JOSB has projected its earnings to fall by roughly 20% in this fiscal year ending Feb. 2, 2013 (53 week year) as compared to the fiscal year ending Jan. 28, 2012 (52 week year). It has significant marketing problems and may have to make major alterations to its business model. The prospect for a quick turnaround does not seem likely given the nature of the problems. Selling at 15 times this fiscal year projected earnings, I expect the P/E to continue to rise as a result of continued declining earnings. This can be compounded by the company’s reconfirmation of an extensive store opening plan in the months ahead.
When a company’s entire business model is based on deception, it does harm to its industry, competitors, and customers. It is not a minor, clever event.
I have no idea if regulators and courts will come to grips with the company, and if so what the impact will be. However, I would not want that exposure. It is only my opinion, and maybe courts and regulators will see things differently.
This year has been a successful one for many apparel companies. While the outlook for apparel retailers is always sensitive to the economy, higher end stores tend to perform better than other apparel stores even in a weak economy–they even performed better in the Great Depression. Currently, the major challenges in the industry are globalization and Omni-channel marketing. Two companies I would recommend for purchase are:
Saks Inc (NYSE:SKS) Fifth Ave
An adverse ruling in 2007 and a bad legacy of prior mergers brought this American icon to its knees. Now, the company is controlled by Carlos Slim and Southeastern Capital. The company is well capitalized for the foreseeable future. Management has been principally developing its Saks off Fifth Ave chain and locating stores in mixed-use upscale malls. Collectively there are approximately 110 stores operating in the US, 45 of which are Saks Fifth Ave stores. The company operates its own successful website, and Saks is in the second year of a five year contract with Oracle to create an Omni-channel platform. I think this stock should be bought with a 3 to 5 year time horizon. Look for dips in price; it definitely has the potential to be a story with a happy ending.
Ralph Lauren Corp (NYSE:RL)
The company has become more than the classic American brand–it can be said that Ralph Lauren is a true international brand of American apparel. It has a well-established wholesale business selling to retailers worldwide, emphasizing its core brand. The higher priced collections are sold in its company-owned stores worldwide, as well as to other stores. A major achievement is that it is already selling directly on the web in 11 countries in Europe and is now beginning its web expansion into Asia. I see nothing but continued growth for the company going forward. If one considers the company’s licensing arrangements, the brand name is almost ubiquitous. This is an easy one to buy even though it is selling somewhere around 20 times its March 2014 projected earnings.
I would not own JOSB at any price, and my recommendation is to sell any position you hold in the stock. If for diversification or other purposes, you want to retain a position in the sector, I would consider positions in the stocks mentioned above. Ralph Lauren is a solid growth company selling at a reasonable price, and Saks is a strongly capitalized company with a turnaround plan. If they execute well, it could be very rewarding.
The article Fool Me Once, Shame on You; Fool Me Twice, Shame on Me originally appeared on Fool.com and is written by Alan Ginsberg.
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