annual report 2005 - iis windows serverlibrary.corporate-ir.net/library/85/858/85851/items/... ·...

Annual Report 2005

Directors & Executive OfficersPeter Boneparth President and Chief Executive Officer and Director

Sidney Kimmel Chairman and Director

Wesley R. Card Chief Operating Officer

Efthimios P. SotosChief Financial Officer

Rhonda J. Brown President and Chief Executive Officer of Footwear, Accessories and Retail Group

Lynne F. Coté Chief Executive Officer - Wholesale Sportswear, Suits and Dresses

Ira M. Dansky Executive Vice President, Secretary and General Counsel

Patrick M. Farrell Executive Vice President and Corporate Controller

Howard Gittis†‡Director, Vice Chairman, and Chief Administrative Officer, MacAndrews & Forbes Holdings Inc.

Anthony F. Scarpa* Director, Retired Senior Vice President/Division Executive, JPMorgan Chase Bank

Matthew H. Kamens Director, Attorney

J. Robert Kerrey†‡Director, President of The New School

Ann N. Reese*‡Director, Executive Director of the Center for Adoption Policy

Gerald C. Crotty†Director, President of Weichert Enterprise LLC

Lowell W. Robinson* Director, President of LWR Advisors

Allen I. Questrom Director, Retired Chairman and Chief Executive Officer of J.C. Penney Company, Inc.

Stockholder InformationInvestor Inquiries

Investors and other parties with questions, including requests forthe Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005 (available without charge), should direct ques-tions in writing to: Efthimios P. Sotos, Chief Financial Officer, JonesApparel Group, Inc., 1411 Broadway, New York, New York 10018.

Transfer Agent and Registrar

The Bank of New YorkShareholder Relations Department - 11EP.O. Box 11258, Church Street Station New York, New York 102861-800-524-4458e-mail: [email protected]: www.stockbny.com

Independent Registered Public Accountants

BDO Seidman, LLP330 Madison Avenue New York, New York 10017212-885-8000

Corporate Offices

250 Rittenhouse Circle Bristol, Pennsylvania 19007215-785-4000

1411 BroadwayNew York, New York 10018212-642-3860

*member of Audit Committee

†member of Compensation Committee

‡member of Nominating/Corporate Governance Committee

Jones Apparel Group, Inc. (www.jny.com), a Fortune 500 company, is a leading designer, marketer and wholesaler of branded apparel, footwear and accessories. We also market directly to consumers through our chain of specialty retail and value-based stores, and operate the Barneys chain of luxury stores.Our nationally recognized brands include Jones New York, Evan-Picone, Norton McNaughton, Gloria Vanderbilt, Erika, l.e.i., Energie, Nine West, EasySpirit, Enzo Angiolini, Bandolino, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Kasper, Anne Klein, Albert Nipon, Le Suit andBarneys New York. The Company also markets costume jewelry under the Givenchy brand licensed from Givenchy Corporation and footwear under theDockers Women brand licensed from Levi Strauss & Co. Each brand is differentiated by its own distinctive styling, pricing strategy, distribution channel and target consumer. We primarily contract for the manufacture of our products through a worldwide network of quality manufacturers. We havecapitalized on our nationally known brand names by entering into various licenses for several of our trademarks, including Jones New York, Evan-Picone,Anne Klein New York, Nine West, Gloria Vanderbilt and l.e.i., with select manufacturers of women’s and men’s products which we do not manufacture. Formore than 30 years, we have built a reputation for excellence in product quality and value, and in operational execution.

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JAG manufacturing facility in Location,Country. Items manufactured here can beshipped to there in no time flat.Dear Stockholders and Bondholders,

delivbranded sportswear,footwear a

by

Peter Boneparth President and Chief Executive Officer and Director

In 2005, we focused our resources to prepare for continued future success. Manychanges occurred in our industry, culminating with the much-publicized merger of theFederated and May department stores. Anticipating further department store consol-idation and recognizing continued evolution in consumers’ shopping behavior, weaddressed a need to re-evaluate long-standing processes and procedures and to raisethe bar for our operating performance.

