Clothing Companies Hitting New Lows

[Ballinvarosig Investors]

A whole pile of companies in the apparel business are getting smashed up. Nike and Under Armor have hit 52 week lows while Abercrombie & Fitch is at an unbelievable 16 year low.

 

The latter seems pretty unbelievable. This was the pre-eminent brand when I was at college 15 years ago, yet here it is seemingly at risk of going under. The stock price decline is all the more startling when you consider it is has gone from 92M shares outstanding to just 68M outstanding today. I would have thought this was normally a good thing, but just ask Aeropostale shareholders if they thought the same about their stock buy back binge. It doesn't seem all bad for Abercrombie though, gross margins are still relatively strong, and despite the strong dollar, growth seems to be continuing internationally (just over 1/3 of revenue), with the US stores leading the declines. Having said that, the real worry is the US store sales are the leading indicator here. With $3.5B in sales, I do have to feel that this thing is worth more than $1B current market cap to someone out there.

 

Thoughts?

[blainehodder]

"This was the pre-eminent brand when I was at college 15 years ago, yet here it is seemingly at risk of going under."

 

15 years ago is the key point. The company is no longer hip, and they can't seem to regain that mind share. I think it is in a death spiral and will follow Aeropostale and American Apparel.

 

I much prefer NKE, UA or LULU at today's prices.  Not as cheap, but much less likely for sales to cliff dive.

[KCLarkin]

A whole pile of companies in the apparel business are getting smashed up. Nike and Under Armor have hit 52 week lows while Abercrombie & Fitch is at an unbelievable 16 year low.

 

There is a very big difference between the Brands and the Retailers.

 

Retailers have very large operating leverage. You have a, say, 20 year lease on a store. Your staff costs are relatively fixed. It is very easy to go into a death spiral with relatively modest revenue declines. Extreme caution is needed with ANF (of course operating leverage would be great if they can recover).

[Ballinvarosig Investors]

"This was the pre-eminent brand when I was at college 15 years ago, yet here it is seemingly at risk of going under."

 

15 years ago is the key point. The company is no longer hip, and they can't seem to regain that mind share. I think it is in a death spiral and will follow Aeropostale and American Apparel.

 

I much prefer NKE, UA or LULU at today's prices.  Not as cheap, but much less likely for sales to cliff dive.

Death spiral seems too strong a term. Aeropostale was heavily bleeding cash for 3 years before it went under, its brand was nowhere near as strong, it had no international exposure worth speaking about, gross margins were poor. Abercrombie is a much better business and a stronger brand. The positive free cash flow has only just went negative this year.

[blainehodder]

"This was the pre-eminent brand when I was at college 15 years ago, yet here it is seemingly at risk of going under."

 

15 years ago is the key point. The company is no longer hip, and they can't seem to regain that mind share. I think it is in a death spiral and will follow Aeropostale and American Apparel.

 

I much prefer NKE, UA or LULU at today's prices.  Not as cheap, but much less likely for sales to cliff dive.

Death spiral seems too strong a term. Aeropostale was heavily bleeding cash for 3 years before it went under, its brand was nowhere near as strong, it had no international exposure worth speaking about, gross margins were poor. Abercrombie is a much better business and a stronger brand. The positive free cash flow has only just went negative this year.

 

Fair enough. They are yet to enter a FCF/revenue death spiral, but unless they can regain a cool image, revenue will decline and the cash burn will accelerate.  I think the best move here would be to wait for the turnaround to actually begin to turn.

[JayGatsby]

I've been trying to wrap my head around UA. Growth so far has been impressive to say the least, although it has slowed. New product launches haven't blown me away.

[racemize]

As someone who entered Aero at the beginning of said death spiral, exited at a gain purely by luck (buying BRK at book value), and then watching it go under, I am very cautious on the whole space.  Agreed that the brands are probably the only place I'd be comfortable with.

