Shares in the penny stock of Joe’s Jeans Inc. (NASDAQ: JOEZ) are up 28.23% in after hours trading at $1.59. As we mentioned earlier (here), the retail sales results would impact the direction that the stock would go. reporting after the closing bells consolidated Q1 net sales increased 23% to $26.0 million, expect JOEZ shares to be the hottest penny stock on the Nasdaq Friday.
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Joe’s Jeans reported a 40% increase in retail store net sales, a 22% increase in retail same store sales and a 19% increase in wholesale net sales to boost JOEZ operating income 244% to $1.8 million for Q1 of fiscal 2012. Shares in JOEZ traded 847 thousand shares a day on average, double its daily average.
JOEZ 3 Year Stock Chart
Joes’s Jeans CEO, Marc Crossman, said the increase in sales was indicative of two trends that the company began to notice in Q4 of fiscal 2011:
- JOEZ wholesale business had stabilized and was beginning to grow across all channels, and
- JOEZ retail strategy was continuing to offer diversification to the company’s revenue stream.
Retail sales represented 20% of the company’s revenue for Q1. With Joe’s generating healthy growth in both retail and wholesale sales while being able to maintain costs, it only exemplifies the strong growth in the company’s operating income.
Net retail sales for JOEZ increased 40% for Q1 to $5.2 million. The increase in retail sales was fueled by revenue contribution from growing their store base to 22 stores from 18 coupled with a 22% same store sales increase. Gross margins for the company’s retail segment increased 2%, 70% from 68% in the year ago period.
The company’s retail stores reported same store sales increases that had a significant contribution to the Q1 growth of JOEZ. What is increasingly interesting is that same store sales gains at their full price stores, a whopping 70% increase. The else brand of Joe’s Jeans only began shipping in February. It had a huge factor to their top line growth.
So where does JOEZ go from here?
Margins were affected due to the quality of manufacturing not being up to par in Mexico. To alleviate the issue, some of the 55 colors product line was made in the U.S. The Mexican manufacturing issues have apparently been resolved according to the earnings call from CEO Crossman and CFO Sandhu.
Macy’s seems to have become the “cherry” for JOEZ. The else product line weighed in at $1.5 million of February’s sales having just been shipped to the initial Macy’s locations. If both the execs at Joe’s and Macy’s were surprised by the results based on their original expectations by 20-30% weekly, a strong retail market will only fuel that growth.
The total number of stores is set to increase by 100% according to Joe’s. The company plans to 3X the number of orders and market the products more aggressively with increased in store presentations in time for the fall fashion lines. Initially, there was cause for concern about whether the company had the ability to meet the expected consumer demand for the Macy’s else product line. Since manufacturing for the line is in China, there was no danger of quality issues.
The only reason Joe’s had not increased the total number of summer stores or orders was because they needed to allow the manufacturers in China time to be able to meet demand. How crazy is that when you think about growth.
See earnings release here.
Bottom Line: When you look at Joe’s Jeans Inc. and analyze the shares of the penny stock JOEZ, think long and strong. Yes you will get a “pop” when the market opens Friday, 13th. However, looking into the future, Q2 revenues should be somewhere around $35-$36 million with growth stemming from the else product line as the fashion trend snowball affect takes place.
If quality remains under control in Mexico, margins could increase slightly higher once the company shifts the rest of the manufacturing there. If that happens, fiscal 2012 revenues could come in as high as $134 million as JOEZ expands its else product line and continues to grow it’s retail operations. All said, JOEZ could see the stock price back to where it was two years ago before the end of 2012.