The Jones Group Inc. (NYSE:JNY) has recently hired Citigroup Inc (NYSE:C) to advise on the sale of the company. Right after the news, the company reached its 52-week high of $17 per share. Since the beginning of the year, The Jones Group Inc. (NYSE:JNY) has advanced significantly, up 39%, beating the S&P 500’s gain of only nearly 18.70%. Jones Group is currently in the portfolios of several famous investors including Richard Pzena and Joel Greenblatt. Should we invest in The Jones Group Inc. (NYSE:JNY) at its current trading price? Let’s take a closer look.
Consistent growth in sales but fluctuating net income
Jones Group is the leader in designing and wholesaling of more than 35 brands including Nine West, Jones New York, Easy Spirit and Enzo Angiolini. Most of its revenue, $920 million, or 24.2% of the total revenue, were generated from the Domestic Wholesale Footwear & Accessories segment while the Domestic Wholesale Sportswear ranked second with $782 million in 2012 revenue. The Domestic Wholesale Footwear & Accessories was also the biggest operating profit contributor, with $57.4 million in operating income in 2012 while the Domestic Wholesale Jeanswear stood at the second place with $53 million in profits.
In the past four years, The Jones Group Inc. (NYSE:JNY) has experienced a consistent growth in revenue, from $3.3 billion in 2009 to nearly $3.8 billion in 2012 while the net income fluctuated in the range of $(87) million to $54 million during the same period.
What I like about The Jones Group Inc. (NYSE:JNY) is its cash flow generating capability. In 2012, the company produced $113 million in operating cash flow and $36 million in free cash flow. The company employed some leverage in its operations. As of March, it had $988 million in equity, only $45 million in cash and as much as $1 billion in both long and short-term debt.
Ongoing business restructuring
What might attract investors is the company’s plan to improve its profitability, especially the domestic direct-to-consumer business. By mid-2014, Jones Group will close around 170 underperforming domestic retail stores, conduct ongoing reviews of individual store profitability, optimize wholesale channels with a sportswear focus and reduce staff count by around 8%. Jones Group estimated that it would achieve around $40 million in annualized pre-tax savings and narrow operating losses by mid-2014.
Jones Group is trading at $15.40 per share, with the total market cap of around $1.2 billion. The market values The Jones Group Inc. (NYSE:JNY) at as much as 10.44 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization).
How about Brown Shoe and PVH?
Compared to its peers including Brown Shoe Company, Inc. (NYSE:BWS) and PVH Corp (NYSE:PVH), Jones Group’s valuation stays in between.
Brown Shoe Company, Inc. (NYSE:BWS) is trading at $23.60 per share, with the total market cap of around $1 billion. The market values Brown Shoe at a lower valuation, at 8.9 times its trailing EBITDA.