[JayGatsby]

One thing I noticed recently is some of these old retail store brands are having trouble transitioning to the totally different shopping experience of the internet. I ordered a Ralph Lauren Polo shirt from Macy's recently and it came in a cheap looking shrink wrapped bag inside of another cheap bag. Once you opened it up it's the same shirt it always was, but it just had a much cheaper feel coming in the Macy's mailer than in the fancy little hardwood floored store within a store. Contrast this to internet brands that have the packaging tailored to evoke a feeling of quality from the second you pick up the box.

[DTEJD1997]

Hey all:

 

Has anybody been looking at Guess? (GES)

 

Stock seems to be priced right.  Good balance sheet, good dividend, still earning money.

 

It is a hybrid between brands and stores...

 

Stock is also very close to it's 52 week low.

[rukawa]

One thing I noticed recently is some of these old retail store brands are having trouble transitioning to the totally different shopping experience of the internet.

 

I don't really get how anyone can shop for clothes without trying them on. Unless you had some Kinect type device and custom fits which I suppose will eventually happen but hasn't happened yet.

[DooDiligence]

Hey all:

 

Has anybody been looking at Guess? (GES)

 

Stock seems to be priced right.  Good balance sheet, good dividend, still earning money.

 

It is a hybrid between brands and stores...

 

Stock is also very close to it's 52 week low.

 

I'm getting more than a little tired of the tone of discussion on this & other threads.

 

I am reporting on something that I saw....something I've never seen before for any candidate in any election.  Maybe things are different in your corner of the world.

 

It is fine if you disagree....that makes a discussion.  I can do without the snarkiness & sarcasm.

 

I am about ready to leave this board far behind...

 

Your post re: Guess & many others are the very reason you should NOT leave this board (where you gonna go to discuss this stuff intelligently Yahoo Finance? Not...)

 

I may have been guilty of a bit of snarkyness on COBF myself & if so I apologize.

 

I've been reading here for around 3 years & only recently joined to start posting.

 

Up until now I've been an active poster on Yahoo Finance (fighting the constant short term stupidity there is much more frustrating than the occasional sarcastic comment here!)

 

Personally; I'm still learning how to separate myself from the atmosphere on Yahoo Finance & the one here.

 

I'll try to lay off the snark (should probably quit posting on Yahoo but what used to be an attempt to convert speculators into investors has morphed into the guilty pleasure of teasing a bunch of douchy day traders.)

 

To summarize - don't leave here!

 

As to Guess (I have some ideas about another company that fits the attractive quantitative look of Guess but I need to go look at both stores & I don't crew change until 9 November - the mall will be my 1st stop & questionable qualitative comments about both will arrive that evening FWIW...)

[vox]

One thing I noticed recently is some of these old retail store brands are having trouble transitioning to the totally different shopping experience of the internet.

 

I don't really get how anyone can shop for clothes without trying them on. Unless you had some Kinect type device and custom fits which I suppose will eventually happen but hasn't happened yet.

 

I have no problems buying clothes online. Many retailers offer free return shipping, or at least free in store returns. I mostly buy from brands that I have prior experience with and can calibrate my sizing. If I purchase a final sale item and it doesn't fit well, chances are that it would fit one of my siblings and I will gift it to them. As far as unique items like dress shoes, there are complete websites and forums that compare sizing and discuss lasts.

[rkbabang]

One thing I noticed recently is some of these old retail store brands are having trouble transitioning to the totally different shopping experience of the internet.

 

I don't really get how anyone can shop for clothes without trying them on. Unless you had some Kinect type device and custom fits which I suppose will eventually happen but hasn't happened yet.

 

I have no problems buying clothes online. Many retailers offer free return shipping, or at least free in store returns. I mostly buy from brands that I have prior experience with and can calibrate my sizing. If I purchase a final sale item and it doesn't fit well, chances are that it would fit one of my siblings and I will gift it to them. As far as unique items like dress shoes, there are complete websites and forums that compare sizing and discuss lasts.

 

I was going to post the same thing.  If you have purchased a brand before it is a good bet that you can safely purchase the same size.  If you are trying a new brand, worst case is you will need to exchange your first purchase for a different size.  Not too much of a problem.  Even in the store if I am buying something from say Ralph Lauren I will not try it on, because I know what will fit by the size.

