The following are the Gross Margin Kings (companies who rule their sector as far as gross margins are concerned) of apparel & accessory sector stocks:
Data in table version:
|Ticker||Company||Ending||($000)||($000)||Margin (%)||Margin (%)|
|(ICON)||Iconix Brand Group||06/30/06||$18,409||$18,409||100.0%||59.8% |
|(NYSE:RL)||Polo Ralph Lauren||07/01/06||$953,600||$531,500||55.7%||14.0% |
|(NASDAQ:TRLG)||True Religion Apparel||06/30/06||$30,734||$16,352||53.2%||32.0% |
As the chart notes, gross margins for the group range from 48.8% up to 100%. There are other apparel companies that could have been included in the group, but since they rely on their own retail outlets to distribute their products, their gross margin gets eaten by high SG&A costs. For example the (most recent quarter’s) gross and operating margins for Abercrombie & Fitch (NYSE:ANF) are 69.1% and 15.6%, respectively. No longer a leader in this sector, Gap (NYSE:GPS) numbers are 32.9% and 5.0%, respectively.
Notes on specific companies:
- Polo Ralph Lauren (RL): In the most recent quarter ending July 1, licensing revenue was $50.3mm, or 5.3% (total revenue was $953.6mm).
- Coach (COH): Despite enjoying 78.4% gross margins in the last quarter, surprisingly little income comes from licensing. For the year ending July 1, Coach’s licensing revenue was $9mm of the $2,112mm in total revenues (4.3%).
- Under Armour (UARM): For the quarter ending June 30, 4.3% of its revenue ($3.449mm out of $79,965mm) came from licensing. Since operating income for the quarter was $3.369mm, the company was reliant on licensing revenues for its profitability.
Comments: Coach is a fascinating company here. It enjoys 78.4% gross margins and 35% operating margins, despite minimal licensing revenue and the fact that it operates its own retail & factory stores. Despite a slowdown in retail, to continues to post strong sales & profits, although its P/E ratio has declined over the past year. True Religion (TRLG) has also been posting some solid numbers, but it looks like they might be looking to sell the company. As far as Crocs (CROCS) is concerned, they still need to prove that they are not a one hit wonder.
Related: Coach's second quarter earnings conference call transcript.