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5 Winning Clothing and Apparel Companies

One of the stock markets hottest sectors is the apparel and clothing sector. The companies that will be featured in today’s article have all exhibited remarkable growth. They have also realized significant capital appreciation. Each of these companies operates globally, which could make predicting future earnings complicated. This article will lay out the status of these companies so that you can make your own judgments about earnings and determine whether or not one or more of their stocks could be a good fit for your portfolio.

Michael Kors Holdings Limited (KORS) has a market cap of $9.28 billion with a price to earnings ratio of 77.59. The stock has traded in a 52 week range between $23.51 and $50.69. The stock is currently trading around $49. The company reported third quarter revenues for the period mending on December 31, in the amount of $373 million. Third quarter net income was $39 million.

One of Michael Kors' competitors is Liz Claiborne Inc. (LIZ). Liz Claiborne is currently trading around $12 with a market cap of $1.2 billion and a negative price to earnings ratio. Neither Liz Claiborne nor Michael Kors pays a dividend.

Michael Kors is a Hong Kong-based company that designs and markets women’s and men’s clothing and accessories. Michael Kors sells high-end products and its handbags “run as low as $300 and as high as over $2,000. It also offers outfits that sell for less than $100 to more than $12,000.”

Despite the high prices, customers keep coming back. “Last month, Michael Kors Holdings smashed expectations with fiscal third quarter profit that surged 87% to 28 cents a share. The company cited robust sales of handbags, jewelry and watches.”

The company’s prospectus shows that the company grew year-over-year revenues for the plan year ending on April 3, 2010, from $508 million in 2010 to $803 million in 2011. The company’s IPO was on December 15, 2011. Since its IPO, the stock price has increased by 106%. After such a strong IPO it is not surprising that the company’s valuations (price to earnings ratio 77.59, price to book ratio 24.73) are extremely high. This stock could be volatile, and prospective investors should do further research.

Coach (COH) has a market cap of $22.2 billion with a price to earnings ratio of 24.19. The stock has traded in a 52-week range between $45.70 and $78.25. The stock is currently trading around $77. The company reported second quarter revenues for the period ending on December 31, in the amount of $1.4 billion compared to revenues of $1.2 billion for the second quarter of 2011. Second quarter net income was $347 million compared to net income of $303 million.

One of Coach’s competitors is Kenneth Cole Production Inc. (KCP). Kenneth Cole is currently trading around $16 with a market cap of $292.5 million and a negative price to earnings ratio. Kenneth Cole does not pay a dividend versus Coach whose dividend yields 1.2%.

Coach designs and sells fashion accessories for women and men. In the second quarter, the company increased year-over-year revenues by 16% and net income by 14%. In the company’s January 24 second quarter earnings call, the chairman and CEO Lew Frankfort credited the company’s strong second quarter earnings to growth in North America and Japan, and also mentioned that the company “continued to generate very strong sales growth with significant double-digit comps in China." On February 9. the stock moved higher after Lew Frankfort told a BofA conference that the retailer is enjoying an excellent quarter, business is trending extremely well and building on momentum from the second quarter. COH says it has much room for growth as 90% of sales come from North America and Japan only; business in China continues extremely strong. Coach’s stock has performed well and is up by 48% over the last 52 weeks and 242% over the last three years. Prospective investors should do further research.

VF (VFC) VF has a market cap of $16.2 billion with a price to earnings ratio of 18.4. The stock has traded in a 52-week range between $91.60 and $150.00. The stock is currently trading around $147. The company reported fourth quarter revenues of $2.9 billion compared to revenues of $2.1 billion in the fourth quarter of 2010. Fourth quarter net income was $257 million compared to net income of $54 million in the fourth quarter of 2010.

One of VF’s competitors is Gap Inc. (GPS). Gap is currently trading around $25 with a market cap of $12.31 billion and a price to earnings ratio of 16.3. Gap pays a dividend which yields 2% versus VF whose dividend yields 2%.

