.
She said she thought Jones’s strategy was to acquire companies in the midprice sector. Anita Britt, Jones’s executive vice president for finance, disagreed. Ms. Britt said Jones was actively looking for strong companies in all price ranges.
Ms. Black wrote that she was concerned that the current management, including Peter Boneparth, the chief executive, was not prepared to cope with more acquisitions. ”Jones has its hands full with the current businesses,” she wrote.