Brand management and licensing of popular brands in apparel retail is a lucrative business model. It has low risks as there is no overhead related to warehouses, retail outlets, logistics, staff, etc. Hence, we will see if this business model is really working by taking a look at Iconix Brand Group (NASDAQ:ICON), which is purely an intellectual property marketer.
We will compare Iconix to G-III Apparel Group (NASDAQ:GIII), which has a rich portfolio of its own as well as licensed brands, apart from having a chain of retail outlets. Another company that has a whole range of popular brands and operates on the same business model as G-III is PVH (NYSE:PVH).
Iconix is growing at a solid pace
Iconix owns a portfolio of 33 brands across different markets like women's, men's, athletic, home, consumer electronics, and entertainment, and its brand portfolio is ranked second only to Walt Disney. It has been growing its portfolio consistently through acquisitions and partnerships. It has had a stellar run since the market bottom of 2009 and has added $4 billion in retail sales since 2009.
On the back of strong brands and a focus on international expansion, plus the acquisition of brands like Umbro, Buffalo, and Lee Cooper, Iconix posted total sales of $107.2 million in the third quarter. Earnings per share came in at $0.59, up 44% compared to the year-ago quarter.
Iconix's management team is investor-friendly and has been returning value to shareholders through share buybacks. In the third quarter, it bought back 3.1 million shares, and the company now has $250 million remaining under the $300 million stock-repurchase program. Iconix will continue to balance acquisitions with share buybacks as primary uses of the cash that it generates.
However, growing the bottom line through share buybacks is not a long-term solution. Going forward, Iconix is betting on international expansion. It is also confident of the success of its recent acquisitions and the global Peanuts platform. Peanuts put up a strong holiday performance, with three in-store programs at Hallmark, UNIQLO, and Kohl's, and the company expects to see strong licensing revenue from the Peanuts platform going forward.
On the back of a strong third quarter and a solid outlook for the next quarter, Iconix once again raised its full-year guidance. The company now expects earnings in the range of $2.30 to $2.40 per share for fiscal 2013.
G-III is on a tear
However, it's G-III Apparel whose shares have been on a tear since the market bottom of 2009, as shown in the chart below. G-III reported a stellar third quarter, with a 23% jump in revenue and 20% growth in earnings per share. Growth was fueled by a robust performance across all brands and segments.
G-III Apparel has been maneuvering to position itself as a head-to-toe apparel maker for men and women in order to cater to a wider demographic. To facilitate this, it has been acquiring businesses and entering into licensing agreements.
G-III recently acquired the G.H. Bass business from PVH. With this acquisition, G-III aims to strengthen its footwear segment and is confident of this being one of the growth drivers going forward. G-III also has a licensing arrangement with PVH for Calvin Klein and Tommy Hilfiger in North America.
On the back of a strong quarter, G-III increased its guidance for fiscal 2014. It now expects adjusted earnings in the range of $3.47 to $3.57 per diluted share versus the previous guidance in the range of $3.30 to $3.40 per share.
PVH's diversity makes it a good pick
PVH is one of the world's largest apparel companies, with different brands such as Calvin Klein, Tommy Hilfiger, and Heritage, and is also the world's largest shirt and neckwear company. In order to bolster its growth, it is focusing on high-margin business segments like Calvin Klein, IZOD, etc.
For example, to expand the Calvin Klein brand across Australia, New Zealand, and the South Pacific nations and islands, PVH has formed a joint venture with Gazal, a leading name in the apparel business in Australasia. Moreover, Axis Golf will be marketing and distributing IZOD-brand products across Australia, New Zealand, Fiji, and other South Pacific islands under a separate deal valid until 2018.
It's not just international expansion that PVH is looking at. The company has also been shopping for brands in order to buy growth, and this has been working in its favor. Its Warnaco Group acquisition, for example, fueled growth in the Calvin Klein North American retail business by more than twofold to $799.7 million from $319.6 million in the same quarter in the previous year.
It can be said that all three companies have been doing well. They have been adopting different strategies to grow their businesses such as making acquisitions and entering into more licensing agreements. So, investors looking to buy stocks in apparel retail should definitely consider these three stocks for their portfolio.
The future of clothing is in technology
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. 100 of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.
Fool contributor Shirish Mudholkar has no position in any stocks mentioned. The Motley Fool recommends Iconix Brand Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.