Retail stocks have been doing very well over the last few weeks, especially those in the niche clothing sector. Pacific Sunwear of California, Inc. (PSUN), American Apparel, Inc. (APP) and Joe's Jeans Inc. (JOEZ) have been leading the charge this year, with each gaining 100% in 2013. Despite these large moves the sector looks to have even more upside potential for investors looking to jump in. After years of cost-cutting and product alignment, it appears as though these stocks are poised to reap nice upside gains in revenue on any uptick in retails sales. Today I will focus on JOEZ as it gets ready to report another profitable quarter next week.
JOEZ engages in the design, development, production, and marketing of apparel products under the Joes brand name in the United States. It operates in two segments, Wholesale and Retail. The company sells its products to retailers, specialty stores, and distributors; and to consumer through its full price retail and outlet stores, as well as through the joesjeans.com. It operates approximately 11 full price retail stores and 19 outlet stores.
JOEZ has a forward PE of 14.29. In the most recent quarter the turnaround story in JOEZ came to fruition.
- Consolidated fourth quarter net sales increased 33% to $33.7 million;
- Retail store net sales increased 18%;
- Wholesale net sales increased 37%;
- Retail same store sales increased 6%; and
- Operating income increased to $3.2 million for the fourth quarter of fiscal 2012.
In 2012 JOEZ generated operating income in all four quarters, increased its cash balance and was able to fund new store openings from cash flow from operations. This is a testament to the strength of the business at JOEZ right now. The stock is currently breaking out to new 2 year high ahead of next week's earnings report.
Looking at the last year's income statement above we can look to calculate the upcoming quarter's results. Sales have gained 10%, 6% and 11% over the previous quarters for an average sales gain of 9% per quarter. Cost of sales has gained 9% over the last two quarters. Using these numbers we can come up with average sales for this upcoming report of $36.7m with cost of sales coming in at $17.9m. Assuming the growth trend in other expenses also increased by 9% we come up with net operating income of $6.2m, almost triple the last quarterly number.
JOEZ is an attractive stock for long term investors in a sector that is doing very well in a difficult retail environment. The company is generating positive cash flow and profits and should continue to build on this strength in the coming year. The stock is breaking out to multi-year highs. Investors should consider a strong look at JOEZ. If the earnings trend we have seen over the last year continues at that pace JOEZ could be ready to report a monster quarterly report next week. The solid EPS growth in the stock over the last year make it extremely undervalued for investors looking to enter the sector.