2 Attractive Apparel Stocks For The Holiday Season

Oct.10.12 | About: True Religion (TRLG)

Retailers are preparing for the winter sales season, during which many will book anywhere from 30% to 50% of their annual sales. But with the macro worriers fretting about the upcoming elections, fiscal cliffs, and the euro, the market has been fairly unforgiving for apparel companies that show any hint of sluggish same-store sales growth. While the same-store sales metric is clearly a useful data-point, we feel the market tends to overweight its importance in the near-term. At Gestalt Investor, we believe any yardstick must be viewed in context of the firm's larger fundamental picture, and the fairly noisy monthly same-store sales is no different.

To that end, we want to highlight 2 apparel companies whose recent sell-off provide interesting entry points. To identify our list, we screened for apparel companies with the following criteria:

  • Top position of one of the seasoned investment professionals we follow
  • Strong consumer brands
  • Shares sold off of more than 20% during the seasonally-weak summer period
  • Strong operating fundamentals: ROE > 15%
  • Good entry point: Forward P/E less than 13
  • Negative sentiment: Short Interest greater than 10% of float

Taken together, these characteristics highlight companies that may have encountered temporary hiccups that have obscured the solid long-term business fundamentals. The two companies we highlight today are True Religion Jeans (NASDAQ:TRLG) and G-III Apparel (NASDAQ:GIII).


P/E (Fwd)


Short Interest

True Religion




G-III Apparel




Click to enlarge

Source: Yahoo!Finance

Here is a short snapshot of each firm:

True Religion

True Religion Jeans manufactures and sells jeans internationally through its 110 stores. As its name suggests, this brand focuses on the fashion-conscious customer willing to pay its average $300 price for a pair of jeans. True Religion's customers are very loyal to its brand: once one finds a pair of jeans that fits well, the consumer tends to remain with the brand for the long-haul. Given its small store count, True Religion can grow earnings at 20% by expanding geographically for multiple years. At a P/E of 11, investors can purchase the shares of a quality growth retailer at a discount. While the market focuses on near-term sales trends, we recommend you focus on the long-run fundamentals of True Religion.

G-III Apparel

While you may not be familiar with G-III Apparel, you are likely familiar with many of the names within its brand portfolio: Andrew Marc, Calvin Klein, Tommy Hilfiger, the NBA, the NFL, and the NHL. G-III licenses, designs and manufactures outwear under these and 30 recognized brands. In addition, the company operates 121 stores under the Wilson's Leather brand name. Sales of coats and hats decline in the hot summer months, given rise to strong seasonality in the business. But G-III has a history of producing quality merchandise for recognizable brands. It distributes its products to a broad range of retailers, including Bloomingdale's, Macy's, Nordstrom's and Kohl's. G-III will likely be able to grow 20% a year by increasing unit volumes through its established distribution network. Yes, G-III is a seasonal business, and that is an important risk consideration. But, it is also a profitable, 20% grower sporting a P/E of just 11. Consider G-III as an interesting diversifier for your portfolio.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TRLG, GIII over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.