Fast-fashion specialty retailers “with exceptional speed-to-market” have outperformed department stores and less nimble specialty stores not only in their profit margins, but also in their pace of revenue growth, according to a study by The Sage Group LLC’s Apparel and Retail Group.
Surveying results from 47 retailers, all of them publicly held and the overwhelming majority of them based in the U.S., Sage found in the last 12 months, the five stores with the best EBITDA margin — earnings before interest, taxes, depreciation and amortization as a percentage of sales — were Hennes & Mauritz, at 23.4 percent; The Buckle Inc., at 22.5 percent; Zara operator Industria de Diseno Textil SA (Inditex), at 20.3 percent; Urban Outfitters Inc., at 19.8 percent, and Fast Retailing Co. Ltd., owners of Uniqlo, at 18.6 percent.
Other specialty retailers — such as Gymboree, Jos. A. Bank Clothiers Inc., Aéropostale Inc., Gap Inc. and American Eagle Outfitters Inc. — filled out the top 10 rankings with marks ranging from 18 percent down to 13.9 percent, but Kohl’s Corp. distinguished itself as the best broadlines retailer with an 11th-place finish at 12.6 percent.
Abercrombie & Fitch Co. (11.7 percent) and Limited Brands Inc. (11.6 percent) followed, before the first upscale department store appeared on the list, Nordstrom, whose 11.4 percent mark placed it at 15th. Macy’s Inc. was 18th with a 10.5 percent EBITDA margin.
The other stores in Sage’s retailing universe to finish with a margin above 10 percent were off-pricers The TJX Cos. Inc. and Ross Stores Inc. (10.1 and 10 percent, respectively) and two others with a 10 percent margin, Zumiez Inc. and Bebe Stores Inc.
Sage also noted the “fast-fashion subset has achieved strong growth as well,” with the three-year revenue growth rates of Fast, Inditex and H&M far outpacing those of department store firms, several of which have had declines over the three years studied. American Apparel Inc. was first on this list with a compound annual growth rate of 39.8 percent, followed by Fast (24.3 percent), Zumiez (19.8 percent), Buckle (18.2 percent) and Urban Outfitters (16.3 percent). The bottom half of this top 10 were Aéropostale (15.2 percent), The Bon-Ton Stores Inc. (14.5 percent), Dick’s Sporting Goods Inc. (14.1 percent), Inditex (13.9 percent) and Jos. A. Bank Clothiers (14.1 percent). H&M scored 11th, with 12.1 percent, followed by J. Crew Group Inc. (12 percent). Bon-Ton’s growth rate can be partially attributed to acquisitions, including its purchase of Saks Inc.’s Northern Department Store Group in 2006.
Measured by gross margin in the past 12 months, Abercrombie & Fitch was best, at 65.1 percent of sales, followed by Jos. A. Bank Clothiers (61.5 percent), H&M (60.3 percent), Inditex (56.6 percent) and American Apparel (55.5 percent).
“On a market-cap weighted basis, stock prices for the fast-fashion subset have gained 17.3 percent over the past year, trading at 11.3 times [EBITDA for the last 12 months], on average,” Sage noted. By comparison, the department stores cited in the study — Macy’s, J.C. Penney Co. Inc., Nordstrom and Dillard’s — had seen their stock prices decline 17.8 percent over the last year and were trading at an EBITDA multiple of 7.9 times.
Among apparel firms, the EBITDA margin was highest among two brand management firms — Iconix Brand Group and Cherokee Inc., at 71.3 and 66.6 percent, respectively — followed by Coach Inc. (33.9 percent), True Religion Apparel Inc. (27 percent) and Tiffany & Co. (21 percent). The top 10 included Guess Inc. (18.9 percent), Polo Ralph Lauren Corp. (16.9 percent) and Gildan Activewear Inc. (14.8 percent).
Frederick Schmitt, managing director of Sage, was lead editor of the study.
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