Jones Contemplates Losing Its Jeans, Stock Going To $15

The Jones Group recently confirmed the news of a possible sale of its Jeanswear division to Israel's Delta Galil Industries, a maker of private-label clothing, for an estimated aggregate amount between $350 and $400 million. ^[1] The market has responded positively to the news with Jones stock increasing by around 10% following the announcement. We believe that the deal if completed at the stated amount will be a profitable decision for Jones and will allow the company to focus its energies on its more profitable luxury brands. Jones Apparel competes with brands like Liz Claiborne and Phillips-Van Heusen, as well as department store mainstays such as Polo Ralph Lauren and store-owned private labels. See our complete analysis for Jones Group

Could Unlock Further Value for Jones

Jones has declared that it is targeting between $350 and $400 million as the sale price of its Jeanswear division. According to Trefis estimates, Jeanswear contributes roughly 16% to Jones stock price with the division’s implied value standing at $300 million. Shuffle between the options of Stock Price and Market Cap on the Trefis Jones’ model to know more.

Our estimated value of $300 million is coming when we value Jones stock at $15.64, which is nearly 50% upside to the current market price. Considering the fact that Jones current market cap is $920 million, this deal looks like a huge win for Jones.

Additionally it will also help Jones to improve its balance sheet and allow the company to leverage the additional cash by investing in its more profitable luxury operations.

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Jones Wants to Focus on Luxury Brands

Jeanswear carries an EBITDA margin in the range of 9-10%, and the company has been struggling with margin woes due to an increase in production costs and so the company is looking to focus on luxury brands which are more resilient to cost pressures.

The recent acquisition of British luxury shoe brand Kurt Geiger affirms Jones’ strategy of expanding in the luxury domain. Going forward we expect Jones to increase its investment in the luxury brands as the company tries to focus more in the areas where it has core competency.

We have a Trefis price estimate of $15.64 for Jones Group, which is nearly 50% ahead of the current market price. You can drag the trend lines in the modifiable charts above to see the impact of these trends on Jones’ stock value.

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Notes:

1. Jones Group announce possible sale of Jeanswear Division, Source: Jones IR, October 11 [↩]

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