VF manufactures and sources a number of well known brand name apparel products. Some of their products include The North Face, Timberland, Nautica and MLB. In the fourth quarter, the company increased year-over-year revenues by 38% and net income by 376%. The fourth quarter earnings growth was no one time anomaly. In 2011, the company increased year-over-year revenues by 22% and net income by 55%. VF holds what is perhaps the largest array of brand name outdoor clothes sporting lines in the world.

In addition to its earnings growth, the company pays a $2.88 dividend. The dividend has grown by 30.9% over the last five years. Rapid earnings growth and a growing dividend often lead to stock appreciation. In VF’s case the stock price has appreciated by 53% over the last 52 weeks and 299% over the last three years. VF’s valuations (price to earnings ratio 18.4, price to book ratio 3.58) are not overly expensive for a fast-growing company, and the stock still has room to move higher. Prospective investors should do further research.

Under Armour (UA) Under Armour has a market cap of $5 billion with a price to earnings ratio of $52.25. The stock has been trading in a 52-week range between $52.62 and $98.83. The stock is currently trading around $97. The company reported fourth quarter revenues of $403 million compared to revenues of $301 million in the fourth quarter of 2010. Fourth quarter net income was $32 million compared to net income of $23 million in the fourth quarter of 2010.

One of Under Armour’s competitors is Deckers Outdoor Corporation (DECK). Deckers is currently trading around $70 with a market cap of $2.7 billion and a price to earnings ratio of 13.82. Neither Deckers nor Under Armour pays a dividend.

Under Armour designs and markets apparel and footwear for women and men. The company’s fourth quarter year-over-year revenue increased by 34% while its net income increased by 41%. The company has exhibited explosive growth and has increased both revenues and net income in each of the last three years. Under Armour has doubled the size of its business since 2007, and has clearly grown faster than its competitors Nike (NKE), Adidas (ADS) and Columbia (COLM).

The company’s stock price has reflected its earnings growth and has increased by 45.5% over the last 52 weeks and 505% over the last three years. Now that the company has reached a market cap of $5 billion its earnings are likely to slow. The company’s stock appreciation is also likely to slow because its valuations (price to earnings ratio 52.25, price to book ratio 7.75) are extremely high for a retailer. Prospective investors should do further research.

Ralph Lauren (RL) Ralph Lauren has a market cap of $16.36 billion with a price to earnings ratio of 26.27. The stock has traded in a 52 week range between $105.11 and $180.17. The stock is currently trading around $180. The company reported third quarter revenues for the period ending on December 31, in the amount of $1.8 billion compared to revenues of $1.5 billion in the third quarter of 2010. Third quarter net income was $169 million compared to net income of $158 million in the third quarter of 2010.

One of Ralph Lauren’s competitors is PVH Corporation (PVH). PVH is currently trading around $89 with a market cap of $6.02 billion and a price to earnings ratio of 23.02. PVH pays a dividend which yields 0.2% versus Ralph Lauren whose dividend yields 0.5%.

Ralph Lauren designs and distributes clothing, footwear and accessories for men, women and children. The company’s third quarter year-over-year revenues increased by 20% while net income increased by 7%. During the company’s third quarter earnings call, Ralph Lauren’s CFO Tracey Thomas Travis gave this prediction, “For the full year fiscal 2012 period, we now expect revenues to increase by approximately 20%, which compares to our prior expectation of high teens to low 20s.”

A 20% revenue increase is extremely respectable for a retail company with a market cap that is in excess of $16 billion. While the company is doing well in the U.S., much of the revenue growth can be attributed to Asia. Roger Farah, the company’s president and COO said, “Year-to-date, our international revenues have increased approximately 40%, more than the mid-teens expansion in our U.S. sales. Sales trends throughout Asia continue to be very good for us in the third quarter, including double-digit comp growth in Japan.”

Ralph Lauren's valuations are relatively high, but I expect the stock to move forward on a positive track. Prospective investors should do further research.

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