Hoorah for the Bra Stocks!
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The first patent issued for the modern brassiere was in 1914 and ever since has been inextricably linked with the position of women in society. From the target stitching and torpedo shaped cups of the 1940s reflecting wartime factory work to the growing fitness trend of the late 20th century spawning the sewing of two jockstraps together (ewww!) to make the first jogbras, bras have come out of the closet. Reflecting the economy, we even have our own one-percenter bra, the Victoria's Secret Fantasy bra worth $2.5 million, and no doubt there may soon be sequester bras, which are attached to pink slips. (Just joshing.)
Some interesting factoids are that women's average cupsize goes up one every decade and girls are starting to wear bras earlier and earlier. For investors in underwear stocks, this is not insignificant. Girls are graduating from Underoos (the underwear that's fun to wear) to Victoria's Secret faster than ever. Intimate apparel is an $11 billion annual business in the US alone, $16 billion worldwide. Most adult women in the US own nine bras and regularly wear six.
This item of clothing has been monopolized by big corporations since that 1914 patent was sold to Warner's for today's equivalent of $20,000 and was worth millions to Warner's, owned by Hanesbrands (NYSE: HBI) . The two big players in the lingerie drawer are Hanesbrands and Victoria's Secret, owned by Limited Brands (NYSE: LTD), which is located in every mall worth its salt and has a thriving online and catalog business. And there's teen retailer Hot Topic (NASDAQ: HOTT), fairly new to this space with its Blackheart lingerie line, an edgier alternative to Victoria's Secret, and Torrid, a plus size lingerie line. Blackheart just debuted Nov. 15 with five stores in Texas and California and a website.
So which bra stocks are best going forward? None of these brands are totally dependent on bras but lingerie trends are important to them -- especially so in the ongoing battle between Hanebrands and Limited Brands. Limited's PINK collection is the big beneficiary of teenagers wearing bras earlier because it is much more fashionable and targeted to them whereas Hanesbrands' bras are just mini-Mom's and definitely not what the tween or teen wants even if no one sees it. PINK is defined as a college girl brand but little sister wants to wear it, too. Hot Topic and to a lesser extent American Eagle Outfitters and Urban Outfitters also benefit.
Limited Brands also owns Bath and Body Works, high-end retailer Henri Bendel, and the Canadian Victoria's Secret La Senza. Five-week same store sales figures rose 9% as reported on Feb. 2 with the La Senza division rising 15%. Limited CEO Les Wexner has been quoted as saying La Senza is targeted to "bad girls."
Limited's stock appreciation has been reflecting the overwhelming success of PINK, with its underwear, casual pants, T-shirts, hoodies, and accessories as well as that strong uptick in sales for the fave of bad girls of Canada (are there any really bad girls in Canada?), LaSenza. Limited is trading at an 18.86 P/E with a 2.70% yield, which has been regularly raised as well as frequent special dividends. Analysts expect 11.46% EPS growth over five years and have a mean price target of $52.00 for almost 20% upside. Limited Brands reports on Feb. 27.
Hot Topic has a 2.9% yield and hit a 52-week high on Feb. 20. Their CFO resigned recently effective March 29 but the stock only sold off two cents. The PEG is .98 and the P/E is now at 29.87. Fourth quarter comps were up 2.6% total, but double that for the Torrid plus size lingerie stores. Since Blackheart only debuted very recently its numbers are included in total comps. CEO and Chairman Lisa Harper highlighted the Torrid success in particular and announced plans to open 40 more in 2013. Hot Topic reports March 13.
Hot Topic has no debt but the dividend payout ratio is a steep 79%. As a smaller cap company this stock seems to be experiencing a strong uptrend but it wouldn't hurt to be somewhat careful with this name as the majority of its sales come from the teen targeted Hot Topic stores. It has limited analyst coverage -- only six analysts but five of them recommend it as a buy or strong buy and expect 26% EPS growth annually over five years.
Hanesbrands owns bra brands Playtex, Wonderbra, barely there, plus size Just My Size, and Bali as well as Hanes men's, women, and children's underwear and L'Eggs hosiery. Hanesbrands also owns outerwear brands Champion and Duofold. The company's website says it is #1 in market share for fleece, socks, men's and kids' underwear, T-shirts, and sheer hosiery and #2 for bras and panties. Hanesbrands is trading at a 23.77 P/E but has no yield like these others.
The company reported Q4 earnings on Feb. 5 announcing record free cash flow of $508 million for 2012, prepaying debt to the tune of $550 million, and said it expects to use $250 million of 2013 free cash flow to pay off the remainder of its 8% notes. Also noted was the exit from an underperforming European screen print business to focus more on Hanes and Champion lines, both higher-margin propositions. CEO Richard Noll acknowledged the cotton prices of early 2012 were a drag on earnings but gave upbeat guidance for 2013.
Analysts have a mean price target of $44.00 and expect 8.4% EPS growth annually for the next five years. Hanesbrands shares have already moved up 44.54% over the last year and return on equity is 29.65% but I can't get that thrilled about this company even with cotton prices going lower as the good news seems baked into the stock.
The Final Takeaway
It may be hard to believe that two handkerchiefs attached by ribbons has evolved into billions of dollars in profits in less than a century, but up to 95% of Western women wear one now. Limited Brands and Hot Topic are the faster growing companies and better holds with decent yields and support from younger women. Hanesbrands needs another catalyst to take it much higher. All that said, hoorah for the bra!!
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