Retail Clothiers (a Bombed out Sector?)

[DooDiligence]

I'd like to start an idea factory here in a distressed sector...

 

I've been looking at retail clothiers a lot over the past month or so & the Buckle has always stood out but...

 

Most retailers are being forced to initiate online channels (no surprise here) & those who are most effective with omni channel will probably survive.

 

Buckle's online sales declined significantly in the last Q & management says that's due to lower unit pricing (through discounting...)

 

They've had a long stated policy of not doing promotional pricing & yet a recent visit to their local store showed big "Sale" signs in the front windows & 3 sale racks in the front of the store which IMO should have been in the back of the store.

 

Buckle has relied on getting clients (not customers) who want to feel catered to (they're buying off the rack but with a tailored experience) & they rely on an aggressive sales force to make this happen.

 

If you want to stand out in a club, they definitely have jeans you won't find anywhere else & this is what they built the business on.

 

BTW every clothier in the mall had "SALE" signs & multiple discount racks (if retailers are able to specifically source product with "faux" promos in mind OK, but if they're losing margin from unplanned promos...)

 

Read the latest BKE earnings call transcript (in particular, the pointed questions asked by Ujjval Dave...)

 

If they were a bit more nimble with omni channel & had strong brand awareness (particularly as a high end jeans manufacturer) & were vertically integrated with manufacturing capability (unique & stylish jeans "made in America") I'd be more excited about the future (but I remember Merry Go Round.)

 

In all my research, I chose the children's (new born to 8 yo) clothing space (lower price points & toddlers are cute as heck in nearly anything.)

 

This is also an area of intense competition & promotions but it was easier to compare & the promotional price points are all very similar (Carters / Oshkosh, Childrens Place & Gymboree.)

 

My choice of Carter's is due to low single digit declines in bricks & mortar with same store increases in new concept dual store formats (Carter's & Oshkosh) & the fact that Oshkosh is way behind Carter's & IMHO has room to grow.

 

Their omni channel initiatives are showing strong increases & a new GA warehouse designed for online & ship to store, plus a new Amazon fullfilment program beginning now, will hopefully support these efforts.

 

Plans to roll out around 40 to 50 stores between Canada & the US over the next 5 years & 1 new store in China with another coming online in the 1st few months of 2017 (management says they'll go very slow in China as they are aware of others getting beaten up there.)

 

Children's Place does as good a job as Carters but they've had a really big run up over the past year & I like Carter's numbers better (Gymboree didn't impress me at all & Old Navy was poorly merchandised as well.)

 

Ralph Lauren has a very nice line (expensive & very little promotional pricing...)

 

I'm not creating a thread specific to either of these companies but hopefully a few will spring up...

 

(Also looking at more vertically integrated Hanes & VF Corp)

 

Does anyone think that manufacturing capabilities will be important in the new retail environment?

[DTEJD1997]

I'd like to start an idea factory here in a distressed sector...

 

I've been looking at retail clothiers a lot over the past month or so...

 

Does anyone think that manufacturing capabilities will be important in the new retail environment?

 

Unless a massive trade war breaks out, I am not so sure manufacturing capability for USA clothing retailers will be that important.  Even when there were lots of USA jobs in clothing production, they typically were not well paid/good jobs.  It is one thing to lose a sweat sock manufacturing job ($9/hour), and another thing to lose an automobile/steel production job ($29/hour).

 

I think that "heavy industry" jobs/production capability will be more important going forward.

 

I also have been poking around at some of the retailers lately...but have not pulled the trigger on anything, and have found some of them to NOT be that compelling an investment even with price declines.

 

I think the best one I've found so far has been Guess?  (GES).

[bskptkl]

 

In all my research, I chose the children's (new born to 8 yo) clothing space (lower price points & you only have to close sales on the actual buyer & not the buyer & the wearer.)

 

A bit off topic, but have you looked at BEAN? Think pampered chef for kid's clothes. I owned the shell company Noront (NOR) which did a reverse merger with BEAN. Sold some but not all of the BEAN I got because I am intrigued with the business model. I think it is pretty damned expensive and not bombed out at all however. It is early days with their growth strategy so time will tell.

