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Friday, March 6th, 2015


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Stock Spotlight: Clothes Shopping

Whether its fad, fashion, or the latest hot trend, the retail industry is constantly evolving with the ever-changing style of the clothing industry. Clothes are obviously a must-have for everyone, but should they be on the shopping list for savvy investors?

Let’s take a look at some clothing and retail stocks to see if you need to take inventory on clothiers or if you should forgo the sale.

Tommy Hilfiger (TOM)

Price: $10.39

Snapshot:Tommy was once the "in" thing among kids, but the high-priced line of designer clothes has since fallen on hard times.

Pros:

  • Trading at eight times earnings, Tommy Hilfiger is selling at a deeply discounted price of just over $10 per share—45% off from its 52-week high of $18.26.
  • Company is undergoing a management overhaul as it tries to emerge from an ongoing accounting scandal. New management can clean house and start fresh with investors and the feds.
  • Despite Tommy’s recent woes, the company did earn $1.58 per share.

Cons:

  • A probe into Tommy’s tax accounting practices has put a bad stitch in time for investors as they browsed the shelves of the holiday season.
  • Delays in earnings reports during the second and third quarters of 2004 were not exactly tailor-made for a stock rebound.  Tommy needs to clean house fast or it could be hard- pressed to market any more knit collared shirts.
  • Company had to negotiate with its creditors to avoid a default on its loans, due to delays in earnings reports.

Hot Topic, Inc. (HOTT)

Price: $16.79

Snapshot: There’s nothing more fickle than the teenage shopper. Hot Topic was on fire last holiday season, but this year, tastes have changed yet again.

Pros:

  • Appeals to a young diverse, music-oriented crowd between the ages of 12-22. In addition, Hot Topic’s plus-sized themed Torrid stores prove that every model does not possess a 20" waist size. That’s a message that teens need to hear, and they have responded to the tune of $639 million in annual sales.
  • Company was on pace to earn as much as 92 cents a share for 2004, thanks to continued strong sales in two key divisions of its inventory: women’s apparel and rock-band oriented tee shirts.
  • Absolutely no debt to speak of – if other businesses were only so prudent in their spending as Hot Topic management has been.

Cons:

  • The shopping public is starting to turn its nose at Hot Topic, as November same store sales plummeted 8%, causing fourth quarter forecasts to be lowered.
  • While clothes sales have held up, accessory sales have plummeted year-over-year, leading to the earnings shortfall.
  • Will Hot Topic follow the same here today, gone tomorrow path as so many other teen-oriented retailers have done throughout the years?

Jos. A. Bank Clothiers, Inc. (JOSB)

Price: $29.16

Snapshot: Jos.’s fine men’s clothes and casual wear are for sale in 263 mall and shop locations nationwide.

Pros:

  • Recent cyclical trend back to business attire in the workplace is a boon for Jos.’s premium men’s clothes sales, which have jumped 15% year-over-year.
  • Net earnings have also shined as smartly as a finely tailored man’s suit, climbing 20% higher in the third quarter to 24 cents a share.
  • Jos. also has uncovered a nice niche from the at-home ordering business, as online and catalog sales climbed 18% during the third quarter. Meanwhile, a recent agreement to sell its clothing line on QVC looks like a smart way to build a brand.

Cons:

  • While overall sales have spiked, same store sales remain fit to be tied in a Windsor knot, rising a mere 0.4% during the third quarter.
  • How long will the formal dress sweet spot last for Jos.? After all, when casual wear comes back in style in the workplace, dress clothes stores sales plummet.  However, the company also boasts a successful line of casual clothes to cushion the blow.
  • Will Jos.’s expansion and mass media marketing plans spend down the company’s cash cushion too quickly?

Price quotes are from January 17, 2005.

Michael Abramowitz is a freelance writer based in Florida.  To avoid any conflict of interest, he does not currently own shares from any of the companies analyzed above.

© 2008, Young Money Media, LLC. All rights reserved.

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