[Beginning of Cramer's verbatim comments for this segment...]

Jim:          Despite what the papers would have you believe… retail is alive and well… and reports of its demise have been greatly exaggerated.. .there is so much strength in this group… real strength, so much profit… even if sales are not as strong… we need to focus on finding the best names in the sector… not writing them off… even though a lot of them have moved… which is what brings me to Jones Apparel (JNY)… probably known to you as Joan’s New York, Anne Klein, Nine West, Easy Spirit, Gloria Vanderbilt, and a host of other brands… it has been one of my favorite retailers and apparel concerns… now the stock is up huge since I last recommended it… $9.69 on July 13th… 75% move… but I think that it even has more room to move… of course, Jones Apparel is up more than 500% from its low of $2.53 in November of last year… but it never should have been down there in the first place given how well it was doing the whole time.

Jones Apparel has four main segments… they are each in strong shape… wholesale better apparel let by Jones Signature… wholesale jeans ware, they have got the cheapest, I think, high quality jeans… they have got a Wal-Mart partnership there that is paying huge dividends… wholesale footwear and accessories where Nine West has been on fire… and retail, where Jones is focusing on outlet stores… improving the look and lighting of its existing stores so they do not feel like some sort of pipe rack operation… and developing, most importantly, new concepts like Rachel Roy… this is Jones higher end women’s fashion concept… to me it puts this thing in a much higher level than anyone thinks of JNY… it is a different brand… very contemporary… it is the company… well, let’s just say that they have very high hopes for it.

And it looks like Jones Apparel is doing a great job of incubating a new concept…I want to get ahead of the story, because I think that you could propel it to maybe… maybe to $20... earlier today I got a chance to check out Jones Apparel’s Rachel Roy’s stores… a pop up store… and talk with Wes Card, Jones Apparel’s terrific CEO to see what is in the works at this retail and apparel company… that I think, even though it went to $16 today… has more room to move.

[film clip of interview was then shown]

Jim:              Okay, Wes, where the heck are we? What kind of store is this that I am looking at?

Wes:         It is really a modern, contemporary area for shopping in New York. And we have opened this pop up store to support the launch of Rachel Roy, which officially launches tomorrow night at Macy’s nationwide.

Jim:     Okay, you use the term pop up… what does that mean?

Wes:     Well, this is designed to be a live window into how the customer is shopping. What we want to do is expose them to the product in a very brief period. Hopefully, we will sell out in a couple of days. And support the launch at Macy’s.

Jim:     Is it more important for you guys to have gigantic billboards that talk about Rachel Roy? Or to have something that is viral on the internet?

Wes:     This is all social, about social marketing, Rachel Roy. That includes the website which we just launched last week. A terrific website. It tells Rachel’s story, it shows her to be able to personify the brand. There is a documentary on her on vogue.com. Which launched last week. She does Twitter, Facebook, we have the iPhone application which ties into vogue.com. All of this is how this customer will find the product.

Jim:     We are all so used to retail being terrible. Is Jones doing something that no one else is doing?

Wes:     It is a part of execution and building some momentum with this brand. And as Rachel Roy and a designers star has risen, it has been just a lot of enthusiasm and excitement about this brand.

Jim:     Okay, let’s put this brand into context for the much larger Jones situation.

Wes:     Well, this is important to us as a brand. It is the first true designer brand that we have. What I mean by that is the real live designer attached to the product. In terms of retail, we will be selling this exclusively in Macy’s initially. This store should be open for another couple of days and then shut down. For our own retail, about 20% of our business is retail. We think that it is very important. A third of that business is regular priced, mall based or street levels stores. Those are really important to show case the brand.

Jim:     I have been recommending this stock all the way. I have to say all the way down, it has come all the way back up. What the heck was your stock doing in the low single digits, given how well the company is doing?

Wes:     About this time last year, I stared to get really uncomfortable with the tone of business. We became very proactive on controlling our expenses, our inventory, really thinking about how we are going to cut spring for next year. How much are we going do produce. Got very conservative and cautious. We revamped our balance sheet. Our finance, we have worked on that. We did several renditions, to the point that at the end of the first quarter, we had completely restructured the balance sheet. Paid off some debt early. So we did all of those things proactively, and as business began to stabilize, and Wall Street started to become more comfortable, we actually exceeded. For the first half of the year we are even with last year on an earnings per share basis. In a really difficult period where sales had come down. In fact, in second quarter, we were way ahead of last years results. Of which I am really proud of, I think the team we have in place just did a phenomenal job executing thru this environment.

