Zacks_Analysts' Blog : Joe's Jeans Reports Loss - Analyst Blog

California-based Joe's Jeans Inc. (JOEZ) posted a loss per share of 3 cents in the third quarter of fiscal 2011, worse than the Zacks Consensus Estimate and the year-ago quarter's earnings of 1 cent per share. The lower-than-expected result was primarily due to sluggish sales and margin contraction.

Joe's Jeans’ net sales plunged 5% year over year in the quarter to $24.2 million. The decline in sale was due to weak performance of the wholesale segment, partially offset by improved performance in the retail segment.

Net sales at the wholesale segment fell 7.5% to $19.7 million due to a reduction in women's and international sales channels, partially set off by an upside in men’s sales channel. Joe's Jeans experienced a year-over-year growth of 40% in men’s domestic business driven by solid demand and expansion of its distribution channel. 

Net sales at the Retail segment increased 4.8% to $4.4 million on the back of unit growth, which rose from 17 to 21.

During the quarter, Joe's Jeans gross profit dipped 17% to $9.7 million and gross margin fell 60 basis points (bps) to 40%, attributable to an inventory write-down. Gross margin in the wholesale segment fell 100 bps to 34%, but escalated 120 bps to 67% at the retail segment benefiting from increased pricing and lower promotional costs.

The company reported an operating loss of $2.6 million in the third quarter of 2011 compared with an operating income of $1.5 in the prior-year period due to non-cash charges of $2.8 million and increased spending on marketing and advertising. The non-cash charges were related to a retail store impairment charge and an inventory write-down of the leggings and age collection items.

During the quarter, Joe's Jeans also opened a franchise store in Kuwait,  its second store in the Middle East. Additionally at the end of the quarter, the company opened a pop-up store in SoHo, New York.

Our Take

Joe's Jeans, engaged in the design, development, and marketing of apparel products worldwide, remains optimistic regarding the fourth quarter, based on a year-over-year upside in its order book. However, we expect the estimates to go down in the coming days as the company reported weak results. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 4 cents and 5 cents per share, respectively. 

Joe's Jeans currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. We are also maintaining our long-term Neutral recommendation on the stock. Joe's Jeans peers include The Jones Group Inc. (JNY) and Hanesbrands Inc. (HBI).