Fifth & Pacific Companies Inc (FNP): This Fashion Makeover Looks Pretty Good

Given an estimated $750 million in revenues for the year, the line might be worth around $2.4 billion, or about $19 a share net of debt based on 3.2x sales. Again, comparables can be used to judge this value’s plausibility.

Michael Kors Holdings Ltd (NYSE:KORS), which designs and produces a range of award-winning luxury accessories and clothing, is a chief competitor. The company is well liked on Wall Street, with a significant majority of analysts rating it a buy.

In its latest quarter, revenue increased 57.1% to $597.2 million from $380.0 million in the previous year. As of March 30, the company operated 304 retail stores, including concessions, compared to 237 retail stores, including concessions, at the end of the same prior-year period. Kors also had 96 additional stores operating through licensing partners. For fiscal 2014, management expects sales to be in the range of $2.6 billion to $2.7 billion. Based on top of the range, sales of $2.7 billion with an 18% cash earnings profit margin, the company is currently valued at around 4.0x revenue.

Coach, Inc. (NYSE:COH) also competes with Fifth & Pacific Companies Inc (NYSE:FNP), and more specifically against kate spade. A leading marketer of modern American accessories and fine gifts, the company has lost some of its allure on the Street. Disappointment over slowing growth has dropped its shares from near $80 to around $55 recently.

Coach, Inc. (NYSE:COH) announced sales of approximately $1.2 billion in the last quarter, an increase of 7% compared with $1.1 billion in the same period a year ago. On a constant currency basis, sales rose a good but not outstanding 10%. Net income for the quarter totaled $239 million, 6% more than the prior year. Based on analysts’ expected sales of $5.1 billion, at a 19% profit margin, Coach is currently valued at around 3.0x sales.

Conclusion

Fifth & Pacific has remade itself into a contemporary fashion house. Given the recent performance of its three remaining brands, the company could be worth around $25 a share on a sum-of-the-parts basis with its kate spade line potentially offering further value. An interesting situation and intriguing valuation, Fifth & Pacific might be a firm to watch.

Bob Chandler has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach.

The article This Fashion Makeover Looks Pretty Good originally appeared on Fool.com and is written by Bob Chandler.

Bob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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