Despite the dismal economy, some fashion firms have managed to achieve growth by reining in expenses, reducing debt and of course, delivering a good product. Return on Equity is a measure of a company’s profitability, calculated as net income divided by shareholder’s equity. However, it’s only one indicator. Many variables can affect ROE, including debt; new credit, or any charges or dividends that might negatively affect earnings. Note: Revenue and net income is for the fiscal year ended 12/31/01, unless otherwise noted. Parentheses indicate a loss. Asterisks denote companies with the same ROE. Stock symbols follow company names.
This story first appeared in the October 24, 2002 issue of WWD. Subscribe Today.
The 10 Fashion Vendor Issues With the Highest Return on Equity
Columbia Sportswear Co., COLM
Return on Equity: 26.8 percent; 2001 Net income: $88.8 million; 2001 Revenue: $779.6 million
Columbia Sportswear, one of the leading outerwear manufacturers in the world and a top maker of ski wear in the U.S., is expanding its European distribution, which includes opening a second licensed store in Moscow, and developing existing merchandise categories.
Liz Claiborne Inc., LIZ
Return on Equity: 26.5 percent; 2001 Net income: $192.1 million; 2001 Revenue: $3.4 billion
Having tightened up its businesses and balance sheets, Liz Claiborne is in a position to be aggressive in acquiring or investing in new companies, as evidenced by its recent purchase of Ellen Tracy. Some of the company’s other brands include Dana Buchman, Elisabeth, Laundry by Shelli Segal, Lucky Brand and Sigrid Olsen.
Nike Inc., NKE
Return on Equity: 18.1 percent; Net income (fiscal year ending 5/31/02): $663 million; Revenue: $9.9 billion
Nike is trying to keep expenses down with the goal of long-term sustainable profit growth. Analysts cite potential in women’s apparel, but consumer demand for high-end basketball sneakers with a sticker price of $185 appears to be waning.
Hampshire Group, HAMP
Return on Equity: 17.1 percent; 2001 Net income: $11.1 million; 2001 Revenues: $236.5 million
Hampshire Group made this list because of its purchase of Item-Eyes Inc., a privately held sportswear company that accounted for $44 million in net sales in 2000 — virtually the entire margin of sales increases.
Polo Ralph Lauren Corp., RL
Return on Equity: 15.7 percent; Net income (fiscal year ending 3/30/02): $172.5 million; Revenues: $2.3 billion
Polo Ralph Lauren’s productivity is largely driven by the retail division. According to analysts, full-price stores do an average of $1,000 per square foot and “upwards of an estimated $650 per square foot” for outlet stores.
Reebok International, RBK
Return on Equity: 15.1 percent; 2001 Net income: $102.7 million; 2001 Revenue: $3 billion
Reebok is the number-two athletic shoe maker in the U.S. behind Nike. Its latest marketing strategy is to position itself as a fashion-forward company and improve its earnings per share by 15 percent in 2003.
Kenneth Cole Productions, KCP
Return on Equity: 13.2 percent; 2001 Net income: $16.6 million; 2001 Revenue: $386.1 million
Kenneth Cole’s cost-cutting efforts are beginning to pay off. What’s more, the company’s efforts at product diversification and marketing contributed to better-than-expected second quarter results. On the wholesale side, sell-through remains strong.
Return on Equity: 12.2 percent; Net income (fiscal year ending 10/31/01): $28 million; Revenue: $615.5 million
Quiksilver produces casual clothing for young women and men under the Quiksilver, Roxy, Raisins, Radio Fiji, Hawk Clothing and Gotcha (Europe) labels. The company’s retail division is continuing to expand in California, and in September signed a lease to open a Boardriders Club store in Times Square.
Jones Apparel Group, JNY
Return on Equity: 12.1 percent; 2001 Net income: $236.2 million; 2001 Revenue: $4.1 billion
This year, Jones has added the LEI brand of junior moderate jeans and the Gloria Vanderbilt jeans lines, including the junior Glo brand, to its jeans stable, which also includes Polo Jeans Co. The company’s other brands include Joneswear, Evan-Picone, Norton McNaughton, Miss Erika, Energie, Currants, Jamie Scott and Nine & Co.
