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MAIDENFORM BRANDS (MFB) - Temporarily out of shape?

|Includes:Maidenform Brands, Inc. (MFB)
Maidenform Brands is a global company with an 88 year history. It had annual sales of 556.7m for the year ended January 1, 2011. It designs, sources and markets an extensive range of intimate apparel products, including bras, panties and shapewear. The company sources its products from approximately 36 third party manufacturers located in approximately 10 countries, primarily in the Asia-Pacific region. The company has distribution centers in Fayetteville, North Carolina and Shannon, Ireland.
In 2010, 42% of the company’s net sales were to department stores and national chain stores, 28% were to mass merchants, 20% were to other retail channels, and 10% were through company-operated outlet stores, kiosks and carts and websites. The company’s major wholesale customers include Belk, Costco, JCPenney, Kohl's, Macy's, Marmaxx, Target and Wal-Mart.
Over the last 6 years sales have shown a CAGR of 7.8%. The operating profit margin as percentage of sales has averaged about 12% over the past 5 years. Though sales and market share increased in Q3 2011, earnings were below expectation. Earnings were impacted by a decline in customer traffic and liquidation of overstocks. The resulting drop in share price from about $26 to $17 and change provides an attractive entry point.
Some of the conditions seen in this quarter may persist in the fourth. This in combination with uncertain macro economic conditions may drive prices lower in the short term. However, if the company manages to grow its net operating profit after taxes at an annual rate of 1%, a conservative DCF analysis indicates that the shares should be worth about $25 each. An investor willing to ride out near term (6-9months) turbulence should be able to realize this value.
One of the factors in the company’s favor is that though it is in the apparel business, its line of apparel should be less subject to the boom and bust associated with strictly fashion sensitive apparel. The stock also has significant insider/institutional ownership. From the most recent 10-K “As of February 25, 2011, our executive officers, directors and current 5% or greater stockholders (based upon the most recent filings with the SEC with respect to each such stockholder) together beneficially own approximately 54% of our common stock outstanding”.
Pricing pressures are a risk to profitability in the company’s line of business. However brand name recognition and a focus on quality and product innovation should mitigate these risks. Given its current stock price, Maidenform Brands should shape up well for the patient investor.
Stocks: MFB