Torrid Growth
Hot Topic has a 2.9% yield and hit a 52-week high on Feb. 20. Their CFO resigned recently effective March 29 but the stock only sold off two cents. The PEG is .98 and the P/E is now at 29.87. Fourth quarter comps were up 2.6% total, but double that for the Torrid plus size lingerie stores. Since Blackheart only debuted very recently its numbers are included in total comps. CEO and Chairman Lisa Harper highlighted the Torrid success in particular and announced plans to open 40 more in 2013. Hot Topic reports March 13.
Hot Topic has no debt but the dividend payout ratio is a steep 79%. As a smaller cap company this stock seems to be experiencing a strong uptrend but it wouldn’t hurt to be somewhat careful with this name as the majority of its sales come from the teen targeted Hot Topic stores. It has limited analyst coverage — only six analysts but five of them recommend it as a buy or strong buy and expect 26% EPS growth annually over five years.
Ho-Hum Hanes
Hanesbrands owns bra brands Playtex, Wonderbra, barely there, plus size Just My Size, and Bali as well as Hanes men’s, women, and children’s underwear and L’Eggs hosiery. Hanesbrands also owns outerwear brands Champion and Duofold. The company’s website says it is #1 in market share for fleece, socks, men’s and kids’ underwear, T-shirts, and sheer hosiery and #2 for bras and panties. Hanesbrands is trading at a 23.77 P/E but has no yield like these others.
The company reported Q4 earnings on Feb. 5 announcing record free cash flow of $508 million for 2012, prepaying debt to the tune of $550 million, and said it expects to use $250 million of 2013 free cash flow to pay off the remainder of its 8% notes. Also noted was the exit from an underperforming European screen print business to focus more on Hanes and Champion lines, both higher-margin propositions. CEO Richard Noll acknowledged the cotton prices of early 2012 were a drag on earnings but gave upbeat guidance for 2013.
Analysts have a mean price target of $44.00 and expect 8.4% EPS growth annually for the next five years. Hanesbrands shares have already moved up 44.54% over the last year and return on equity is 29.65% but I can’t get that thrilled about this company even with cotton prices going lower as the good news seems baked into the stock.
The Final Takeaway
It may be hard to believe that two handkerchiefs attached by ribbons has evolved into billions of dollars in profits in less than a century, but up to 95% of Western women wear one now. Limited Brands and Hot Topic are the faster growing companies and better holds with decent yields and support from younger women. Hanesbrands needs another catalyst to take it much higher. All that said, hoorah for the bra!!
The article Hoorah for the Bra Stocks! originally appeared on Fool.com and is written by AnnaLisa Kraft.
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