[DooDiligence]

 

In all my research, I chose the children's (new born to 8 yo) clothing space (lower price points & you only have to close sales on the actual buyer & not the buyer & the wearer.)

 

A bit off topic, but have you looked at BEAN? Think pampered chef for kid's clothes. I owned the shell company Noront (NOR) which did a reverse merger with BEAN. Sold some but not all of the BEAN I got because I am intrigued with the business model. I think it is pretty damned expensive and not bombed out at all however. It is early days with their growth strategy so time will tell.

 

Just downloaded SEDAR filings & IR presentations (interesting at first glance - thanks...)

[bbarberayr]

The whole clothing retail world is going through very dramatic changes.  I think it is just too hard to pick winners and losers at this time and am waiting till things get crazy cheap or staying away.  Even currently relatively safer retailers like grocery may have a completely different business model in a few years.  Given the risk, I'd like to see like a 7 p/e on a strong balance sheet before buying.

[CorpRaider]

Retail is too hard for me.  I do own many through value index products.

[DooDiligence]

Retail is too hard for me.  I do own many through value index products.

 

That's probably the best way to do it...

[EricSchleien]

If I had to pick a favorite company in this space, it would be Buckle. I also own shares for full disclosure.

[DTEJD1997]

Hey all:

 

In the general market downturn today, a lot of clothiers got hit extra hard.  Many of them hit 52 week lows.  One of them was GES.  Buckle (BKE) came very close to hitting a 52 week low.

 

These two would be my two picks in the clothing sector. 

 

Anybody else taking action in this sector?

[clutch]

Hey all:

 

In the general market downturn today, a lot of clothiers got hit extra hard.  Many of them hit 52 week lows.  One of them was GES.  Buckle (BKE) came very close to hitting a 52 week low.

 

These two would be my two picks in the clothing sector. 

 

Anybody else taking action in this sector?

 

I bought RL. I believe RL has one of the strongest brand values among clothiers and that is what will help them survive during the downturn. Also, if you assume eventually everything will be sold online, I think brand recognition becomes even more important.

[educatedidiot]

RL's Licensing segment: http://www.rocketfinancial.com/Financials.aspx?fID=6024&pw=198750&rID=8&p=2&segID=9520&stID=1

 

90% EBITDA margins, 2% of revenues on capex.  Nothing quite like a brand licensing business!

[Fly]

Hey all:

 

In the general market downturn today, a lot of clothiers got hit extra hard.  Many of them hit 52 week lows.  One of them was GES.  Buckle (BKE) came very close to hitting a 52 week low.

 

These two would be my two picks in the clothing sector. 

 

Anybody else taking action in this sector?

 

I bought RL. I believe RL has one of the strongest brand values among clothiers and that is what will help them survive during the downturn. Also, if you assume eventually everything will be sold online, I think brand recognition becomes even more important.

 

^^^this right here, and think RL is a good choice

[DooDiligence]

for that matter PVH (I think Calvin Kiein has better brand recognition.)

 

You don't see their smaller fragrance bottles in TJ Max or Ross any more (I think they've taken back control somewhat...)

 

I used to carry a half dozen bottles of Obsession & CC clearance shirts to Brasil & they'd sell immediately.

 

"Calvin Klein é muito chique"

 

Great cash flow (wouldn't buy though) I've made my choice, CRI...

[CONeal]

I've started looking at the sector lately and have on a list some of the same companies others have. BKE, GES, and RL.  A couple that hasn't been mentioned yet that I'm trying to figure out is JCP and the head scratcher ASNA

 

I don't feel ASNA is a buy yet due to lowered guidance earlier this week.  It looks like their debt is very manageable since the bulk of the debt due to the Ann Taylor purchase a couple of years ago isn't due until 2021 I believe. Cash flows seemed very reasonable to service the debt and payoff the debt coming due until then.  Not sure now how cash flow will look like with the revision.  Would not be surprised if some of the Ann Taylor purchas it written off.  On the bright side they are working on their issues trying to make the move to omni channel for all store. 

 

Also, from asking around some of the customers are very loyal particularly with Lane.  Maybe it's just my age group but most people I talk to go into the stores to try things on and make sure the sizes are right.  Most of them will purchase in the store.  Some will order online from the same store once they are comfortable with the sizing. 

 

[tooskinneejs]

I've always been intrigued by The Buckle based on their long history of nice net profit margins, high returns on equity, and good dividend.  And it has certainly gotten very inexpensive relative to pricing in recent years.  All that said, I can't pull the trigger on the stock because I went into a Buckle store several months ago and - while I am admittedly not their target customer - I found their merchandising to be pretty darn awful.  With the styles they were selling, they are likely to have an extremely limited customer base (think "the guy who wears an Affliction t-shirt").  Looking at their website now, the clothes look very different.  Less "i'm going out to see the UFC card tonight" and more "edgy casual."

 

Anyway, unless they swing their product assortment back toward the mainstream at least a little bit, I could see them having a tough road to hoe.  Has anyone been in a store in the last month or two?  Does it still have the Affliction vibe?

 

DISCLAIMER: No offense if you wear Affliction T's (they are the best, coolest, and most rad shirts ever and I don't want you to come and pound my skull into dust).

[CONeal]

I've always been intrigued by The Buckle based on their long history of nice net profit margins, high returns on equity, and good dividend.  And it has certainly gotten very inexpensive relative to pricing in recent years.  All that said, I can't pull the trigger on the stock because I went into a Buckle store several months ago and - while I am admittedly not their target customer - I found their merchandising to be pretty darn awful.  With the styles they were selling, they are likely to have an extremely limited customer base (think "the guy who wears an Affliction t-shirt").  Looking at their website now, the clothes look very different.  Less "i'm going out to see the UFC card tonight" and more "edgy casual."

 

Anyway, unless they swing their product assortment back toward the mainstream at least a little bit, I could see them having a tough road to hoe.  Has anyone been in a store in the last month or two?  Does it still have the Affliction vibe?

 

DISCLAIMER: No offense if you wear Affliction T's (they are the best, coolest, and most rad shirts ever and I don't want you to come and pound my skull into dust).

 

Not sure how old you are but the target market for Bucke is 12-24 with a few 30-40 year olds that want to look like they are hip.  in the past, they have done things that was different then standard retail.  Sometimes it was for the better and sometimes they swung and missed.  To my knowledge, they are always asking customers in the store what they like and don't like to adjust their mix correctly for that particular store.

[DooDiligence]

I've always been intrigued by The Buckle based on their long history of nice net profit margins, high returns on equity, and good dividend.  And it has certainly gotten very inexpensive relative to pricing in recent years.  All that said, I can't pull the trigger on the stock because I went into a Buckle store several months ago and - while I am admittedly not their target customer - I found their merchandising to be pretty darn awful.  With the styles they were selling, they are likely to have an extremely limited customer base (think "the guy who wears an Affliction t-shirt").  Looking at their website now, the clothes look very different.  Less "i'm going out to see the UFC card tonight" and more "edgy casual."

 

Anyway, unless they swing their product assortment back toward the mainstream at least a little bit, I could see them having a tough road to hoe.  Has anyone been in a store in the last month or two?  Does it still have the Affliction vibe?

 

DISCLAIMER: No offense if you wear Affliction T's (they are the best, coolest, and most rad shirts ever and I don't want you to come and pound my skull into dust).

 

Optically, BKE appears to be a deal but I think management is floundering in the new world.

 

They used to stress the fact that they don't discount & now u walk into a store & get hit with CLEARANCE racks.

 

They give lip service to ecom but the results are dismal.

[DooDiligence]

I've always been intrigued by The Buckle based on their long history of nice net profit margins, high returns on equity, and good dividend.  And it has certainly gotten very inexpensive relative to pricing in recent years.  All that said, I can't pull the trigger on the stock because I went into a Buckle store several months ago and - while I am admittedly not their target customer - I found their merchandising to be pretty darn awful.  With the styles they were selling, they are likely to have an extremely limited customer base (think "the guy who wears an Affliction t-shirt").  Looking at their website now, the clothes look very different.  Less "i'm going out to see the UFC card tonight" and more "edgy casual."

