Shares of Joe's Jeans Inc. sank 21 percent Tuesday, a day after the designer denim maker reported a worse-than-expected 17 percent decline in second-quarter profit as well as an acquisition.
The Commerce apparel company late Monday reported net income of $1.2 million (2 cents a share) for the quarter ended May 31, compared with $1.4 million (2 cents) in the same period a year earlier. Revenue rose 8 percent to $30.9 million.
The company said results were hurt by higher sales of its lower-margin Else brand compared with its higher-priced lines. Joe’s announced that it planned to shift production of its higher-cost Vintage Reserve brand to Mexico from the United States in order to reduce production costs.
The Wall Street consensus was for earnings of 3 cents a share on revenue of $32 million. Three of the four analysts covering the company downgraded shares to “neutral,” which was the recommendation of the fourth analyst.
Joe's on Monday also said it will acquire another Commerce jeans maker, Hudson Clothing, for $97.6 million, a move expected to double its business and expand its international and e-commerce presence. B.Riley analyst Jeffrey Van Sinder was skeptical about the cost of the deal.
“Although we like the potential sourcing input cost leverage associated with the Hudson acquisition, the company is levering up substantially to pay a not-especially-low (in our view) multiple for a company they will operate largely, separately,” Van Sinder said in a Tuesday note to clients.
Shares closed down 39 cents to $1.47 on the Nasdaq.