These 3 Apparel Players Can Be Good Long-Term Buys

Despite a sluggish apparel industry and uncertain consumer confidence, these three companies have done well and should continue doing so.

Feb 6, 2014 at 5:39PM

Shaky consumer confidence, higher payroll taxes, a stubborn job market, and a sluggish economy took their toll on the apparel and accessories industry last year. However, finding good stock picks from the apparel-retail segment isn't a daunting task. Let's take a look at G-III Apparel Group (NASDAQ:GIII) and see how it stacks up against Gap (NYSE:GPS) and PVH (NYSE:PVH).

G-III going strong
G-III reported stellar third-quarter results, thrashing all estimates -- a positive earnings surprise, a positive sales surprise, and an upward revision of management's guidance. Its growth was fueled by solid demand for its assortment of products across all segments, new business opportunities as a result of a strategic acquisition, and increased market penetration.

G-III operates retail stores primarily under the Wilsons Leather and G.H. Bass names, and retail accounts for around 11% of revenue. The licensed segment accounts for 69% and non-licensed is 20% of revenue. In its third quarter, net sales rose 23% year over year to $668.7 million, with the licensed segment being the star performer with 25% gains. On the heels of strong revenue growth, it posted better-than-expected earnings of $2.85 per share, representing a 20% jump over the year-ago quarter.

The retail platform has been performing well, and the company is investing in its retail strategy also. G.H. Bass was acquired from PVH in November, and this positioned the company as a diversified head-to-toe apparel and accessories retailer for both men and women. The integration of 160 G.H Bass stores into the company's retail platform provides additional opportunities immediately after the acquisition. Going forward, this will be one of the growth drivers.

Moreover, a rich portfolio of high-margin brands like Calvin Klein, Guess, and Tommy Hilfiger in licensed segments will also be a growth driver going forward as these brands resonate well with consumers. Over the years, through a series of acquisitions, G-III has successfully transformed itself from an outerwear producer into a diversified apparel company. Diversity has clearly helped G-III in performing well in a period when others like American Eagle Outfitters and Abercrombie & Fitch have struggled.

What about Gap?
Diversity has also helped Gap to perform well in what has been a difficult environment for the apparel-retail industry. It continued its streak of good results in its third quarter and reported impressive comps growth, making it the seventh consecutive quarter of positive comps. On the back of comps growth, revenue inched up 1% year over year and earnings per share increased 14%. Earnings per share were also helped by a lower share count as a result of share buybacks during the quarter. In its third quarter, Gap returned approximately $900 million through share buybacks and dividends.

Gap's international expansion allows the retailer to reduce its dependence on the U.S., where the sluggish economy isn't helping the apparel retailers in general. During the third quarter, Gap opened about 18 stores in mainland China, bringing its store count to 73 in that region. China is a big market from a long-term perspective, as it is expected to be a $218 billion market by 2016, according to Trans World News. The company is also planning to add to its affordable luxury brand Banana Republic in China, encouraged by the success of high-end players such as Coach.

PVH is another good bet
PVH is one of the world's largest apparel companies with a rich brand portfolio that includes Calvin Klein, Tommy Hilfiger, and Heritage. It has also benefited from diversity and iconic brands in its portfolio. According to consulting form Bain & Co, the global luxury-menswear market is growing at about 14% a year. PVH has been expanding its footprint through acquisitions and licensing deals in order to make the most of the opportunity.

PVH acquired The Warnaco Group, which helped in fueling the growth of the Calvin Klein North America retail business. In the last reported quarter, the Calvin Klein North America business grew twofold to $799.7 million from $319.6 million in the year-ago quarter. In addition, it also entered into an agreement with Axis Golf to market and distribute IZOD-brand products across Australia, New Zealand, Fiji, and other South Pacific islands, and this will fuel growth going forward.

PVH is concentrating more on its high-margin business, and as a result, it disposed off the non-core Bass business to G-III Apparel. In order to expand the footprint of the high-margin Calvin Klein segment, PVH formed a joint venture with Gazal for marketing the brand across Australia, New Zealand, and the South Pacific nations and islands.

Bottom line
Despite a sluggish apparel industry and uncertain consumer confidence, all three companies discussed here have trudged along nicely. They have got some good plans in the bag to improve their businesses, which is an indication of their confidence regarding the future. So, investors looking to invest in the apparel industry should definitely consider these stocks.

Start investing ASAP
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

 

Neeta Seth has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers