Is Traditional Apparel Retailing A Buying Opportunity?

Given the recent negative performance of many apparel retailers and some calls that traditional apparel retailing is dead, we are addressing our thoughts on these issues and discussing which subsectors and companies we see as positioned best for long-term success.

In our opinion, there has been a secular shift in apparel retailing that is a persistent force.

We believe the current trend toward value over brand is here to stay. Unless a product can perform notably better than the competition (keep you warmer, keep you drier, perform better in athletic situations), consumers appear unwilling to pay a premium simply to own a brand.

We also think that shifts in wallet share are here to stay, with experience (travel, restaurants) valued over apparel, and other costs--including healthcare, education, and housing--rising in share.

Finally, we think the shift in distribution channel toward digital will persist.

As a result, we agree that apparel retail growth is not likely to return to historical levels. Having acknowledged that, we do believe that we are at a low point in the apparel retail cycle and there is future upside.

We do not believe brick-and-mortar apparel retailing is dead; however, it will look much different in the future. We think there is a place for stores where consumers can touch fabrics, try sizes, and see fit.

However, the apparel industry has experienced much self-inflicted near-term malaise. Many management teams have been overly optimistic regarding inventory levels and have not converted to more modern, responsive supply chains.

This has resulted in a highly promotional retail environment that has forced even well-run companies to discount to remain competitive. Also, we think we are nearing the end of the athleisure fashion trend.

With consumers having enough skinny and yoga pants to clothe themselves for a while and no new fashion must-haves, nothing is driving discretionary purchases.

Check out a summary of the big fishes in traditional retailing:

Kohl's Corporation -- Yield: 5.69%

Kohl's Corporation (NYSE:KSS) employs 32,000 people, generates revenue of $19,204.00 million and has a net income of $673.00 million. The current market capitalization stands at $5.91 billion.

Kohl's Corporation’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $2,487.00 million. The EBITDA margin is 12.95% (the operating margin is 7.21% and the net profit margin 3.50%).

Financials: The total debt represents 34.60% of Kohl's Corporation assets and the total debt in relation to the equity amounts to 85.74%. Due to the financial situation, a return on equity of 11.72% was realized by Kohl's Corporation.

Twelve trailing months earnings per share reached a value of $3.48. Last fiscal year, Kohl's Corporation paid $1.80 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 10.10, the P/S ratio is 0.34 and the P/B ratio is finally 1.19. The dividend yield amounts to 5.69%.

Stock Charts:

Long-Term Stock Price Chart of Kohl's Corporation (KSS)

Long-Term Dividend Payment History of Kohl's Corporation (KSS)

Long-Term Dividend Yield History of Kohl's Corporation (KSS)

Guess? -- Yield: 5.53%

Guess? (NYSE:GES) employs 13,500 people, generates revenue of $2,204.31 million and has a net income of $84.82 million. The current market capitalization stands at $1.38 billion.

Guess?’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $192.03 million. The EBITDA margin is 8.71% (the operating margin is 5.51% and the net profit margin 3.85%).

Financials: The total debt represents 0.41% of Guess? assets and the total debt in relation to the equity amounts to 0.62%. Due to the financial situation, a return on equity of 7.77% was realized by Guess?.

Twelve trailing months earnings per share reached a value of $0.97. Last fiscal year, Guess? paid $0.90 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 16.83, the P/S ratio is 0.62 and the P/B ratio is finally 1.34. The dividend yield amounts to 5.53%.

Stock Charts:

Long-Term Stock Price Chart of Guess? (GES)

Long-Term Dividend Payment History of Guess? (GES)

Long-Term Dividend Yield History of Guess? (GES)

Gap -- Yield: 5.15%

Gap (NYSE:GPS) employs 141,000 people, generates revenue of $15,797.00 million and has a net income of $920.00 million. The current market capitalization stands at $6.83 billion.

Gap’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $2,154.00 million. The EBITDA margin is 13.64% (the operating margin is 9.65% and the net profit margin 5.82%).

Financials: The total debt represents 23.16% of Gap assets and the total debt in relation to the equity amounts to 68.02%. Due to the financial situation, a return on equity of 33.29% was realized by Gap.

Twelve trailing months earnings per share reached a value of $2.23. Last fiscal year, Gap paid $0.92 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 8.03, the P/S ratio is 0.45 and the P/B ratio is finally 2.79. The dividend yield amounts to 5.15%.

Stock Charts:

Long-Term Stock Price Chart of Gap (GPS)

Long-Term Dividend Payment History of Gap (GPS)

Long-Term Dividend Yield History of Gap (GPS)

Macy's Incorporation -- Yield: 4.84%

Macy's Incorporation (NYSE:M) employs 157,900 people, generates revenue of $27,079.00 million and has a net income of $1,070.00 million. The current market capitalization stands at $9.68 billion.

Macy's Incorporation’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $3,388.00 million. The EBITDA margin is 12.51% (the operating margin is 7.53% and the net profit margin 3.95%).

Financials: The total debt represents 37.12% of Macy's Incorporation assets and the total debt in relation to the equity amounts to 179.69%. Due to the financial situation, a return on equity of 22.27% was realized by Macy's Incorporation.

Twelve trailing months earnings per share reached a value of $3.09. Last fiscal year, Macy's Incorporation paid $1.39 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 10.10, the P/S ratio is 0.36 and the P/B ratio is finally 2.28. The dividend yield amounts to 4.84%.

Stock Charts:

Long-Term Stock Price Chart of Macy's Incorporation (M)

Long-Term Dividend Payment History of Macy's Incorporation (M)

Long-Term Dividend Yield History of Macy's Incorporation (M)

Buckle -- Yield: 4.14%

Buckle (NYSE:BKE) employs 3,300 people, generates revenue of $1,119.62 million and has a net income of $147.28 million. The current market capitalization stands at $1.16 billion.

Buckle’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $261.73 million. The EBITDA margin is 23.38% (the operating margin is 20.51% and the net profit margin 13.15%).

Financials: The total debt represents 0.00% of Buckle assets and the total debt in relation to the equity amounts to 0.00%. Due to the financial situation, a return on equity of 38.36% was realized by Buckle.

Twelve trailing months earnings per share reached a value of $3.06. Last fiscal year, Buckle paid $0.94 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 7.91, the P/S ratio is 1.05 and the P/B ratio is finally 2.84. The dividend yield amounts to 4.14%.

Stock Charts: