Please forgive the pun (and the dozens to follow, as well as the endless stream of gags in the accompanying video), but we've got a brazen stock pick this week for investors looking to boost their exposure to the apparel industry.
After ogling intimate apparel companies for some time -- lifting and separating the pros and cons of the major players -- we're ready to reveal our top bra-stock pick. But before we flash our favorite company in public, let's take a peek into consumers' drawers. Underwear drawers, that is.
Beyond brassieres
It may not be a topic of frequent conversation, but women spend billions on bras; word has it that the average female consumer buys five or six every year. But it's not just bras that we're cramming in our dresser drawers.
Today, what women's outfits aren't showing is just as important as what they are. Innovations in the undergarment industry -- everything from "shapewear" like the popular Spanx to sports bras made from futuristic fabrics -- have taken this sector well beyond simple, practical support or impractical prettiness.
The companies that make these items -- Hanesbrands
Before we reveal the details, here's a peek at how the intimate apparel competition measures up against one another:
Company | Revenue Growth (TTM) | EPS growth (TTM) | Gross Profit | Debt-to-capital ratio | P/E (TTM) |
|---|---|---|---|---|---|
Maidenform | 21.1% | 45.6% | 36.1% | 27.7% | 13 |
Hanesbrands | 5.8% | 153.3% | 33.5% | 79.3% | 14 |
Limited | 7.7% | 541.3% | 42.7% | 55.6% | 14 |
Warnaco | 12.8% | 75.1% | 44.8% | 6.6% | 20 |
*All data from Capital IQ, a unit of Standard & Poor's.
Sagging sales and inventory spillover
Let's start with Maidenform -- an interesting case, since its recent quarterly results resulted in a plunging stock price. That tumble might tempt investors to buy it as a risky value play. But some stocks get "cheap" for a reason, and if Maidenform's problems continue, that price might end up being pretty dear in the long run.
Inventories that rise faster than sales are always a major red flag. (A massive inventory buildup helped to indicate that Crocs
Granted, Maidenform's sales in the last 12 months have booked an admirable and impressive increase, helped along by the popularity of its shapewear products. But if those products are losing allure, and the company has nothing compelling to replace them with, that strong revenue growth may well be completely unsustainable.
It'll probably take some time for Maidenform to work through that situation; for now, it's a risky stock. Investors who are interested in the value play element should consider adding it to My Watchlist, as opposed to a "buy now" list.
What's hiding under Hanesbrands
We really wanted to like Hanesbrands, a company that was spun off from old-guard textile company Sara Lee
However, its revenue growth is pretty anemic compared to its peers', and its gross profit margin's the lowest in this bunch. A debt-to-capital ratio of 79.3% looks downright dangerous, too. The company even flaunts its debt load in the "Risk Factors" section of its Form 10-K.
Vicky's not-so-hot secret
Limited's not really as exciting as it may seem, either. Although its Victoria's Secret unit can be credited with making sexy lingerie not-so-secret (it's probably the best-known undergarment brand around, given its high profile with ladies and gentlemen alike), it's not a pure play in the space.
In other words, we don't have a good melons-to-melons comparison to make, since Limited owns Bath & Body Works too. (Sorry, it's been at least a few paragraphs since we had a racy pun!) The company's overall revenue growth isn't that exciting, and its significant debt load isn't appealing, either.
Finding comfort and support in Warnaco
Don't worry! We're not just here to bust on all bra stocks.
Warnaco is the distribution powerhouse behind brands like Calvin Klein, Speedo, and Olga. In a highly competitive and fickle sector, Warnaco may seem expensive compared to its skimpier-priced peers. Of the bunch, Warnaco trades at the highest multiple, with a P/E of 20.
But take a closer look at the company's financial results over several years' time, and you'll notice that this company retains its shape in the wash. Its growth in revenue and profit is strong and more importantly, consistent.
Furthermore, Warnaco's got a mere 6.6% debt-to-capital ratio, and it has a strong balance sheet overall, with $213.4 million or $4.80 per share in cash. Its PEG ratio of 0.98 also suggests a stock that's undervalued for the long haul.
Investors who want to see their cups runneth over with investing returns should consider Warnaco a bodacious pick in this undercover segment.
Previous revealing installments of Stock Picks with Chicks:
