Hoorah for the Bra Stocks!: Hanesbrands Inc. (HBI) and More

The first patent issued for the modern brassiere was in 1914 and ever since has been inextricably linked with the position of women in society. From the target stitching and torpedo shaped cups of the 1940s reflecting wartime factory work to the growing fitness trend of the late 20th century spawning the sewing of two jockstraps together (ewww!) to make the first jogbras, bras have come out of the closet. Reflecting the economy, we even have our own one-percenter bra, the Victoria’s Secret Fantasy bra worth $2.5 million, and no doubt there may soon be sequester bras, which are attached to pink slips. (Just joshing.)

Some interesting factoids are that women’s average cupsize goes up one every decade and girls are starting to wear bras earlier and earlier. For investors in underwear stocks, this is not insignificant. Girls are graduating from Underoos (the underwear that’s fun to wear) to Victoria’s Secret faster than ever. Intimate apparel is an $11 billion annual business in the US alone, $16 billion worldwide. Most adult women in the US own nine bras and regularly wear six.

This item of clothing has been monopolized by big corporations since that 1914 patent was sold to Warner’s for today’s equivalent of $20,000 and was worth millions to Warner’s, owned by Hanesbrands Inc. (NYSE:HBI). The two big players in the lingerie drawer are Hanesbrands and Victoria’s Secret, owned by Limited Brands, Inc. (NYSE:LTD), which is located in every mall worth its salt and has a thriving online and catalog business. And there’s teen retailer Hot Topic, Inc. (NASDAQ:HOTT), fairly new to this space with its Blackheart lingerie line, an edgier alternative to Victoria’s Secret, and Torrid, a plus size lingerie line. Blackheart just debuted Nov. 15 with five stores in Texas and California and a website.

Tickled PINK

So which bra stocks are best going forward? None of these brands are totally dependent on bras but lingerie trends are important to them — especially so in the ongoing battle between Hanebrands and Limited Brands. Limited’s PINK collection is the big beneficiary of teenagers wearing bras earlier because it is much more fashionable and targeted to them whereas Hanesbrands’ bras are just mini-Mom’s and definitely not what the tween or teen wants even if no one sees it. PINK is defined as a college girl brand but little sister wants to wear it, too. Hot Topic and to a lesser extent American Eagle Outfitters (NYSE:AEO) and Urban Outfitters, Inc. (NASDAQ:URBN) also benefit.

Limited Brands also owns Bath and Body Works, high-end retailer Henri Bendel, and the Canadian Victoria’s Secret La Senza. Five-week same store sales figures rose 9% as reported on Feb. 2 with the La Senza division rising 15%. Limited CEO Les Wexner has been quoted as saying La Senza is targeted to “bad girls.”

Limited’s stock appreciation has been reflecting the overwhelming success of PINK, with its underwear, casual pants, T-shirts, hoodies, and accessories as well as that strong uptick in sales for the fave of bad girls of Canada (are there any really bad girls in Canada?), LaSenza. Limited is trading at an 18.86 P/E with a 2.70% yield, which has been regularly raised as well as frequent special dividends. Analysts expect 11.46% EPS growth over five years and have a mean price target of $52.00 for almost 20% upside. Limited Brands reports on Feb. 27.