Fifth & Pacific (NYSE:KATE) has outperformed Jones Group (NYSE:JNY) and PVH Corp. (NYSE:PVH) over the past year. While Fifth & Pacific has potential going forward, it's not the best investment option in this group based on revenue growth, earnings-per-share growth, valuation, margins, yield, or valuation.
Recent Performance and Goals
Fifth & Pacific designs and markets apparel and accessories. It's a brand-focused company with four segments that consist of Kate Spade, Juicy Couture, Lucky Brand, and Adelington Design Group. However, in order to garner a better idea of the situation, let's first take a look at how each segment performed in the first half of the year in regards to net sales on a year-over-year basis according to the company's August 8, 2013 10-Q:
- Kate Spade: up 64.3% to $307.8 million
- Lucky Brands: up 6.6% to $226.4 million
- Juicy Couture: down 10.7% to $192.1 million
- Adelington Design Group: down 29.4% to $27.5 million
As you can see, while the decline in net sales at Adelington Design Group is a factor, it doesn't matter nearly as much as the sales decline seen at Juicy Couture. Fortunately, Fifth & Pacific has a specific game plan to help aid its Juicy Couture segment. Initiatives include:
- Outlet store enhancements
- Improve pricing, merchandising, and inventory strategies
- Rework merchandising and design of handbags and accessories
- Re-launch Juicy Couture intimates business
- Introduce Juicy Couture active-wear
Fifth & Pacific also plans to continue driving profitable growth at Kate Spade, and sustain recently improved performance in its Lucky Brand business. Lastly, Fifth & Pacific aims for international expansion in order to further drive growth. Alas, it's not all good news for Fifth & Pacific.
Swimming in Red
Fifth & Pacific has reported losses over the past five years, and in four of the past five quarters. If you compare top- and bottom-line performance with the three aforementioned companies, then you're not likely to favor Fifth & Pacific as an investment option. Top-line performance over the past five years:
Bottom-line performance over the past five years (actual diluted EPS, not percentages):
Fifth & Pacific has had a fantastic run, based on the future growth potential of its brands. However, at current levels, that growth seems to be baked into the stock price. Recent financial results should indicate that this stock presents more potential risk than reward.
While it's still possible for Fifth & Pacific to outperform PVH in the near future with regards to stock appreciation, Foolish investors prefer to look at the underlying fundamentals and long-term potential of a company.
That being the case, based on the above trends, PVH is clearly the best option of the group. Its broad product diversification, offering brands like Calvin Klein, IZOD, DKNY, Tommy Hilfiger, Van Heusen, Michael Kors, Chaps, and much more, should give investors confidence that at least a few of these brands will be in high demand at any given time. Jones Group also offers popular brands, including Nine West, Kurt Geiger, and Easy Spirit. It's just simply not as impressive as PVH.
Furthermore, PVH is the only company of the three with a positive net margin of 2.97%, versus net margins of (3.56%) and (1.71%) for Fifth & Pacific and Jones Group, respectively. As if that's not enough reason to be hesitant about a potential long-term investment in Fifth & Pacific, opposed to one of its peers, Fifth & Pacific is currently trading at 60 times forward earnings, whereas Jones Group and PVH are both trading at just 14 times forward earnings. It should also be noted that Fifth & Pacific doesn't offer any yield, while Jones Group yields 1.20%, and PVH yields 0.10%.
The Bottom Line
The stock market can often act in mysterious ways, which can lead to unexpected stock performances over the short to medium-term. Therefore, despite Fifth & Pacific trading ahead of itself, enthusiasm might lead to further stock appreciation. However, if you're looking for a long-term investment in a company with proven financial results Foolish investors should consider PVH.
Dan Moskowitz 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.