 

Anyway, unless they swing their product assortment back toward the mainstream at least a little bit, I could see them having a tough road to hoe.  Has anyone been in a store in the last month or two?  Does it still have the Affliction vibe?

 

DISCLAIMER: No offense if you wear Affliction T's (they are the best, coolest, and most rad shirts ever and I don't want you to come and pound my skull into dust).

 

Not sure how old you are but the target market for Bucke is 12-24 with a few 30-40 year olds that want to look like they are hip.  in the past, they have done things that was different then standard retail.  Sometimes it was for the better and sometimes they swung and missed.  To my knowledge, they are always asking customers in the store what they like and don't like to adjust their mix correctly for that particular store.

 

Their target mkt is the nightclub set.

 

They provide a great selection of unique jeans & accessories with a faux tailored experience.

 

Hard to fit in to todays landscape...

[ccplz]

I've started looking at the sector lately and have on a list some of the same companies others have. BKE, GES, and RL.  A couple that hasn't been mentioned yet that I'm trying to figure out is JCP and the head scratcher ASNA

 

I don't feel ASNA is a buy yet due to lowered guidance earlier this week.  It looks like their debt is very manageable since the bulk of the debt due to the Ann Taylor purchase a couple of years ago isn't due until 2021 I believe. Cash flows seemed very reasonable to service the debt and payoff the debt coming due until then.  Not sure now how cash flow will look like with the revision.  Would not be surprised if some of the Ann Taylor purchas it written off.  On the bright side they are working on their issues trying to make the move to omni channel for all store. 

 

Also, from asking around some of the customers are very loyal particularly with Lane.  Maybe it's just my age group but most people I talk to go into the stores to try things on and make sure the sizes are right.  Most of them will purchase in the store.  Some will order online from the same store once they are comfortable with the sizing.

 

ASNA equity is a 0.

[CONeal]

I've started looking at the sector lately and have on a list some of the same companies others have. BKE, GES, and RL.  A couple that hasn't been mentioned yet that I'm trying to figure out is JCP and the head scratcher ASNA

 

I don't feel ASNA is a buy yet due to lowered guidance earlier this week.  It looks like their debt is very manageable since the bulk of the debt due to the Ann Taylor purchase a couple of years ago isn't due until 2021 I believe. Cash flows seemed very reasonable to service the debt and payoff the debt coming due until then.  Not sure now how cash flow will look like with the revision.  Would not be surprised if some of the Ann Taylor purchas it written off.  On the bright side they are working on their issues trying to make the move to omni channel for all store. 

 

Also, from asking around some of the customers are very loyal particularly with Lane.  Maybe it's just my age group but most people I talk to go into the stores to try things on and make sure the sizes are right.  Most of them will purchase in the store.  Some will order online from the same store once they are comfortable with the sizing.

 

ASNA equity is a 0.

 

Why? 

[JayGatsby]

Hey all:

 

In the general market downturn today, a lot of clothiers got hit extra hard.  Many of them hit 52 week lows.  One of them was GES.  Buckle (BKE) came very close to hitting a 52 week low.

 

These two would be my two picks in the clothing sector. 

 

Anybody else taking action in this sector?

 

I bought RL. I believe RL has one of the strongest brand values among clothiers and that is what will help them survive during the downturn. Also, if you assume eventually everything will be sold online, I think brand recognition becomes even more important.

 

^^^this right here, and think RL is a good choice

I'm not disagreeing necessarily and the stock decline at RL from peak looks enormous. One thing to be cautious of though is for men's RL had an amazing moat for in store retail. They were one of the only brands that had stores within a store at the major department stores. Even when the department stores were kind of crappy those sections were always hardwood and really nice. I recently ordered a replacement RL polo shirt and it came in a cheap plastic bag within another cheap macy's plastic mailer. Even though it was the same product I'd always bought it delivered a very cheap feel and I thought about returning it just based on my subconscious reaction. They don't seem like they've figured out how to deliver the same experience online.

