Joe’s Jeans stitches up higher sales

In the fickle world of expensive denim, it says a lot that Joe’s Jeans Inc. of Commerce is not only still independent but also growing.

The fancy-denim business has been roiled by takeovers as investors and manufacturers try to grab the next hot thing. And shoppers’ love of labels is notoriously fleeting.

At Joe’s Jeans, sales of premium denim last year topped $118.6 million — its best post-recession showing. In its most recent fiscal quarter, the company’s net profit fell slightly to $1.2 million from $1.4 million a year earlier, but overall sales were up 8% to $30.9 million.

The Joe’s Jeans name comes from Joe Dahan, the company’s creative director and a board member. Dahan has been head designer for the Joe’s premium denim line since its formation in February 2001. Joe’s Jeans is run by Marc B. Crossman, who has served as chief executive since January 2006 and as president since September 2004.

The product line includes women’s and men’s denim jeans, other types of clothing, handbags and leather goods. The biggest sales come from women’s jeans and other pants in several fits, fabrics, washes and levels of detailing.

About a fifth of the company’s products are still made in California. More than half are made in Mexico, with another large share made in Asia.

The company is known for its back-pocket stitching, which uses a tiny needle arch and stylized JD logo. Loyal celebrity wearers include Minka Kelly, Charlize Theron and Heidi Klum.

The company traces its origins to 1987 and the formation of Innovo Inc. in Texas. It was renamed Joe’s Jeans in October 2007, although the business had already acquired license rights to the name Joe’s Jeans and the JD logo in February 2001.

Lower prices have helped the company keep its momentum.

“It’s premium denim, but you will see most of their price points up to $200,� said Jared Schramm, senior research analyst for Roth Capital Partners. “That is a lot more palatable than going for $300, $340, where we see some of their competitors.�

The latest

In July, the company agreed to acquire crosstown rival Hudson Clothing Holdings Inc., makers of Hudson Jeans, for $97.6 million. The buyout will nearly double the size of Joe’s Jeans and allow it to reduce costs, the company said in a statement.

Analysts say that Joe’s Jeans has found success with small retail shops in well-placed locations. Typical of this trend was the launch in August of the company’s 33rd boutique in the Fashion Show Mall in Las Vegas.

“Without a doubt, the productivity of those stores is definitely higher than the productivity of our larger stores,� Crossman said in a recent conference call with analysts.

Accomplishments

Joe’s Jeans has survived, in part because it appeals to a broad array of customers in terms of age and income range, said Khanh T.L. Tran, sportswear denim and textile editor in Los Angeles for Women’s Wear Daily.

Tran said Joe’s Jeans “has really had to broaden its reach. They are still probably selling to the people who bought them when the company first started, but then they are also reaching the millennials coming up.�

Challenges

Joe’s Jeans will be busy trying to stitch Hudson Jeans into its corporate world.

Wall Street has its doubts: The stock price, which had been nearly $2 a share, has been running at about half that price since the acquisition announcement.

Crossman says the combination will be a good fit for both companies, which excel in different parts of the denim business.

“We have no intention of mixing the two in any way, shape or form,� Crossman said, “because we really don’t want to change the growth trajectory that both Hudson and Joe’s are on in terms of the penetration and the momentum we’re seeing at retail.�

Analyst views

The four analysts who regularly follow Joe’s Jeans have it rated as a hold.

Edward Yruma and Jane Thorn Leeson, analysts for KeyBanc Capital Markets Inc., like the Hudson Jeans move. “We believe the acquisition of Hudson Jeans can provide a material lift to earnings over the next few years,� Yruma and Leeson said in a recent note to investors.

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Twitter: @RonDWhite