Perry Ellis International, PERY
Return on Equity: 9.9 percent; Net income (fiscal year ending 1/31/02): $6.6 million; Revenues: $279.7 million
Perry Ellis has been lowering its costs and boosting profits in recent years — not a bad formula. The company is banking on the relaunch of its licensed women’s collection this spring to contribute $50 million to the bottom line by the end of 2004.
The 10 Fashion Vendor Issues With the Lowest Return on Equity
Fila Holdings, FLH
Return on Equity: (199.7 percent); 2001 Net loss: ($134.9 million); 2001 Revenue: $940.6 million
Parent company Holding di Partecipazioni Industriali has been trying to sell Fila and its approximately $300 million in debt for more than a year. Last quarter, Fila’s bottom line suffered the greatest damage from a $14.5 million write-off on goodwill.
Russell Corp., RML
Return on Equity: (7.9 percent); 2001 Net loss: ($55.5 million); 2001 Revenue: $1.16 billion
The international apparel company specializing in activewear, casualwear and athletic uniforms, forecasts strong sales, based in part on new and expanded fleece programs at J.C. Penney and Sam’s Club.
Tarrant Apparel Group, TAGS
Return on Equity: (4.2 percent); 2001 Net loss: ($2.9 million); 2001 Revenue: $330 million
Tarrant, a provider of private label casual apparel that primarily serves specialty retailers and mass merchants, is taking the final step towards vertical integration. It has agreed in principle to purchase a twill mill factory with an annual capacity of 18 million yards.
Return on Equity: (4.2 percent); 2001 Net income: $6.2 million; 2001 Revenue: $677.6 million
Earlier this month, Guess announced that it had entered into a new $85 million asset-based secured-credit facility, arranged by Wachovia Securities. The new four-year agreement replaces an existing facility with JP Morgan Chase.
G-III Apparel Group, GIII
Return on Equity: (4.1 percent); 2001 Net income (fiscal year ending 1/31/02): $2.4 million; Revenue: $201.4 million
G-III designs, manufactures, imports and markets leather and nonleather apparel under private retail and licensed labels. Last quarter, the company’s net income plummeted 85.2 percent to $576,000, as revenues shriveled 36.4 percent to $40 million.
LVMH Moët Hennessy Louis Vuitton, LVMHY
Return on Equity: 0.1 percent; 2001 Net income: $8.7 million at then current exchange rates; 2001 Revenue: $11.9 billion LVMH reported a total net loss of $1.05 billion due to accounting changes, specifically the U.S. GAAP adjustment in connection with a goodwill writedown at DFS. In April, Standard and Poor’s rated LVMH’s creditworthiness, giving it a “BBB-plus,” a single notch below an “A” rating.
Return on Equity: 2.7 percent; 2001 Net loss: ($10 million); 2001 Revenue: $188.9 million
Tefron Ltd. manufactures seamless intimate apparel sold by Victoria’s Secret, Gap, Banana Republic, Target, Nike and DKNY. In the first half of the year, the company took an $18.8 million one-time, after-tax accounting adjustment.
Movie Star Inc., MSI
Return on Equity: 3.4 percent; Net income (fiscal year ending 6/30/02): $547,000; Revenue: $54.4 million
Movie Star designs, manufactures, markets and sells ladies’ sleepwear, robes, leisurewear, loungewear, panties and daywear. Last year’s results included a pre-tax loss of nearly $1.2 million, related to the closure of a distribution facility and offset by an income tax benefit of $888,000.
Gildan Activewear Inc., GIL
Return on Equity: 3.7 percent; Net income (fiscal year ending 9/30/01): $500,000; Revenue: $520.6 million
Gildan, which manufactures and sells basic activewear principally for the wholesale imprinted sportswear market, raised its earnings per share for the full fiscal year to between $1.35 and $1.39 per diluted share.
Nautica Enterprises Inc., NAUT
Return on Equity: 4 percent; Net income (fiscal year ending 3/2/03): $17.3 million; Revenue: 692.1 million
Charges in the third quarter will impact profitability; Nautica expects to take an after-tax charge of $6 million to $6.5 million for closing its Rockefeller Plaza store in Manhattan. The company is terminating its licensing agreement with swimwear manufacturer Apparel Ventures Inc. in June.