Sector financial performance:

This company, who primarily designs, sources, markets, and retails casual clothing for men and women mainly through their own stores, ecommerce sites, and wholesales, has been grouped into branded lifestyle apparel sector in clothing industry.

Between 2015 and 2017, there was a clearly downward but slowing trend on comparable stores sales for companies in this sector as indicated by our data that average comparable sales decreased by 4% in 2016 and 0.5% in 2017. While the demand for products of some companies seemed to be more sensitive to reduced price and those companies’ sales had been able to be supported by lowering price (decreases in comparable sales have been kept flat or lower signal digit ), many companies’ comparable sales have declined at double digit rates with lowering price during this period and every company in this sector had been experiencing huge pressure on their sales due to slowing down stores traffic as indicated by their decreased transactions.

However, since the second half of 2017 it seems that the decline in comparable sales of companies hit the bottom and rebounded and the rebounding continued into 2018, which presents an average 3% growth so far in 2018. Companies’ performance in e-commerce seemed to be much better than those in stores since 2015. And the continuously strong growth in e-commerce finally has a positive impact on companies and become the major driver behind the positive comparable sales number of many companies in 2018. Gradually recovery of traffic and thus the increasing space for raising price also contributed to reversing sales.

As a result of price deflation (promotion/markdowns) in 2015/17, companies’ gross margins decreased up to 560 basis points with an average decrease of 200 basis points. Plus the deleveraging of SG&A costs as a result of decreased sales, companies’ operating margins decreased up to 650 basis points with an average of 320 basis points before the first half of 2017. The average gross margin was 28% in this sector (distribution costs and occupancy costs included) with an average SG&A as percentage of sale of 25%. And this makes an average operating margin of 4.6%.  As sales growth came back since 2017, the average gross margin of companies went up above 29% and generated an average 5.5% operating margin in 2018.

According our analysis, companies’ enterprise price/EBI ratios are 14-30 (average 21) with interest/EBI ratios of 0-10%.  Companies’ enterprise price/sales ratios are 0.4-1.1 (average 0.7).

                                                                                                    click for more about this industry

Company performance:

Data indicated that casual apparels sales of this company had decreased in 2015/16 as indicated by decrease in comparable sales. However, its comparable sales seem to be bouncing back since 2017 as indicated by a positive growth in 2017/18(1-2% growth).

The first six months of fiscal 2018 compared with same period of 2017

The organic sales increased 9% (8% for 2Q) primarily attributable to comparable sales increase of 1% (2% for 2Q) and new store opening.

Fiscal 2017 compared with 2016(ended 20180203)

The organic sales increased 2% primarily attributable to comparable sales increase of 3%.

The organic sales of this company has no changes primarily attributable to comparable sales increase of 2% offset by closure of international stores in the first half of fiscal 2017 compared with the same period of 2016.

The net sales of this company decreased 2% in fiscal 2016 compared with 2015.  Comparable sales decrease of 2%.

The organic net sales of this company decreased 1.7% in fiscal 2015 compared with 2014, attributable to decrease of 4% in comparable sales.

This company’ gross margins was about 37% (distribution included and stores rental costs included) in 2017 down from about 38% of 2014 primarily due to prices’ markdowns and deleveraging of operation related expenses as a result of decreased sales. SG&A as a percentage of sales decreased due to the increased expenses operation related. Therefore, its operating margin went down by about 300 basis points to about 9% in 2017. However, since 2017 driven by rising price in global market and leverage of occupancy costs as a result of increasing e-commerce sales its gross margin is improved to above 38%. But, with increased SG&A%, its current operating margin is down to about 8.5%.

Stock price

This stock currently has an enterprise price/EBI ratio of 13 ($29). We think that its stock is being relatively slightly undervalued considering its better performance in comparable sales than its peers and potential improvement in SG&A expenses.