 

[oddballstocks]

Two thoughts on this:

 

1) I've purchased online successfully.  A lot of websites have sizing guides.  I will buy shirts and coats online, never pants.  I have athletic legs from working out, they don't usually fit in the modern pants that presumes all men are walking around on muscle-less twigs.

 

The more important point..

 

2) Clothing is TOUGH.  I owned AE for years and followed it about 10 years ago.  I had friends in the industry and tried to keep up with things, it's really hard.  Brands go in and out of style very quickly, too quickly for me.  Success is spotty and isn't long-lived.  You might have a great year or two when designs match with what's popular, but then the year after that a big swing and miss by designers. 

 

I enjoy going to Marshalls and looking at what brands are filling the shelves.  For years Nike and UA stuff was absent, now it's filled.  Same with other "popular" brands.  By the time it hits Marshalls I feel like the wave of popularity has passed.

 

After following clothes for a few years I reached the conclusion it's far outside my circle of competence.  If anything I'd prefer to invest in the retailer verses the brand at this point.

 

I feel like clothes are similar to restaurants.  Popularity moves in waves.  Outback and Applebees were hot in the 90s, now they're second run.  They fill tables, but there is no excitement.  The same applies for Abercrombie etc.

 

On the other hand if you know extremely trendy consumerist type people this might be good.  My sister-in-law is always buying whatever is about to be popular or popular.  Right now she's buying from little boutiques with brands I've never heard of.  It's the whole "hand crafted" thing in small batches.  Not sure there's a way to capitalize on that.

[Travis Wiedower]

I haven't purchased clothes in person in 4-5 years. Most online sizing guides are pretty accurate (measure a shirt that fits well then compare it to the guide) so getting the size right the first time isn't uncommon at all. With that being said, I'm happy to pay the cost of some returns/exchanges to avoid shopping in person, which is way more time consuming. And once you find a few brands you know and like, sizing is no problem and shopping takes minutes.

 

I'm actually surprised retail isn't dying faster than it is. 

[DooDiligence]

The last time I walked into a mall was a year ago +/- to look at Gap & after a complete stroll through the whole complex I was bored to death & couldn't believe how many clothing stores there were (before I did the walk through I was hot for some Gap shares but after - not so much...)

 

I'm gonna look again next week just to confirm whether retail is still not a good investment (I usually make the pilgrimage to Best Buy just to go look at stuff I may or may not wind up buying online - oh & to meet women although I have better luck in Lowes garden center!)

[rkbabang]

- oh & to meet women although I have better luck in Lowes garden center!)

 

I wonder if this is a new opportunity that Lowes could capitalize on?  Maybe serve drinks or provide entertainment in the garden center? Or compete with eHarmony.com on the garden section of its website?  I've been with my wife since 1990, so I'm out of the loop when it comes to these hot pickup spots.

 

[augustabound]

Just yesterday we got our order from Old Navy delivered to the door.

A winter jacket, 3 pairs of jeans and 3 shirts for me. My wife also bought for her and our 2 girls. Ordered Sunday night while sipping a glass of wine in our living room to our front door in 2 days.

 

I just thought, it will be interesting to see our girls (3 and 7 now) in 10 years. What their weekends will be like compared to ours. I remember spending countless hours at the mall in my teens. Even when I got my first job at 16, in retail, I still spent hours outside of school and work at the mall.

In between baseball, golf, tennis, bike riding and all that stuff kids used to do. :D 

[Jurgis]

Well, I guess I am in the minority who buys clothes in stores. Haven't bought online and don't plan to. My wife in the same boat.

 

But then I buy from Marshall's/TJ Maxx (shoes from DSW), so I guess I don't support most stores/malls/brands either.

 

In general, I agree that clothing/shoes retail is hard and I would not invest in most companies. My wife's portfolio has some TJX and some URBN (not a recommendation).

 

I wonder if NKE is going to suffer as other brands or if its sufficiently superbrand to not be affected. It seems to be coming into somewhat interesting price level.

[augustabound]

For online shopping like this, it's a once or twice a year thing. But the ease of it is the most inviting. It's primarily only Old Navy since we know the sizes.

