As of yesterday's close, year-to-date, both stocks have underperformed the S&P 500, with LIZ up 1.3% and JNY down 0.1%. Things aren't much better when looking at one-year returns, JNY is down 3.2% and LIZ up 11.6%. The S&P 500 returned 11.8% over the past 52 weeks.

Jones Apparel Group Inc. (NYSE: JNY) is a designer, marketer and wholesaler of branded apparel, footwear and accessories. The company also markets directly to consumers through its chain of specialty retail and value-based stores (where I shop), and it operates the Barneys New York chain of luxury stores. The company has four business segments: wholesale better apparel (higher price range), wholesale moderate apparel (lower price range), wholesale footwear and accessories (with different price points), and retail -- the company's own stores. The company's brands include Jones New York, Nine West, Anne Klein, Gloria Vanderbilt, Kasper, Bandolino and Easy Spirit among others.

Jones Apparel market capitalization is $3.6 billion and it has traded at a 52-week range of $27.30 set in mid-August of lat year and $35.54 set in January. JNY shares close up 1.3% or $0.43 to $33.40 yesterday. JNY trades at a TTM multiple of 14.7 and a forward multiple of 14.5.

On February 14, Jones reported fourth quarter and fiscal 2006 results, swinging a loss due to goodwill impairment charges. As MarketWatch commented, such charges are typically an acknowledgment that the company overpaid for an acquisition. Charges or not, revenue declined. While in the fourth quarter revenue was nearly flat compared to the fourth quarter of 2005 (with a slight decline), for the year, revenues declined from $5.1 billion in 2005 to $4.7 billion in 2006.

The company also said it plans to close manufacturing facilities and is repositioning its l.e.i. brand.

Some good news: Jones said that during the fourth quarter the wholesale better apparel business actually expanded its operating profit margin and the denim businesses (which include Gloria Vanderbilt and l.e.i.) also expanded operating margin. Also, quarter-over-quarter sales increases were seen in Nine West, Easy Spirit, Anne Klein and Circa Joan & David footwear brands. Total revenues for this segment increased approximately 10% from the prior year period. Barneys New York luxury retail business generated a comparable store sales increase of 11.2% in the quarter. Jones stated it would cut costs by over $100 million annually by the end of 2007.

Guidance given for 2007 was for earnings per share growth of approximately 10% when compared to $2.19, including approximately $10 million of investment spending in connection with the launch of the Anne Klein collection spearheaded by Isabel Toledo. Jones will also continue its ongoing share repurchase program.

Back in October, Jones announced it would increase quarterly dividend from $0.12 to $0.14 for a 1.7% dividend yield.

Mostly it was management changes that have plagued the company and depressed its stock price recently. On the 29th of March, JNY shares slipped 5.3% following the announcement that the company's chief financial officer has departed. After the announcement, Morgan Stanley's Brian McGough and Merrill Lynch's Virginia Genereux downgraded the shares, saying that this combined with other recent management changes bring uncertainty. McGough pointed out that a high profile board member resigned only five weeks earlier, which cannot be because the company's prospects have turned for the better. "Private equity walked away from the company, and we're hard pressed to think that that (Jones Apparel) can create greater value on is own," McGough wrote.

So indeed, Jones put itself on the block last year but after no interest (so we are told), it took itself off the block. In addition, it was rumored that Jones could be considering to spin off a portion of Barneys to the public in a share offering.

Many consider Jones apparel brands to be mature and lack the growth potential of younger brands. Many consider that slicing the company up could bring in some interested bidders.

Indeed, looking at the last year's top line growth rate of -6.5% and the 3% growth rate of the past 5 years , JNY is well behind other brands. For example, Urban Outfitter Inc.'s (NASDAQ URBN) growth rate was 12% last year and 28.5% over the past 5 years, Abercrombie & Fitch Co.'s (NYSE: ANF) 19% and 19.4%, Polo Ralph Lauren Corp.'s (NYSE: RL) 15% and 11% and LIZ's 3% and 7.7%. Similarly, JNY's gross margins over the past 5 years averaged 37% compared with URBN's 39%, ANF's 62%, LIZ's 46% and RL's 51%.

So while the P/E currently reflects all these issues and despite the fact that personally I swear by the Jones New York brand, it is hard to see positive prospects at the moment. Mind you, there has been some positive activity in the stock the past few days as it closed up 1.3% on higher volume yesterday and today it is also 1% at the moment.

Update: A private equity firm owned by the Dubai government, Istithmar, is looking to buy the Barneys chain for $950 million according to sources, cautioning that the deal is weeks away, and could still fall apart. Jones bought the company in 2004 for $400 million
According to the Post, "Istithmar recently paid $76 million to buy an empty lot in Times Square for a planned hotel." Adding Barneys to that, would give Istithmar a luxury brand that could be expanded overseas. Barneys CEO already visited the Middle East for possibly opening stores there as demand in Dubai and other affluent cities for luxury brands has increased.
While activity in the stock has been positive, many caution that the sale could result in the company being downgraded into junk territory.
Barneys has been a bright spot for Jones. Without it, the company's fundamentals could deteriorate further. I'd still stay away.

Next time, I'll go over Liz Claiborne and see if there's an investment opportunity there.