Make a decision put on a quarterly earnings report from Joe's Jeans (Nasdaq: JOEZ)? Let us presume one leg at a stretch?
The actual advanced jean material specialized posted unimpressive at wholesale prices results, as well as fledgling retail business was throughout the map. The outcome is a sharp dip in profitability, despite a better-than-expected 20% surge in sales.
Let's pinpoint the company's bread-and-butter wholesale business, which makes up about 84% of overall revenue. Revenue climbed 7%, with Joe's Jeans growing its offerings beyond its flagship denim. Within the last few year, non-denim sales have become from 3% to 16% with the wholesale top-line mix. Diversification is good, but the intended drop within jean material is problematic.
That's right, the economy remains to be as unfashionable as donning black socks in flip flop sandals. This is simply not plumbing service becoming pitching $200 jeans. However, the professionals see double-digit sales growth at rival True Religion (Nasdaq: TRLG) when it reports next month. It cannot be the only thing that bad.
Wholesale gross margins dropped annually, but did improve sequentially. That wholesale operating profit dipped 12% to $5.7 million isn't good, but it's under no circumstances a package breaker.
The conclusion at Joe's Jeans is tested back when we turn our focus on the fast-growing -- but cash-sucking -- retail division. Truly still one small chunk belonging to the revenue mix, but it is also the apparel company's best potential catalyst.
Within the last year, Joe's Jeans moved from just five locations to 14 stores -- with a number of the recent openings as far back as at high-traffic premium outlet malls. Retail sales around tripled to $4.2 million in the quarter, as well as the 223% surge wasn't entirely the handiwork of expansion. Same-store sales clocked in at a superb 23.5%.
Unfortunately, the store-level popularity emerged as the result of cleaning dated items at steep discounts. Gross margins took popular, though at the end during Joe's Jeans' retail operating loss narrowed substantially.
Joe's Jeans' decision that they are an upscale retailer could be the wild card here. A hot brand can spawn a retail empire. Nike (NYSE: NKE) had been a wholesale winner in athletic footwear before rolling out its stores. Remember when Apple (Nasdaq: AAPL) didn't have its namesake stores?
Has Joe's Jeans earned the right to function as the next hot retailer? Not, there is however potential. Their blog is rich with snapshots of celebrities photographed with Joe's clothing. Growing its store base is probably as ambassadorial as it would be just good business.
We're still 1 / 4 beyond your the telltale winter season. This is when the thesis offers a shot to get off. If Joe's Jeans can deliver strong comps and healthy margins in conjunction with the retail level -- and denim sales ın the wholesale level regain on the -- this is a retail stock worth respecting. Past fast-growing yoga apparel specialist lululemon athletica (Nasdaq: LULU), there could shortage of hot public chains which could be still at the outset of their expansion cycles.
True Religion Jeans is capable of it, but that long approach to take to prove it's far created to last.