[CONeal]

Hey all:

 

In the general market downturn today, a lot of clothiers got hit extra hard.  Many of them hit 52 week lows.  One of them was GES.  Buckle (BKE) came very close to hitting a 52 week low.

 

These two would be my two picks in the clothing sector. 

 

Anybody else taking action in this sector?

 

I bought RL. I believe RL has one of the strongest brand values among clothiers and that is what will help them survive during the downturn. Also, if you assume eventually everything will be sold online, I think brand recognition becomes even more important.

 

^^^this right here, and think RL is a good choice

I'm not disagreeing necessarily and the stock decline at RL from peak looks enormous. One thing to be cautious of though is for men's RL had an amazing moat for in store retail. They were one of the only brands that had stores within a store at the major department stores. Even when the department stores were kind of crappy those sections were always hardwood and really nice. I recently ordered a replacement RL polo shirt and it came in a cheap plastic bag within another cheap macy's plastic mailer. Even though it was the same product I'd always bought it delivered a very cheap feel and I thought about returning it just based on my subconscious reaction. They don't seem like they've figured out how to deliver the same experience online.

 

Wait hold on a second.  Yes, Macy's cheapens their product with those while plastic shipping bags.  I think this a direct reflection of Macy's and their shipping policies.  Every time I have ordered Polo shirts from RL website I get the following box (see below). It will sound very cheesy but the first time I opened a box for RL's site it felt like they are putting forth the effort for a quality experience even if it's not at the store. 

 

On the other hand I am more concerned about the internal politics within the company.  Already get the feeling the new CEO will have to work his ass off to get respect within the company.

 

https://www.forbes.com/sites/pamdanziger/2017/05/22/can-patrice-louvet-cure-what-ails-ralph-lauren/#d10c75431915

 

[JayGatsby]

Wait hold on a second.  Yes, Macy's cheapens their product with those while plastic shipping bags.  I think this a direct reflection of Macy's and their shipping policies.  Every time I have ordered Polo shirts from RL website I get the following box (see below). It will sound very cheesy but the first time I opened a box for RL's site it felt like they are putting forth the effort for a quality experience even if it's not at the store.

That's it. They don't own their distribution though so they need to deliver that same experience through other merchants. Maybe they've started doing that by now. It looked like they used to basically tell retailers how to retail their product. If Macy's can't figure out how to online retail, RL needs to teach them.

[ccplz]

I've started looking at the sector lately and have on a list some of the same companies others have. BKE, GES, and RL.  A couple that hasn't been mentioned yet that I'm trying to figure out is JCP and the head scratcher ASNA

 

I don't feel ASNA is a buy yet due to lowered guidance earlier this week.  It looks like their debt is very manageable since the bulk of the debt due to the Ann Taylor purchase a couple of years ago isn't due until 2021 I believe. Cash flows seemed very reasonable to service the debt and payoff the debt coming due until then.  Not sure now how cash flow will look like with the revision.  Would not be surprised if some of the Ann Taylor purchas it written off.  On the bright side they are working on their issues trying to make the move to omni channel for all store. 

 

Also, from asking around some of the customers are very loyal particularly with Lane.  Maybe it's just my age group but most people I talk to go into the stores to try things on and make sure the sizes are right.  Most of them will purchase in the store.  Some will order online from the same store once they are comfortable with the sizing.

 

ASNA equity is a 0.

 

Why?