My wife and older daughter still shop in the malls and as the girls get older I think that's the way it may be for the sizing. But mostly for the sales. Most stores now have sales/clearance on all the time.

 

Speaking from the North and someone who worked in retail for over 15 years, Gap got tired in a hurry up here. It was fashionable for about 5 years. I worked with girls who were beside themselves when Gap came up here, it was better than 365 days of Christmas. After a couple of years it was just, meh. Just another clothing store. One of many.

 

From my experience with Nike, that was my preferred brand forever. I'm 42 and have been in love with the Swoosh for ~25 years. All my shoes, gym pants, t-shirts and sweaters were all Nike.

Not anymore. Even in the gym Nike is a scarce logo. Same goes with my baseball league. It's one of 2 things in my league, Under Armour for the guys who don't mind spending money. Or Rawlings for the cheapskates.

My pants, belt, undershirt and batting gloves are all UA.

 

This trend is common here among all age groups here from t-ball all the way up.

[TorontoRaptorsFan]

For online shopping like this, it's a once or twice a year thing. But the ease of it is the most inviting. It's primarily only Old Navy since we know the sizes.

My wife and older daughter still shop in the malls and as the girls get older I think that's the way it may be for the sizing. But mostly for the sales. Most stores now have sales/clearance on all the time.

 

Speaking from the North and someone who worked in retail for over 15 years, Gap got tired in a hurry up here. It was fashionable for about 5 years. I worked with girls who were beside themselves when Gap came up here, it was better than 365 days of Christmas. After a couple of years it was just, meh. Just another clothing store. One of many.

 

From my experience with Nike, that was my preferred brand forever. I'm 42 and have been in love with the Swoosh for ~25 years. All my shoes, gym pants, t-shirts and sweaters were all Nike.

Not anymore. Even in the gym Nike is a scarce logo. Same goes with my baseball league. It's one of 2 things in my league, Under Armour for the guys who don't mind spending money. Or Rawlings for the cheapskates.

My pants, belt, undershirt and batting gloves are all UA.

 

This trend is common here among all age groups here from t-ball all the way up.

 

I find this very hard to believe. Just on shoe loyalty alone I see far more people walking around wearing Nike Flyknits or Jordans than I do New Balance, UA, or Adidas. You'll see the avalanche of news about Nike later this month when the self lacing shoes start selling. Nike on R&D alone is miles ahead of any competitor. And Mark Parker is a far more savvy CEO than Kevin Plank. Bonus too since Tim Cook sits on the BOD for Nike!

[augustabound]

So my eyes deceive me? Good to know. Maybe I should go to the eye doctor. He's going to get a kick out of me saying I don't see any Swooshes anymore..........

[oddballstocks]

So my eyes deceive me? Good to know. Maybe I should go to the eye doctor. He's going to get a kick out of me saying I don't see any Swooshes anymore..........

 

Agreed on Nike.  In kids leagues it's UA everywhere, not much Nike anymore.

 

My brother-in-law is the same age as you, exact same Nike loyalty.  A few years back he was wearing this awful shirt, just hideous.  We were making fun of him and he said "You can't make fun of this, it's Nike!"  He'd literally buy anything they made.  He's still big on Nike, but not at the same level.  UA is filling the gap.

[tede02]

Clothing brands reminds me a lot of new restaurant concepts.  People get excited about the newest concept/brand and these businesses can expand rapidly.  But the novelty seems to always fade and so to do the businesses.  I think about some of the brands that were popular when I was a kid and I don't even know if they exist anymore (Girbaud, Mossimo, Billabong).  Does anyone buy Tommy Hilfiger anymore? 

[augustabound]

Does anyone buy Tommy Hilfiger anymore?

 

I see Hilfiger in Costco. And IIRC, the price point on the jeans is about $25, give or take.

 

Maybe more to Nate's point above, I remember seeing Tommy Hilfiger in Winners (Marshall's Canadian equivalent) years ago. I'm fairly certain it's been a dying brand for about 10 years.

 

When I was in retail, about 15 years ago, Tommy was thee brand. If we had a grab and run theft, it was almost always a stack of Tommy jeans.