Sector financial performance:

This company, who primarily markets, manufactures, and distributes innerwear and activewear apparel products, has been grouped into innerwear and activewear sector in clothing industry.

We see the decrease in sales of innerwear of companies in this sector in 2016/2017 mainly because of the slowing down traffic in their clients’ stores, especially for their department stores clients. The sales of activewear products are following the same way as innerwear products. However, it seems companies in this sector had been less impacted under the  unfavourable industry climate than other apparel categories ( as indicated by only 1-3% decrease).

After entering the second half of 2017, the demand growth turned to be positive again as indicated by increase in both volume and price for most of companies in this sector since then.

Smaller companies apparently have been experiencing larger impacts and this is probably the reason why we are seeing increasing M&A activities recently in this sector. Therefore, while sales went down moderately the acquiring companies’ margin still benefit from saved costs as a result of improved production efficiency and synergies and as well gradual increase in price.  While recently increasing raw materials costs, companies can still generate gross margin of around 33% and operating margin of 13%.

According our analysis, companies’ enterprise price/EBI is around 24 with interest/EBI ratio of 26%.

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Company performance:

Data indicated that the organic sales of this company’s innerwear and activewear products decreased between 2015 and 2017 as a result of decrease in traffic of their retailer clients( department stores mainly ). However, it seems the fast growing online sales have been offsetting the decline in usual sales channels since 2017 and presented a positive growth in sales in 2018.

First six months of fiscal 2018 compared with 2017

The organic net sales (excluding acquisition impacts) of this company increased about 0.5% (0% for 2Q) primarily attributable to increase in online sales.

Fiscal 2017 compared with 2016

The organic net sales (excluding acquisition impacts) of this company decreased about 1% primarily attributable to decrease in innerwear products sales of department stores due to slowing down traffic.

The organic net sales (excluding acquisition impacts) of this company decreased 2.7% in fiscal 2016 compared with 2015, primarily attributable to decrease in innerwear and activewear products sales due to slowing down traffic.

The organic net sales (excluding acquisition impacts) of this company decreased 3.7% in fiscal 2015 compared with 2014.

This company’ gross margin is currently 38.4% up from about 35.8% in 2014 primarily attributable to improved supply chain efficiency and synergies as a result of acquisitions. Due to fluctuation of saving and spending in SG&A as a result of acquisitions, this company’s operating margin as percentage of sales has gone up to about 200 basis points to 12.6%  in 2017 and down to 11% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 22 ($18). We think that its stock is being relatively slightly overvalued considering that the sales of its core products may continue to go down and thus result in increasing pressure on the selling price, which will eventually make it very difficult to keep the current high margins.