Sector financial performance:

This company, who primarily designs, market, manufactures, and distributes active wear apparel, headwear, and accessories products, has been grouped into active wear& headwear sector in clothing industry.

We see the decrease in wholesales or demand from this company’s retail customers since 2016, probably a reflection of unfavourable clothing retail climate during the same period of time, which has resulted from traffic’s slowing down in retail stores. Fast increasing ecommerce sales of this company seems to be consistent with what we have analyzed before about the situation in this apparel retail industry.

Wholesale jumped in the last quarter of 2017 and the growth continued into 2018 (9% growth) and at the same time we see ecommerce continued its momentum during the same period.

While unfavourable climate in retail industry certainly put huge pressure on the sales of companies, so far this impact has been limited in non-branded products and the decrease in sales also came from basic apparel. As companies spin off lower margin segments and sales shifted to retail (higher margin), companies’ total gross margin was improved firstly and then down as raw materials costs went up. Generally, the operating margin was also improved as sales bounced back with improved leverage (currently 4% operating margin from 0% three years ago).

According our analysis, companies’ enterprise price/EBI is around 23 with interest/EBI ratio of 46%.

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Company performance:

Data indicated that the wholesale of this company’s active wear products decreased in 2016/2017 while ecommerce and its direct-to—customer retail sales, which accounts for about 5% of total sales in 2017, has kept growing and to large extent offset the decrease in sales from wholesales. The wholesale seems to be bouncing back since the last quarter of 2017 (increased 9%) together with continuing growth in e-commerce.

First nine months of fiscal 2018 compared with same period of 2017 (20180630)

The organic net sales (excluding sales of business) of this company increased 9% (8% for 3Q) primarily attributable to increase in both wholesale and e-commerce.

Fiscal 2017 compared with 2016 (20170930)

The organic net sales (excluding sales of business) of this company decreased 1.4% primarily attributable to decrease in wholesale.

The organic net sales (excluding sales of business) of this company decreased 1.5% in the first 9 months of fiscal 2017 compared with the same period of 2016, primarily attributable to decrease in wholesale. Ecommerce sales, which accounts for less than 5% of total sales, increased 30% in this period.

The organic net sales (excluding sales of business) of this company decreased 0.5% in fiscal 2016 compared with 2015, primarily attributable to decrease in wholesale.

The organic net sales (excluding sales of business) of this company increased 2.5% in fiscal 2015 compared with 2014, primarily attributable to decrease in wholesale.

This company’ gross margins is currently 20% (distribution costs excluded) up from about 19% in 2014 primarily due to products mix shifting to higher margin and lower products costs. Due to saving in SG&A, this company’s operating margin as percentage of sales has gone up to about 4% in 2018from 0% of 2014.

Stock price

This stock currently has an enterprise price/EBI ratio of 23 ($18). We think that its stock is being relatively fairly valued considering that 1. Uncertainty on sustainability of wholesale growth. 2. Uncertainty of  its current margin which has depended on saving from SG&A, reduced product costs, and exit of unprofitable products.