First It Was Bricks and Mortar Clothing Stores, But Now The Manufacturers Are Dying Too?

Put me in the camp that thinks the death of bricks and mortar retail stores is being greatly exaggerated. It is true that e-commerce is here to stay, but people seem to forget that most of the online clothing and accessories shopping is done on store sites that have a physical presence. The notion that Amazon private label clothes are going to render great American brands useless seems a bit far-fetched to me. So yes, there are retail stocks out there that look mispriced to me, but today I want to point out something else going on in the market that seems odd to me; clothing manufacturers are falling in sympathy because their goods are stocked in the stores that investors feel will be closed.

So let me get this straight… we aren’t going to buy shirts, pants, shoes, and underwear in an actual store, in fact, we aren’t going to buy them at all?! Is the Internet going to make it such that we never leave the house and therefore won’t require clothing? We’ll just order a pizza from Domino’s by tweeting and chill on the couch watching Netflix?

When I see the stocks of companies like Ralph Lauren, PVH, UnderArmour, and VFC Corp trading at multi-year lows it makes me think that Wall Street is getting this all wrong. Some of these names are less well known; PVH sells Van Heusen, Tommy Hilfiger, Calvin Klein, Izod, and Speedo, while VF owns North Face, Lee, Wrangler, Timberland, and Vans, among others, but let’s be honest, these companies might see their distribution channels evolve but they aren’t going away.

Below are some charts of the names I am digging into. Long-term I bet there are some great investments in the sector.

 

Full Disclosure: Long RL and UA at the time of writing but positions may change at any time

2 thoughts on “First It Was Bricks and Mortar Clothing Stores, But Now The Manufacturers Are Dying Too?”

  1. In 2013, VFC had revenue of $11.4 billion and adjusted operating income of $1.7 billion.

    In 2016, VFC had revenue of $12 billion and adjusted operating income of $1.7 billion.

    So, essentially no growth over four years, though the share count is down somewhat (and debt is up).

    So, even at current prices, you have to 13x EBIT for what appears to be a fairly low-growth business. Is that really a bargain, or was VFC simply overvalued when it was trading at $77/share in 2015?

    1. I agree that VFC does not look overly cheap. The charts show sentiment as much as anything else. The most I could argue for VFC would be 20x normalized FCF, or 2x sales… only about 10% above current prices. The bulk of the potential return will likely come from the dividend of >3% and the buyback accretion.

Leave a Reply

Your email address will not be published. Required fields are marked *