We initiated a Strategic Operating Review in early 2005, focused on speed to market,support systems, product development cycle times, management organization anddesign and marketing. Our experienced senior management has identified and ini-tiated many advancements, allowing us to achieve the highest standards of opera-tional excellence, execution and consumer satisfaction.

We started by applying new processes to all stages of product development, includingintroducing a state-of-the-art product lifecycle management system. We are workingmore closely with our largest suppliers to substantially reduce the time necessary todesign and deliver our products. We also realigned senior management in our whole-sale apparel businesses to provide greater speed and consistency in responding to ourwholesale customers’ evolving needs. Our distribution network also will becomemore efficient with the incorporation of more dynamic routing capabilities. And weplan to eliminate redundancies in transportation and shipping, so that our productsreach selling floors earlier. These changes will allow us to build on our excellent reputation for delivering products consumers want, at just the right time.

To enhance service levels, we are implementing an enterprise-wide resource planningsystem which will enable our Company to operate on one platform. This means onesystem, one view, one consistent way of managing the business. This system willreplace various legacy systems we inherited as a result of our acquisitions. Imaginethe possibilities as we truly begin to compete in the marketplace at an “enterpriselevel”! By getting faster, more efficient, and beginning to compete as an enterprise,we plan to achieve over $100 million in cost savings. We believe that even greaterbenefits will come in the form of increased sales, by reaching the consumer fasterthan ever and by reducing the levels of promotional activity over time.

Even with the strategic operational changes taking place, we will not take our focusoff our brands and their ongoing ascendance with consumers. In 2005, we continuedto gain insight and intelligence from consumers and initiated the largest portfoliostudy in recent years. Our goal: to better understand how consumers view our brands,competitive brands and the retail landscape, and what motivates and inspires them topurchase. This in-depth study confirmed the strength and stability of Jones ApparelGroup’s flagship brands. Jones New York, Anne Klein, and Nine West, which haveearned consumer trust for over 20 years, continue to grow in relevance and are threeout of the four highest-evaluated apparel brands in our competitive set.

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iveringr and accessories to help them achieve this.

Although we’re extremely proud of this consumer report card, we’ll use thisinformation as a tool to move forward. We’ll continue to fine tune our brandingand product selection in order to earn our customer’s choice in an environmentof “more choices than ever.”

Jones New York has successfully transitioned from a rational “go to work”brand to a brand that inspires trust, confidence and success in the women whowear it. At the same time, this brand today has greater equities in youthfulness,femininity, and trendiness than its competitive set. Independent researchindicates that the Jones New York brand, comprised of Collection, Signatureand Sport, is the women’s sportswear volume leader in department stores.

Our AK Anne Klein line and the Anne Klein New York collection have penetrated many more department store locations. We are taking the highconsumer awareness and designer aesthetic of this brand and translating itinto a retail accessory store division, with 15 openings scheduled for this fall,including a flagship store on Madison Avenue in New York City.

Nine West’s sportswear line has grown by over 300% during the past three years,and Nine West continues to lead as the favorite brand of women’s shoes. We areaddressing the Nine West consumer's continuous desire for fashion-driven product through our newest marketing effort - co-branded designer footwear col-lections using both established and up-and-coming designers, such as VivienneWestwood, Thakoon, and Sophia Kakosalaki - all to be delivered in limited dis-tribution to key stores this fall. Additionally, you will see the first evolution of atotally new Nine West accessory store. This store is an accessory and shoelover’s destination, with a new merchandising approach created from an obser-vational study of the impulse buying behavior of our consumers. We believe thisis very innovative, and we look forward to our first opening this summer.

