Retail, Women, and Labor Force Participation
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Sometimes changes are abrupt and sometimes they are hidden. Slowly the U.S. labor market has become more flexible and a general reflection of the overall population. Ann Taylor (NYSE: ANN) is a specialty retailer that markets toward the professional working women and it offers a great way to play this specific demographic.
Will the Market of Professional Working Women Continue to Grow?
Predictions about the future are especially dangerous. Regardless, a little digging can expose trends that give a good idea where the future is heading.
Women graduate college at much higher rates than men. In 2003 it was reported that there were 1.35 female graduates for every male graduate of a four year college. Even with this positive trend, women tend to earn less then men. The wage differential between women and men has decreased since the 1950, but there are still improvements to be made. Overall, high levels of education and the continued decrease in male labor force participation bode well for women's professional future.
The Story of Ann Taylor
The company started just after World War II. Slowly but surely the firm has continued to grow its main brands; Ann Taylor and LOFT.
Ann Taylor is well known within its main demographic and has over a million likes on its Facebook page, but it is still a specialty operation. Only in the fall of 2012 was the first Canadian store opened. Unlike more diversified competitors, the company has not over expanded. International expansion offers serious growth potential and Canada is only the beginning.
As a company Ann Taylor showed strong growth after the end of the 2008 recession. With a three year revenue growth rate of 9.37% and return on investment of 26.6% the firm shows great promise. International expansion should help to maintain growth and the recent addition of international shipping for online orders shows that the firm is starting to embrace technology. At a price to earnings ratio close to 15, the company offers growth at a reasonable price.
What about the Competition?
Ralph Lauren (NYSE: RL) is much larger than Ann Taylor and serves a more diversified audience. A quick look inside their retail stores reveals a host of men's and women's clothing. In the name of growth, the company is trying to move beyond apparel into accessories. Between jewelry, watches, and golf products, there are a number of ways it is increasing the reach of the brand.
With a three year revenue growth rate of 12.05% the post-recession boom has aided the firm even more than Ann Taylor. Earnings per share have also seen a strong three year growth rate of 18.39%. Further Asian expansion is one of the main techniques executives plan to use to try and sustain this growth. All of this growth makes Ralph Lauren very attractive, but its general focus and relatively large size calls into question the sustainability of its growth.
Recent expansion and a dividend yield of 0.90% have helped to drive up valuations. Currently the firm trades at a price to earnings ratio around 23, a substantial premium to Ann Taylor. Ann Taylor's smaller size, greater room for growth, and lower valuation make it a more attractive investment.
Fifth & Pacific (NYSE: FNP) has gone through a major restructuring recently. Juicy Couture, Kate Spade, Jack Spade, Lucky Brand, and the Adelington Design Group are the firm's remaining brands and divisions. Juicy Couture and Kate Spade focus on women while Lucky Brand sells to both sexes.
The company has lost money for the past three years, but the sale of a number of brands should help to bring it back to profitability. In fiscal year 2012 Kate Spade and Lucky Brand both saw substantial increases in comparable sales of 30% and 8% respectively. Juicy Couture consistently dragged down the firm and over all had decreased comparable sales of 4%. These numbers show the firm is improving, though it is not out of the woods yet.
Until sales stabilize and the firm returns to profitability it is best to ignore Fifth & Pacific. Its gross margin of 61.00% is comparable to Ralph Lauren's, but Fifth's EBIT margin of -0.30% is substantially less and shows that the healing process will not be instantaneous.
Ann Taylor offers a simple and easy way to invest in women's important role in the economy. The firm is small and yet continues to grow. Unlike Ralph Lauren it does not need to expand out of apparel to find growth. Thankfully, Ann Taylor is not plagued by Fifth & Pacific's consistent unprofitably.
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