Sector financial performance:

This company, who primarily designs, sources, markets, and sells casual clothing for men and women mainly through their websites and direct mailing catalogs and also retail stores, has been grouped into casual clothing retailers(online and direct mail) sector in clothing industry.

As our data indicated, companies’ comparable online and direct mail sales decreased about 5-8% in 2015 and 2016 but went up again ( about 5% and 12% for 2017 and 2018 respectively) since 2017. It seems to be consistent with what we have seen from other adult apparel companies’ performance in e-commerce, which started to take off in the past two years. In fact, as we have seen from this sector, the decline in comparable online and direct mail sales stopped after continuingly lowering price due to intensive competition.

As a result of price deflation (promotion/markdowns), companies’ gross margins decreased about 600 basis points in the past several years. Plus the deleveraging of SG&A costs as a result of decreased sales, companies’ operating margins decreased about 800 basis points in 2017 but rebound to current 3% due to leverage of rebounding sales.

The current average gross margin is 40.5% in this sector (distribution costs and occupancy costs included) with an average SG&A as percentage of sale of 38%.

According our analysis, companies’ enterprise price/EBI ratio is 41with interest/EBITDA ratios of 42%.

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Company performance:

Data indicated that decrease in online and direct mail sales of this company stopped and revers to climb in 2017 after two years decline in a row. The growth in online and direct sales continued into 2018 and during the same period the decrease in its retail sales still continued.

The first six months of fiscal 2018 compared with the same period of 2017(ended 20180803)

The net sales (excluding extra week) increased about 6.5% primarily attributable to increase of 12.6%ts online and direct mail sales due to launch of new business and regular increase offset by decrease of about 30% of in retail sales due to troubles in Sears.

Fiscal 2017 compared with 2016(ended 20180203)

The net sales (excluding extra week) increased about 3.3% primarily attributable to its online and direct mail sales offset by decrease in retail sales. Its online and direct mail sales (excluding extra week) increased 5.3%.

The net sales of this company increased about 1% in first half of fiscal 2017 compared with sale period of 2016 primarily attributable to its online and direct mail sales offset by decrease in retail sales. Its online and direct mail comparable sales increased 2% but retail comparable sales decreased 5%.

The net sales of this company decreased about 6% in fiscal 2016 compared with 2015 primarily attributable to decrease of 5.5% in its online and direct mail sales and decrease of 10% in retail sales.

The net sales of this company decreased about 9% in fiscal 2015 compared with 2014 primarily attributable to decrease of 8% in its online and direct mail sales and decrease of 13% in retail sales.

This company’ gross margins was about 41% (distribution included and stores rental costs included) in 2017 down from about 46% of 2014 primarily due to promotions. Therefore its operating margin went down by about 800 basis points to about 1% in 2017.  However, due to leveraging of operating expenses as a result of increased sales since 2017, while gross margin continued to be down due to promotions, its SG&A as percentage of sales went down to about 38%  and its operating margin went up back to about current 3%.

Stock price

This stock currently has an enterprise price/EBI ratio of 41 ($20). We think that its stock is being relatively undervalued considering that bouncing back online sales with decreasing promotions.