2005 was the first full year in which we operated the premier luxury specialtyretailer, Barneys New York. Barneys has already exceeded our plans and iswell on its way to being a $1 billion business over time. To continue thisgrowth, we will focus on core flagship store openings in select cities. A Bostonlocation opened in March, a Dallas store is scheduled to open this fall, and aLas Vegas flagship is scheduled for fall 2007. We also will grow the CO-OPBarneys New York concept stores, which serve trendy, younger customers.

In March, we celebrated the nationwide launch of Million Wishes, Inc., a newdirect-selling division. It’s an innovative concept using style consultants to sellan exclusive line of fashion accessories to their network of friends in a homeparty setting. It’s a relaxing and sociable new shopping experience for manypeople and is expected to be an exciting growth opportunity for our Company.

One of our largest growth opportunities is to take what we own domestically andapply it on an international level. The Company, including our Canadian sub-sidiary, has already had many successes in that area. The International division

continues to grow and flourishthrough affiliations in over 60 coun-tries, with over 800 selling locationsworldwide. Last year, our affiliatesgenerated retail sales and wholesaleshipments in excess of $400 million.

We believe that along with financialsuccess comes the social role of themodern corporation in supportingwhat matters. At Jones ApparelGroup, we want to create more thanfashion. We strive to create valueby understanding the concerns ofboth our employees and consumersand by refocusing resources to trulymake a difference. Teachers arethe heart and soul of our children’s education, and they need our support. JonesNew York In The Classroom, Inc. is a non-profit organization established witha grant from Jones Apparel Group, designed to help improve the quality of edu-cation for America’s children and inspire others to do the same.

Our employees have volunteered and raised funds for Jones New York In TheClassroom, which in turn has donated funds to benefit four leading nationalnon-profit organizations that support teachers. We’re using our fashion senseto outfit teachers with back-to-school wardrobes. We’re using our design senseto make over classrooms. And we’ve given our associates over 250,000 paidhours to volunteer in pre-kindergarten through 12th grade education facilitiesin their local communities.

So far, we have been extremely successful. We have inspired teachers from allover the country to participate in supportive programs that provide resourcesand foster retention. And we’ve raised hundreds of thousands of dollars forJones New York In The Classroom during special shopping weeks dedicated toeducation.

Jones Apparel Group’s flagship brands hold very high standing with consumers,and we are totally committed, aligned with the proper intelligence and invest-ing, to maintain that position. I also believe that operational excellence will bea key element in driving our success toward achieving our goals. And while weare exploring new avenues, we will never lose sight of our foundation and rep-utation in product quality and value.

I want to extend my sincere thanks to all of our worldwide associates, and to ourmany customers, suppliers and investors, whose loyalty and support are deeplyappreciated.

Sidney KimmelFounder, Jones Apparel Group, Inc.Chairman and Director


operationale

SAP System

On December 15, 2005, Jones Apparel Group, Inc.announced the selection of the SAP Apparel and Footwearsolution as the core enterprise resource planning system forthe Company. We are currently implementing the SAPApparel and Footwear solution in our apparel businesses, aprocess that we expect to complete within 24 months. TheSAP solution will greatly assist the Company in its ongoingefforts to eliminate redundancies and enhance our overallcost structure and margin performance.

12

Speed 2 StyleIn the fall of 2005, we implemented “Speed 2 Style,” the first phase of a speed-to-marketinitiative that combines supply chain efficiencyand design with product development processes.This means shorter cycle times, a leaner supplychain, and design decisions made much closerto market – all to get our product on the sellingfloor and in our customer’s hands faster.

We’re also moving many of our basic processesdirectly to our trading partners. Small teams ofpeople work directly with these partners, toensure the quickest, most accurate communica-tion possible.

We are now able to assess our customer’s needsfaster, and add to or adjust our designs muchcloser to the floor. The result – more of whatour customers want, more quickly than ever.

