Sector financial performance:

This company, who primarily designs, sources, markets, and retails sportswear for men and women mainly through their own stores and ecommerce sites (more than 90% of total sales) and as well though wholesale, has been grouped into sportswear (retailers) sector in clothing industry.

While the demand for sportswear products seems to be strong as indicated by the increased sales of those companies in this sector, those increases mainly have come from new stores and ecommerce. There is a huge pressure on in-stores sales for those products in 2016/17 as indicated by the slowing down growth in comparable stores sales among companies (average growth down to 0% from 4-7% previous year).total comparable sales seem to be coming back to the level of 2015 thanks to the growth from e-commerce, which has been fast in the past three years and contributed significantly to the total growth in net sales for some of companies.

Due to relatively stronger demand from those companies’ own retail channel, it seems there is no need to intensively use promotion to boost sales yet in this sector as it is in related sectors. Gross margin went up to around 56% (distribution costs and occupancy costs included) with SG&A as percentage of sale of 42%. Companies present operating margins in a range between 8-20%.

According our analysis, companies’ enterprise price/EBI is around 38 (30-47) with interest/EBI ratio of 3%.

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Company performance:

Data indicated that the sales of this company have increased driven primarily by addition from new stores and increase in ecommerce between 2014 and 2017, during which growth in comparable stores sales slowed down from 4% to -0.3%. However, it seems that the comparable sales stopped falling in the second half of 2017 and increased with 8% annual rate for the first half of 2018, together with accelerating growth in e-commerce (around 50% annual growth compared with 27% in 2017).

The first six months of 2018 compared with the same period of 2017 (ended 20180729)

The organic sales of this company increased 24% (24% for 2Q) primarily attributable to addition from new stores (5%), comparable stores sales (increased 8%, 10% for 2Q) and ecommerce (53%, 47% for 2Q).

Fiscal 2017compared with 2016 (ended 20180128)

The organic sales of this company increased 12% primarily attributable to addition from new stores (5%), comparable stores sales (increased 1%) and ecommerce (27%).

Fiscal 2016 compared with 2015

The net sales of this company increased about 14% primarily attributable to addition from new stores (increased 8%), comparable stores sales (increased 5%), and ecommerce (increased 13%).

Fiscal 2015 compared with 2014

The organic sales of this company increased about 20% in fiscal 2015 compared with 2014, primarily attributable to addition from new stores ( increased 12%), comparable stores sales (increased 4%), and ecommerce ( increased 30%).

This company’ gross margins is currently 54% (distribution and stores rental costs included) up from about 51% of 2016/17 primarily due to decreased products costs, less promotion/markdown, and leveraging of rising sales.  While additional expenses (employee costs) from opening of new stores, as sale increase largely the SG&A as percentage of sales also improved to about 33.5% in 2018 and, as a result, its operating margin went up 21% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 47 ($150). We think that its stock is being relatively undervalued considering its strong increase in cash flow.