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It’s not easy being a frontrunner in the premium denim business. In fact, it’s almost an impossibility to make your denim brand known in such a packed industry, let alone during a recession. Joe's Jeans (NASDAQ:JOEZ) is an example of a stand-out denim company and that is why I bought their stock.

When done right, the premium denim business can be very lucrative. Joe’s Jeans is as attractive an investment as it is a fashion statement. This provides all the more reason to take the bait on JOEZ. The stock looks enticing to investors at the moment due to: low price, low P/E ration, the fact that it’s undervalued, and it has plenty of room to grow. These facts, on top of great margins, a lot of cash and low debt equal a good value investment. In fact, their year-end cash and cash equivalents on hand were reported at $13.2 million

Gross margin during the quarter (see earnings call transcript here) increased one percentage point to 49%, and SG&A was $9.3 million compared to $7.1 million a year ago. Also in the fourth quarter, net income was $20.5 million compared to $1.1 million during the prior year and they earned $0.33 per share in the fourth quarter of 2009

Their sales grew 15.8% to $80.1 million and their operating income grew 48% to $8.1million for 2009. Their fourth-quarter sales increased 42% and their 4th quarter operating income increased 164% to just under $3 million. Their 2009 sales surpassed those of 2008. Factors that assisted in sales growth included focus on fashion denim, a revamping of their core basic program, and introducing 2 new product types. This is a well managed company whose management is invested – in more ways than one – in the jean business. Attention to design detail and a need for customer satisfaction has remained important through the success of the business. Outsourcing their manufacturing helps keep these priorities in check. New innovative products are constantly flowing from the Joe’s Jeans designers.

One of the new product classifications includes leggings made with denim material, instead of a regular cotton based fabric. JOEZ was the first premium denim brand to offer this new products type – and for just under $100 each retail price. Despite having less than 1 month in the ¼ shipping, they generated sales of $1.5million from this product. A pair of jeans transformed into leggings is a simple yet great idea, all the while keeping with the sleek and slimming look of the jeans in general. The fact that they are manufactured with a more durable jean material allowed flexibility with design, much like a regular pair of jeans. Their 2 new product classifications generated an additional $1.4 million in revenue for the 4th quarter.

They are using their momentum at the moment to take advantage of the growing market for this high end apparel. In addition to growth, there are indicators of a more long term presence in the market. They are currently sold in high end department stores, boutiques, online stores, etc. JOEZ recently signed nine leases with the Premium Outlets division of SPG. This move will make this designer brand more readily available to those who place Joe’s Jeans above their price range. Soon this will be a luxury brand with a huge customer base. The Joe’s Jean consumer is one who needs a designer brand jean as a wardrobe staple. The advantage of selling from many different types of places will grow the name, customer base, and the brand.

JOEZ may also soon dabble in the men’s designer jeans department. If they take anything after their known rival True Religion, their men’s line will explode. With slimming styles and fits, a designer name, and (almost) affordable prices, the threads will sell. Despite the fact that it may be near impossible to trump the competition in the world of jeans, JOEZ is on the right track to becoming the next denim brand with a cult following.

Disclosure: Long JOEZ

Source: Why We Bought Joe's Jeans