Jones Apparel Group, Inc. $31 - New York symbol JNY

JONES APPAREL GROUP, INC. $31 (New York symbol JNY; WSSF Rating: Average) designs and markets men’s, women’s and children’s clothing, footwear and accessories. Major brands include Jones New York, Gloria Vanderbilt and Nine West. Jones hires independent manufacturers to produce these products. It sells through big department stores, and through its own chain of roughly 1,050 retail outlets. To cut costs, Jones has consolidated its denim operations in Mexico into one plant, and closed a distribution center in Pennsylvania. It is also streamlining its production cycles and cutting administrative costs. These changes will cost Jones between $70 million and $80 million. But they should cut its annual costs by $100 million within three years. To put these figures in context, Jones probably earned $2.37 a share (total $276 million) in 2005. The stock now trades at 13.1 times that estimate. The $0.48 dividend yields 1.5%. We still think Jones has long-term appeal, but the stock may only move sideways until it begins to realize the benefits of this restructuring. Jones Apparel is a hold.