Recently, Jana Partners expressed its belief that Fifth & Pacific Companies Inc (NYSE:FNP) should be worth around $28 per share after it exited its Lucky and Juicy brands. Investors must be happy with Fifth & Pacific, as the company has experienced a significant rise of more than 68% to nearly $21 per share. Should investors get in Fifth & Pacific Companies Inc (NYSE:FNP) at its current trading price? Let’s find out.
KATE SPADE had the highest and fastest growing EBITDA
Fifth & Pacific Companies Inc (NYSE:FNP) is the designer and marketer of a global portfolio of retail-based, premium brands, including KATE SPADE, JUICY COUTURE, and LUCKY BRAND, operating in four main business segments: JUICY COUTURE segment, KATE SPADE segment, LUCKY BRAND segment, and Adelington Design Group.
The majority of its revenue, $498.6 million, or 33.1% of the total revenue, was generated from the JUICY COUTURE segment, while LUCKY BRAND and KATE SPADE segments contributed revenue of around $462 million each. However, the KATE SPADE segment generated the majority of the company’s EBITDA at nearly $95 million, while JUICY COUTURE and LUCKY BRAND produced only $24.55 million and $34.7 million, respectively, in EBITDA.
At the beginning of April, the company announced that it was thinking of selling its LUCKY BRAND and JUICY COUTURE brands, so that it could focus on its best and rapidly growing brand, KATE SPADE. While LUCKY BRAND’s comparable sales rose only 3%, JUICY COUTURE had a 2% decrease in comparable sales.
In contrast, KATE SPADE experienced a remarkable growth of 27% in its direct-to-consumer comparable sales in the last quarter. While JUICY COUTURE’s EBITDA declined by as much as 61.8% and LUCKY BRAND’s EBITDA increased 36.6%, KATE SPADE looks like a clear winner among those brands, with 65.6% growth in adjusted EBITDA.
Fool contributor Andrew Marder wrote that KATE SPADE has been quite successful in competing with both Michael Kors Holdings Ltd (NYSE:KORS) and Coach, Inc. (NYSE:COH). Michael Kors seems to be the fastest growing company, with a 41% increase in comparable store sales in its latest quarter. Coach’s comparable store sales have risen only 1% in the U.S. However, Coach’s comp store sales have grown in the double-digits in China.
Coach is the best pick now
At $21 per share, Fifth & Pacific Companies Inc (NYSE:FNP) is worth around $2.5 billion on the market. The market values the company at as much as 94.15 times EV/EBITDA. The high EV multiple is due to low 2012 EBITDA, which was due to unallocated corporate costs, charges related to streamlining initiatives, brand-exiting activities, impairment of intangible assets, and loss on asset disposals.
Coach, Inc. (NYSE:COH) looks pretty cheap at its current trading price. At $57 per share, Coach is worth nearly $15.9 billion on the market. The market values Coach at around 8 times EV/EBITDA. Michael Kors Holdings Ltd (NYSE:KORS) has a higher valuation than Coach, Inc. (NYSE:COH). Michael Kors is trading around $55 per share, with a total market cap of $10.9 billion. The market values Michael Kors Holdings Ltd (NYSE:KORS) at as much as 17 times EV/EBITDA.
What worries me is Fifth & Pacific Companies Inc (NYSE:FNP)’s balance sheet. As of December 2012, the company had negative equity of $127 million, $59 million in cash, and as much as $400 million in debt. Both Coach, Inc. (NYSE:COH) and Michael Kors Holdings Ltd (NYSE:KORS) have very strong and liquid balance sheets, with lot of cash on hand and little leverage.
Among the three, Coach is the most profitable retailer with the highest return on invested capital at 52.56%. Michael Kors Holdings Ltd (NYSE:KORS) ranked second with 36.8%, while Fifth & Pacific Companies Inc (NYSE:FNP) has generated losses in the past twelve months.
My Foolish take
Fifth & Pacific Companies Inc (NYSE:FNP) does not interest me much due to its weak balance sheet. However, Fifth & Pacific is considered to be an opportunistic stock due to its brand restructuring. Among the three retailers, I like Coach, Inc. (NYSE:COH) the most because of its highest return on invested capital, a conservative capital structure, and a low valuation.
The article Should Investors Buy This Stock at Its Current Price? originally appeared on Fool.com.
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