Profitability Analysis: The 9 Most Profitable Apparel Stores

As long as public nudity is illegal, fashion is fabulous, and warmth is a necessity for survival, we can reasonably conclude apparel stores will thrive. Better yet, a cashmere sweater never fails to satisfy a holiday gift.

As the holidays are rounding the corner retailers are getting anxious. This year hasn’t been a great one for the industry but thanks to strong promotions and lean inventory levels, cautious optimism has been adopted as the standard mindset for the season. And even though polls have shown consumers plan to spend less this holiday season, few believe it: people have an interesting habit of saying one thing and doing another.

A boost of consumer spending will provide the must needed injection of cash flow the industry needs to stay strong.

Investing Ideas

So, how can you prepare your investment portfolio with apparel stores best suited to weather the holiday season?

One way to approach the industry is to take a look at profitability.

To help you explore some ideas, here’s a list of consumer stocks that might be worth a closer look. Each of these names has demonstrated higher than average levels of profitability compared to industry competitors over the trailing twelve months.

We have used the following metrics to determine profitability:

TTM Gross margin: This metric that tells us the percentage of a company’s revenue is left after paying all production expenses. Costs include overhead, payroll and taxation. ((revenues – cost of goods sold) / Revenue ) *100 = Gross margin %

TTM Operating margin: This tells us the percentage remaining after all operating expenses are paid. Operating expenses include: supplies, repairs, research and development, and depreciation. (Operating Income / Net Operating Revenue) *100 = Operating Margin %

TTM Pretax margin: A company’s earnings before taxes. This incorporates all of the expenses associated with business excluding taxes. It can help to determine the overall operating efficiency of the firm. The higher the pretax margin, the more profitable the company. (Net profit before taxes / net sales) *100 = Pretax Margin

The following list has a track record of profitability – do you think it will give them a boost against their competitors this holiday season?

Use the list as a starting point for your own analysis.

1. Ascena retail group inc. (ASNA, Earnings, Analysts, Financials): Operates as a specialty retailer of apparel for women and tween girls in the United States and Puerto Rico. TTM gross margin at 42.27% vs. industry average at 37.61%. TTM operating margin at 10.37% vs. industry average at 9.78%. TTM pretax margin at 9.76% vs. industry average at 8.98%.

2. Cato Corp. (CATO, Earnings, Analysts, Financials): Operates as a specialty retailer of fashion apparel and accessories in the southeastern United States. TTM gross margin at 38.27% vs. industry average at 37.61%. TTM operating margin at 10.07% vs. industry average at 9.78%. TTM pretax margin at 10.5% vs. industry average at 8.98%.

3. Chico’s FAS Inc. (CHS, Earnings, Analysts, Financials): Operates as a specialty retailer of casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items. TTM gross margin at 61.11% vs. industry average at 37.61%. TTM operating margin at 10.7% vs. industry average at 9.78%. TTM pretax margin at 10.66% vs. industry average at 8.98%.

4. Express Inc. (EXPR, Earnings, Analysts, Financials): Operates specialty retail stores in the United States. TTM gross margin at 39.51% vs. industry average at 37.64%. TTM operating margin at 12.32% vs. industry average at 9.8%. TTM pretax margin at 10.44% vs. industry average at 9.%.

5. Guess? Inc. (GES, Earnings, Analysts, Financials): Engages in the design, marketing, distribution, and licensing of apparel and accessories for men, women, and children. TTM gross margin at 43.92% vs. industry average at 37.61%. TTM operating margin at 11.98% vs. industry average at 9.78%. TTM pretax margin at 16.2% vs. industry average at 8.98%.

6. Jos. A Bank Clothiers Inc. (JOSB, Earnings, Analysts, Financials): Design, retails, and direct-markets men’s tailored and casual clothing and accessories. TTM gross margin at 65.58% vs. industry average at 37.61%. TTM operating margin at 16.58% vs. industry average at 9.78%. TTM pretax margin at 16.63% vs. industry average at 8.98%.

7. Nordstrom Inc. (JWN, Earnings, Analysts, Financials): Nordstrom, Inc., a fashion specialty retailer, offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. TTM gross margin at 42.79% vs. industry average at 34.81%. TTM operating margin at 11.93% vs. industry average at 7.87%. TTM pretax margin at 10.69% vs. industry average at 6.73%.

8. Zumiez, Inc. (ZUMZ, Earnings, Analysts, Financials): Zumiez Inc., founded in 1978, is a mall-based specialty retailer providing sports-related apparel, footwear, equipment, and accessories. TTM gross margin at 39.86% vs. industry average at 37.64%. TTM operating margin at 10.09% vs. industry average at 9.8%. TTM pretax margin at 9.96% vs. industry average at 9.0%.

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Fidelity)

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