Speed 2 Style will be fully implemented withinall our sportswear divisions by the end of 2006.


lefficiency

3

4

Management Realignment

In 2005 we undertook a management realignmentthat will allow us to better serve our wholesalecustomers across all channels of distribution byresponding quicker to their evolving needs. Thisallowed us to further leverage our infrastructureto gain additional operational efficiencies. It alsowill allow us to achieve greater consistencyacross our wholesale apparel product categoriesand to increase the coordination of our brandingstrategies.

Pictured above (clockwise from back left): Jack Gross, Chief Executive Officer - Denim and Junior Businesses; Wesley R. Card, ChiefOperating Officer; Howard Socol, ChiefExecutive Officer, Barneys New York; Rhonda J.Brown, President and Chief Executive Officer ofFootwear, Accessories and Retail Group; andLynne Coté, Chief Executive Officer - WholesaleSportswear, Suits and Dresses.

Competing as an Enterprise

Our new SAP system, Speed 2 Style initiatives, and the management realignment will better allow us to take advantageof our size and scale.

This new operating model will allow all of our brands to functionindependently, which is critical to keeping their differentiation.But there also will be a new consistency in order to eliminateredundancies and leverage cross-brand value.


strength &s

Jones New York, Nine West and AnneKlein were three of the four highestconsumer-evaluated brands in arecently conducted apparel survey.- Jones Apparel Group Brand Portfolio

Study (August 2005)

Nine West was rated consumers’ favorite footwear brand in anationally representative survey.- The NPD Group Jones Core Tracker (October 2005)

Anne Klein was ranked seventhin WWD’s 2005 list of topdesigner brands.- The 3rd Annual WWD Book

of Lists (December 2005)


stabilitythrough our brands


luxumaximizing the


xury“Taste, luxury and humor” is the mantra of Barneys NewYork. Barneys is known around the world as a high-endretailer of luxury designer brands for men and women,including Prada, Lanvin, Balenciaga, Giorgio Armaniand Ermenegildo Zegna.

Barneys operates flagship stores in New York, BeverlyHills and Chicago. And its offspring, CO-OP Barneys New York, serves trendy, younger customers through eight standalone stores.

In 2005, Barneys had a record year of sales and profit.And on March 10, 2006, we kicked off the beginning of our tremendous expansion plan for the retailer, with theopening of the Boston flagship store.

market


Jeanstar brings denim to a whole new level of style. It attracts and connects with the modern sensibility of consumers who want the latest in contemporaryfashion, without having to pay for it. Jeanstar is a new brand of denim which allows women to make astatement with their own sense of "sexy" and feel like a future "STAR"!

We’ve combined the heritage of a classicbrand name with a modern design aesthetic. And we’re offering it to our customers at a more affordable pricepoint. Circa Joan & David is qualityfootwear for women who want the latestfashions, without having to pay fulldesigner prices to get them. It’s the perfect solution for the career woman who enjoys her fun, too. Each pair isbeautiful and versatile enough to go from a professional office setting to a fashionable party in style.

INTERNATIONAL The International division continues to grow and flourishthrough affiliations in over 60 countries, with over 800 sellinglocations worldwide. Last year, our affiliates generated retailsales and wholesale shipments in excess of $400 million.

Nine West sportswear was introduced in Hong Kong – the first time for the brand outside of North America. And the first Anne Klein New York accessory store opened in theprestigious shopping center, IFC, in Hong Kong.

newgrowtnurturing


Million Wishes is a new direct selling division that launched nationwideMarch 1, 2006. Style Consultants attend home parties where they will sell an exclusive line of fashion accessories to the party hostess’ network of friendsand family. It’s a fun, convenient shopping experience that allows customersto try on products before they buy and receive honest feedback from theirfriends. The product line of 250 fashion accessories includes jewelry, hand-bags, belts and buckles and ranges in price from $16 to $232.

