Kenneth Takes on Ralph

The footwear and fashion landscape is filled with firms that share the same names as their founders. There's Steve Madden (Nasdaq: SHOO  ) , Ralph Lauren (NYSE: RL  ) , and Kenneth Cole (NYSE: KCP  ) , just to name a few. So how does Mr. Cole stack up against his peers?

One knock I have against Kenneth Cole is its uneven historical track record. Over the past five years, revenue has grown only about 5% on average each year, while diluted earnings have actually shrunk 1.2% per year over the same time frame. The recent past has been better, as earnings growth has averaged almost 9% for each of the past three years, but since 2000, operating cash flow growth has oscillated between positive and negative each year.

Results for the second quarter announced last week were consistent with Kenneth's uneven historical results. Sales for the quarter grew 13.3%, but earnings fell from the year-ago quarter, as did the gross margin. Management reiterated earnings guidance for 2006; it expects GAAP results of $1.28-$1.38 per share for a forward P/E of 18-19.

A quick rundown of Kenneth's margins confirms that it is both a retailer and marketer/licensor of its fashion and footwear brands. I recently provided a table that compared a number of pure footwear retailers with those that are pure marketers. There are also those that sit on the fence with retailing and marketing businesses, such as Kenneth Cole, Steve Madden, and Nike (NYSE: NKE  ) . Kenneth and Madden have had similar average gross, operating, and net margins over the past few years, while Nike leads the three with the average highest margins.

For another interesting margin play, Fools may want to check out another retailer and licensor of its brands: the venerable Ralph Lauren. I was a bit skeptical of Polo's move to open more of its own retail locations as well as a focus on more upscale offerings, but it appears to be hitting its stride, as detailed by fellow Fool Brian Gorman. Indeed, Ralph's margins are currently running above Nike's and look ready for further gains.

Things appear to be going well for Kenneth Cole currently, but not well enough for me to consider the company over Ralph Lauren or Nike in the footwear and fashion realm of the market.

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Fool contributor Ryan Fuhrmann is long shares of Nike but has no financial interest in any other company mentioned. The Fool has an ironclad disclosure policy. Feel free to email Ryan with feedback or to discuss any companies mentioned further.


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