Wide Legs Put Squeeze on Premium Denim Maker

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What’s the skinny on premium denim maker Joe’s Jeans Inc.?

The Commerce apparel company found success with its skinny jeans such as jeggings – jeans that fit and look like leggings. But the $158 tapered-leg jeans have become a fashion victim.

Joe’s Jeans was slow to slip into the trend of wide-leg jeans that shoppers, particularly those who are still spending upward of $150 a pair, now prefer. What’s more, sales for premium denim remain flat as more consumers switch to less expensive blue jeans.

As a result, the company’s stock has been slipping. Shares closed at 76 cents June 15, down 67 percent from last June’s 52-week high of $2.30.

The slumping stock led Nasdaq to warn the company that it was in danger of being delisted because its stock has been selling for less than $1 a share for 30 consecutive trading days. The company has until Dec. 5 to maintain a closing price at $1 a share for at least 10 consecutive trading days. The company disclosed the warning June 10.

The latest earnings, reported two months ago, showed the company’s first quarter sales had declined and net income dropped 73 percent from the previous year.

David Griffith, senior research analyst at Newport Beach investment banking firm Roth Capital Partners LLC, who follows Joe’s Jeans and rates the company’s stock “neutral,” said the company has recognized its missteps.

“They said, ‘We had a tough spring, we didn’t get the merchandise exactly right.’ And it’s certainly a tough environment for denim,” Griffith said.

Joe’s Jeans has faced Nasdaq delisting warnings before. In September 2009, a warning came when its shares traded for little more than a quarter. And the company’s predecessor, Innovo Group, was warned of a possible delisting in June 2006, when shares hovered around 75 cents.

Joe’s Jeans regained compliance after both warnings, and the company hit its stride last year with then-stylish skinny jeans and other items such as nondenim pants, basic T-shirts and button-down shirts. It also began opening retail stores at high-profile locations such as the newly remodeled Santa Monica Place shopping mall.

But in an April conference call, Chief Executive Marc Crossman acknowledged that a decline in its jeggings business dragged first quarter sales down 9 percent to $21.3 million. However, he added, sales began to pick up after the company made changes to its spring lineup, introducing updated styles such as the skinny microflare jean that plays into the wide-leg trend.

Nationally, less expensive jeans are selling slightly better than a year ago, but high-end denim sales are down, according to Port Washington, N.Y., market research firm NPD Group Inc.

In response to the challenges in this environment, Joe’s Jeans is updating styles for its fall lineup and opening more retail stores in the United States and abroad.

Crossman is counting on the company’s design power to help boost sales.

“For fall 2010, we’ve built on this momentum from spring by placing more focus on fashion-forward trends and silhouettes as well as fabric innovation,” Crossman said in the April conference call.

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