Fossil Group Inc (FOSL), Abercrombie & Fitch Co. (ANF): Should You Invest in This Consumer Fashion Accessories Business?

Guess? is also known to be a consistent cash flow generator. In 2013, it generated $269 million in operating cash flow and $169 million in free cash flow, whereas the EBITDA is around $368 million. For fiscal 2014, Guess? expects to generate around $2.60 billion to $2.64 billion in net revenue. Its operating income is estimated to grow by 8.5% – 9.5%. The adjusted diluted EPS might stay in the range of $1.70 to $1.90 in fiscal 2014. Income investors might like Guess? with its decent dividend yield at 2.30%.

Abercrombie & Fitch Co. (NYSE:ANF) is the cheapest company of the trio. It is trading at around $51.60 per share, with the total market cap of $4.04 billion. The market values Abercrombie & Fitch Co. (NYSE:ANF) at more than 6 times its trailing EBITDA. At the current trading price, the company offers its shareholders dividends with a yield at 1.50%.

In the first quarter, the company experienced declining sales, from $921.2 million in the first quarter last year to $838.8 million this year. The loss has been narrowed down, from $(21.3) million last year to around $(7.2) million this year, thanks to the lower cost of good sold. For the full year, the company expects to experience slightly negative comparable store sales, with the EPS staying in the range of $3.15 to $3.25. The company intends to spend around $200 million in capital expenditure.

Fossil seems to deserve a higher valuation due to its higher profitability with higher return on invested capital than the other two businesses. Fossil’s ROIC was more than 27.9%. Guess? ranked second with more than 14.3% ROIC, whereas the ROIC of Abercrombie & Fitch Co. (NYSE:ANF) was the lowest at 13.2%.

My Foolish take

Fossil Group Inc (NASDAQ:FOSL) is really a good long-term stock for patient investors, due to its excellent cash flow generating capability, conservative balance sheet, consistently high return on invested capital and a reasonable valuation. At its current double-digit EBITDA multiple, I think Fossil has reached its fair value range. However, I would rather wait for Fossil to pull back further on the market for me to initiate a long position in Fossil.

The article Should You Invest in This Consumer Fashion Accessories Business? originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Fossil and Guess?. The Motley Fool owns shares of Fossil and Guess?. Anh 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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