Joe's Jeans expects to open its new store locations on Melrose in Los Angeles and the South Coast Plaza in August. After these stores are open, Joe's Jeans will have 25 retail stores. Joe's expects the new stores to increase brand awareness. The capital expenditures for the new stores will be about $200,000 to build out. Joe's Jeans has signed leased to open another 2 stores later in 2012 and expects to sign several more leases.
In its wholesale division, wholesale sales increased by 14 percent, with men's, women's and Joe's else brands all showing gains. Men's wholesale sales increased by 11 percent with strong growth in denim, especially colored denim, and a 7 percent increase in doors. Joe's expects a potential increase of 20 to 30 percent in door count on the men's side.
Women's wholesale grew by 8 percent, with denim growing in both department and specialty stores. Without the else brand, the women's sales would have grown by 10 percent. The colored and printed demin and international sales grew in the women's line. Joe's in down about 10 points in doors in the women's side year-over-year, but selling is increasing in the existing doors.
Joe's Jeans started shipping its else brand in February and the brand contributed $750,000 to sales growth for Q2. The else brand continued to exceed the company's and Macy's expectations and Joe's will be doubling its door count for the fall. Excluding else, sales still would have increased by 13 percent in Q2. Most of the impact from else will be shown in Q3 and Q4.
Internationally, Joe's recently signed a new distribution agreement for France and is restructuring its Paris office. As a result, its European business had a healthy profit. Joe's expects the new distribution agreement to reduce overhead expenses and increase profitability.
Joe's Jeans expects to be producing in Mexico by spring as it will be moving to different fabrics and different color treatments later in the year.
Financials
Net sales increased by 16 percent to record levels. Joe's Jeans' domestic wholesale business grew 12 percent and retail sales grew 26 percent. Retail sales are now 20 percent of revenue.
In the retail segment, same store sales increased 10 percent. Joe's Jeans added 3 more stores in Q2. Although both full price stores and outlet stores had positive same store sales gains, the full price same store sales increased 38 percent in Q2. So far, in Q3, Joe's Jeans is seeing positive same store sales growth.
Operating income increased by 82 percent in Q2. Wholesale operating expenses increased due to increases in capital costs for the developing of Joe's holiday spring 2013 line. Retail operating expenses increased as a result of having two additional stores in Q2.
Overall gross margins were 47 percent, which was flat from Q2/2011. Retail gross margins were 71 percent, an increase of 6 percentage points. The margin increase was the result of less commercial activity at the outlets and the addition of two full price stores. Store level EBITDA margins were 22 percent, an increase of 6 percentage points.
Wholesale gross margins were 41.4 percent, a decline of 1 percentage point. The reduction was a result of the need to produce a larger number of garments in order to meet short lead times for the printed and color denim products. Additionally, the else brand internationally has a lower gross margin than premium denim. There is about 10 points difference in margin between the else brand and the premium denim business.
Earnings per share were $.02 for Q2, an 89 percent increase.
The full transcript of the earnings conference call can be found on Seeking Alpha at the following link:
Copyright 2012 Jaygo's Earnings Conference Call Summaries
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