 

Top-line is deteriorating due to full penetration of portfolio of tired brands, combined Nov / Dec comps declined 4.4% (however they had to increase promotions to drive comps) with pre-Christmas comps (i.e. first three weeks of Dec) down 10-17%

Profitability is now concentrated in one brand (maurices, ~62% of profitability) which has reached penetration and as the brand moves online, will face significant competition from ecommerce players

Justice, historically the Company’s second PNL generator, has collapsed under increased competition and a turnaround is unlikely given pricing pressure and erosion of store-base competitive advantage

All of ASNA’s other brands are fully penetrated and contribute limited profitability

Significant actual and implied leverage creates a very levered entity that drives significant decremental margins on small downward changes in sales (and vice-versa)

Company put on significant leverage for its last acquisition and currently sits on $2B leverage on $580M of EBITDA (i.e. 3x+) which is a lot for a brick-and-mortar retailer, most of the public comps don’t even have debt (with far better top-line trends)

In addition, ASNA has 4 concepts across 750+ stores which creates structural issues in world increasingly shifting to e-commerce

Assumed lease payments of this $750M capitalized at 10x imply leverage of 5.5x+

This is an overleveraged retailer with tired brands in structural decline that could be facing negative cash flow in 2-3 years - just screams structural short.

 

[CONeal]

I've started looking at the sector lately and have on a list some of the same companies others have. BKE, GES, and RL.  A couple that hasn't been mentioned yet that I'm trying to figure out is JCP and the head scratcher ASNA

 

I don't feel ASNA is a buy yet due to lowered guidance earlier this week.  It looks like their debt is very manageable since the bulk of the debt due to the Ann Taylor purchase a couple of years ago isn't due until 2021 I believe. Cash flows seemed very reasonable to service the debt and payoff the debt coming due until then.  Not sure now how cash flow will look like with the revision.  Would not be surprised if some of the Ann Taylor purchas it written off.  On the bright side they are working on their issues trying to make the move to omni channel for all store. 

 

Also, from asking around some of the customers are very loyal particularly with Lane.  Maybe it's just my age group but most people I talk to go into the stores to try things on and make sure the sizes are right.  Most of them will purchase in the store.  Some will order online from the same store once they are comfortable with the sizing.

 

ASNA equity is a 0.

 

Why?

 

Top-line is deteriorating due to full penetration of portfolio of tired brands, combined Nov / Dec comps declined 4.4% (however they had to increase promotions to drive comps) with pre-Christmas comps (i.e. first three weeks of Dec) down 10-17%

Profitability is now concentrated in one brand (maurices, ~62% of profitability) which has reached penetration and as the brand moves online, will face significant competition from ecommerce players

Justice, historically the Company’s second PNL generator, has collapsed under increased competition and a turnaround is unlikely given pricing pressure and erosion of store-base competitive advantage

All of ASNA’s other brands are fully penetrated and contribute limited profitability

Significant actual and implied leverage creates a very levered entity that drives significant decremental margins on small downward changes in sales (and vice-versa)

Company put on significant leverage for its last acquisition and currently sits on $2B leverage on $580M of EBITDA (i.e. 3x+) which is a lot for a brick-and-mortar retailer, most of the public comps don’t even have debt (with far better top-line trends)

In addition, ASNA has 4 concepts across 750+ stores which creates structural issues in world increasingly shifting to e-commerce

Assumed lease payments of this $750M capitalized at 10x imply leverage of 5.5x+

This is an overleveraged retailer with tired brands in structural decline that could be facing negative cash flow in 2-3 years - just screams structural short.

 

Regarding the leverage, 1.5 billion is not due until 2022.  That is a ways off before they even have to really worry about the balloon payment.  They are currently working in revamping the company and cutting the expenses. 

 

The entire retail sector is in the toilet and driving down sales as companies struggling to survive are cutting prices to get people in the store.  Those that can weather the storm will pick up a lot of new business as the weaker ones go out of business.  The term loan has been prepaid in that  another payment is not due until May 2018 (I believe).  This gives them time to implement "Change for Growth".  They have quite a few levers that can be pulled to stay afloat until better times come.  Despite what others would have people think, the entire country is not going to shift to only ecommerce.

 

Am I saying it's a buy right now?  No, for one the price is higher then I want to pay relative to valuation.  They have some goodwill write offs coming up.  can also think of a couple other things that need to be done.  Hopefully on the earnings release a better picture will be painted on their position for the rest of the year.  I think it's very premature to call the equity a 0 at this point in time.