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msupporting what


mattersJones New York In The Classroom is a non-profit organi-zation dedicated to improving the quality of education forAmerica’s children and inspiring others to do the same.Teachers are the single most important factor in raisingstudent achievement, but they face many challenges. Bythe year 2010, the nation will need 2.2-2.4 million moreteachers, yet teaching remains low on the list of careerchoices. 30-50% of teachers leave the profession within3-5 years; those who remain spend an average of $1,200 ayear out of their own pocket to provide basic learningsupplies for their classrooms.

Jones Apparel Group is doing what it can, as a company,to help. So far, we’ve donated millions of dollars in fundsand services to Jones New York In The Classroom, whichhas donated money to non-profit charities that supportteachers. By giving our associates over 250,000 hours tovolunteer in pre-K through 12th grade education facilities,we hope to increase awareness of volunteerism and howvital it is to helping teacher-based programs grow.

We’re also donating our expertise. By outfitting teacherswith back-to-school wardrobes and helping make overclassrooms with the assistance of The Home Depot anddesigner Laurie Smith, we hope to take some of the burdenoff of teachers’ shoulders so that they can concentrate oneducation.


Jones Apparel Group, Inc. & Subsidiariesall amounts in millions exceptper share and employee data 2005 2004 2003

total revenues $5,074 $4,650 $4,375

gross profit $1,830 $1,705 $1,637

gross margin 36.1% 36.7% 37.4%

operating income $497 $528 $580

operating margin 9.8% 11.4% 13.3%

net income $274 $302 $329

diluted earnings per share $2.30 $2.39 $2.48

working capital $448 $612 $827

total assets $4,578 $4,551 $4,188

stockholders’ equity $2,666 $2,654 $2,538

book value per share $23.01 $21.72 $20.11

dividends per share $0.44 $0.36 $0.16

employees 13,530 17,260 17,095

Wholesale Better Apparel

Wholesale Moderate Apparel

Wholesale Footwear and Accessories

Retail

Other

financial highlights

2005 2004 2003

28.3%

24.9%19.3%

26.3%

1.2%

32.1%

28.3%

21.6%

16.8%

1.2%

33.7%

30.0%

19.8%

15.7%

0.8%

TOTAL REVENUES BY SEGMENT


ourvisionDirectors & Executive OfficersPeter Boneparth President and Chief Executive Officer and Director






















Corporate Offices



* member of Audit Committee

† member of Compensation Committee

‡ member of Nominating/Corporate Governance Committee

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Annual Report 2005

Directors & Executive OfficersPeter Boneparth President and Chief Executive Officer and Director






















Corporate Offices



*member of Audit Committee

†member of Compensation Committee

‡member of Nominating/Corporate Governance Committee

Jones Apparel Group, Inc. (www.jny.com), a Fortune 500 company, is a leading designer, marketer and wholesaler of branded apparel, footwear and accessories. We also market directly to consumers through our chain of specialty retail and value-based stores, and operate the Barneys chain of luxury stores.Our nationally recognized brands include Jones New York, Evan-Picone, Norton McNaughton, Gloria Vanderbilt, Erika, l.e.i., Energie, Nine West, EasySpirit, Enzo Angiolini, Bandolino, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Kasper, Anne Klein, Albert Nipon, Le Suit andBarneys New York. The Company also markets costume jewelry under the Givenchy brand licensed from Givenchy Corporation and footwear under theDockers Women brand licensed from Levi Strauss & Co. Each brand is differentiated by its own distinctive styling, pricing strategy, distribution channel and target consumer. We primarily contract for the manufacture of our products through a worldwide network of quality manufacturers. We havecapitalized on our nationally known brand names by entering into various licenses for several of our trademarks, including Jones New York, Evan-Picone,Anne Klein New York, Nine West, Gloria Vanderbilt and l.e.i., with select manufacturers of women’s and men’s products which we do not manufacture. Formore than 30 years, we have built a reputation for excellence in product quality and value, and in operational execution.

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