Jim:     Can you explain in non-retail speak, why inventory mattered? Why execution mattered? And why same store sales, while down, did not necessarily predict what would happen with Jones?

Wes:     Well, I think same store sales in general, there is an obsession with that. First of all, there is an obsession with top line. That, over the long term, you have to increase your top line. But to have an expectation in this environment that you are going to plan for and try to increase your top line, just creates extra inventory And so coming back to the inventory, we planned very conservatively against what demand would be. We hoped we would sell out. We worked very hard on our merchandise assortments, so the products that we manufacture actually get sold into the store. And then we moved very quickly to get the excess out of the system. We have been harping on that with our division team. In fact, a lot of our incentive comp is based on inventory control, cash flow, so that we have the whole management team focused on that. So I think that the corollary to that is with the same store sales it is the quality of the sales that is important. Part of the reason that they missed same store sales is because of less promotion. There is less inventory in the channel.

Jim:     Meaning again, just to be in English, you have a lot of inventory, you have to run big sales? If you run big sales, you do not make as much money as having less inventory, less top line, less revenue, but more profit?

Wes:     I think as we go into the back half, retailers have come into the back half very clean with their inventories. If people notice, at the same time that they are announcing that same store sales are down, they are have often been taking their guidance up for bottom line. They are having stronger gross margins, controlling their expenses. And that is going to be the story, I think, in the back half.

Jim:     Can you speak to this beautiful store with a lot of great fashion in it, but you also have a very dominant franchise in places like Wal-Mart. That is not what we are seeing with Rachel Roy, right?

Wes:     Actually, our strategy is to be the best supplier across a variety of channels. And we want to be able to execute at this level, at a designer level, and with Wal-Mart, Target, and those type businesses.

Jim:     We keep hearing that footwear is strong, why is that?

Wes:     Women love shoes Jim. You know I cannot come up with a better answer, women love shoes.

Jim:     My friends have traded the stock for a long told me that one of the reasons why they like Jones, is that Jones saw the department stores, at least the high end department stores in trouble, and sold Barney’s at the top. And got big proceeds. How did you know to get out of Barney’s?

Wes:     We got the future present value of that investment. We really were able to maximize it in a period when that business was very strong. And so we took advantage of that and sold it, we got criticized at the time. Although now you look back, at that time luxury was king, and never going away. Now, obviously, we are in a whole different world.

Jim:     Has retail changed to the point where what we should really be focusing on is your debt situation and how you are handling your cash flow? Cause these are things when I was trading retail, really were not important.

Wes:     You really need to focus on the fundamentals. One of the reasons we are coming thru this and our stock has recovered so nicely, is we have a strong balance sheet. You have to, I never could have when I was CFO of the company too much back up lines of credit or too much cash in the bank. And I think that puts us in a unique spot.

Jim:     Another thing that we have been critical of on Mad Money is that the retailers think that all they should ever do is add stores. Never subtract stores. Never close stores. You guys have been tough on that too, right?

Wes:     You know we have been looking for the last couple of years at some of the underperforming parts of our portfolio. We were patient. We had a lot of leases coming due in the next year or two. As it worked out, we are going to be able to close 250 stores in the next year and a half, save about $20m in operating losses, with very little cash cost. And we are addressing that issue. And so we are really dwindling the chain down to the really good locations, good concepts, and I think that we have a great opportunity to get back to significant profitability.

Jim:     I am waiting for the parade of holiday sales will be terrible stories. Is the media too negative about retail?

Wes:     Absolutely, because, again, they miss the picture. As I said earlier, fourth quarter, the sales quality will be much better. People are still shopping. Even though, if sales are up or down a couple of percent. The retailers are planning for that. And so they should have much better margin on their sales. They are cutting costs. And I think overall, I would consider that a successful result. As consumer confidence builds, housing market bottoms out, we hit the peak of unemployment, then they can start planning reordering and planning for sales increases. But in the meantime, it is important to focus on the quality of what you are doing. Not just the quantity.

Jim:     What does it mean to a retailer when you pick up the paper or you see a video tape and Michelle Obama is wearing something that you make?

Wes:     With Rachel, she has really established herself in that segment of dressing. Michelle Obama, Oprah, many of the stars and celebrity. And that creates the umbrella for all of this product. And the aspirational sense that women want to be just like them and wear those products. So it is tremendously exciting.

Jim:     Okay, Wes Card, thank you very much.

Wes:     Thank you.

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Bottom Line:     (Jim did not have a further comment - cut to commercial)

 

 

 

[verbatim recap]

[end of segment]

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