The Jones Group Inc. (NYSE:JNY) saw EBIT margins of only 5% in 2012, compared to margins close to 30% for Coach, Inc. (NYSE:COH), which is in part due to its lower-margin accessory portfolio. Jones offers jeans-wear and footwear, in addition to accessories. Revenue growth also appears weak, expected to only grow 2% in 2013 year-over-year.
Fifth & Pacific Companies Inc (NYSE:FNP), formerly Liz Claiborne, is another major women’s apparel company. Earlier this year the company announced plans to explore the sale of its Lucky Brand and Juicy Couture brands, which would help allow it to focus on its key brand, Kate Spade. By shedding Lucky and Juicy, Fifth would more directly compete with the likes of Vera and Coach.
Although sales are expected to see impressive growth in 2013, up 16% year-over- year, the company should see expected margin pressure due to markdowns at Juicy Couture and investments in new retail locations. Fifth & Pacific Companies Inc (NYSE:FNP) hopes that global expansion of Kate Spade will help counter this margin compression. Other initiatives for its Kate Spade line includes the Jack Spade brand, it’s men’s line, and Saturday brand, which is handbags, accessories and lifestyle items for the home.
Michael Kors Holdings Ltd (NYSE:KORS) is a global accessories and apparel company. Kors has been on a tear over the past year and a half after its late 2011 IPO. The stock is up some 150% since its IPO. Kors is right there with the likes of Vera and Coach vying for the discretionary dollars. Kors is one of the top apparel stocks loved by hedge funds. Going into the second quarter there were a total of 49 hedge funds long the stock, a 17% increase from the previous quarter. Viking Global holds the most valuable position in Michael Kors Holdings Ltd (NYSE:KORS), with a $682 million position, comprising 4.1% of its 13F portfolio (check out Viking’s big buys).
Bottom line
The real driver for all of these stocks will be the rise in discretionary spending, and despite the recently lowered 2013 EPS guidance, Vera Bradley, Inc. (NASDAQ:VRA) now trades at a forward P/E that’s at 10.9 times, which is well below Coach’s 14 times, Michael Kors’ 18.7 times, Jones Group’s 12.7 times and Fifth & Pacific’s 58 times.
One of the big positives for Vera is its comp-sales growth, which is expected to increase more than 3% in 2013 thanks to new store openings. Vera is an international growth story that appears very attractive at current trading levels.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Great Opportunities Are Found in Overreactions originally appeared on Fool.com and is written by Marshall Hargrave.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
