The Anti-Abercrombies: Attractive & Fat

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Can't say I didn't warn you about Abercrombie & Fitch (NYSE: ANF) with its PR nuclear meltdown thanks to CEO Michael Jeffries. The company reported on May 24 with disappointing numbers, and the stock tanked over 10% intraday.

The company claimed inventory shortages, and analysts dismissed the anti-Abercrombie blowback from CEO Jeffries' 2006 remarks claiming the brand was only for the cool, attractive kids. Revelations (not new) had hit the wires that the company doesn't carry women's sizes above a 10 (the average American woman is a size 12 or 14) or XL and bigger.

While the company apologized, I can't say I felt any sadness when the stock tumbled. Several retail and consumer goods names celebrate the beauty of all kinds of women and are making money doing so.

Attractive (valuations) & Fat (profits)

A young blogger calling herself the Militant Baker has started the Attractive & Fat campaign with softbox lit photos of her Rubenesque self wearing Abercrombie & Fitch. Jeffries must be writhing with fury, especially when other companies that welcome his "uncool kids" are making money hand over fist.

It's sad that the fashion world encourages a body image so unsustainable that young models (mostly under 22) resort to eating tissues to stay slender. But fashion designers are starting to take notice of a $13.9 billion US market, the fastest-growing market in fashion, and the fourth annual Full Figured Fashion Week next month in NYC will feature full-figured models strutting retailers like Ralph Lauren, Jones New York, and Michael Kors. These companies are bucking the trend and winning the grateful custom of women.

Three companies in particular that curry the favor of larger woman without being patronizing are Ascena Retail (NASDAQ: ASNADAQ: ASNA)), Chico's FAS (NYSE: CHS), and JW Nordstrom (NYSE: JWN). A surprise to me was Nordstrom. Like many, I thought of it as a high end proposition, the province of skinny blonde socialites, but while researching found several plus-size fashionista sites listing Nordstrom as a great place to shop. The Curvy Fashionista had a feature on Nordstrom's assortment of really stunning prom dresses.

Nordstrom is simply a peerless retailer. Their customer service is the gold standard for any industry. Why Warren Buffett doesn't own their stock is beyond me when it has everything a Buffett stock personifies: sterling reputation, a 2.00% yield, over a century of experience, and solid management (corporate governance risk rating of 1, the best). Nordstrom would never allow the likes of a Jeffries to endanger their customers' and shareholders' trust.

Nordstrom's forward P/E is 14.15 and the PEG is 1.38, and it also has a sustainable payout ratio of 31%. The return on equity is 36.82%.

Nordstrom is tech-fashion forward, taking the lead in using iPads and tablets on the floor to order inventory from another store to help a customer or to check out. Their 124 Nordstrom Rack outlet stores are the Holy Grail for the budget fashionista, with better deals than TJ Maxx.

Analysts expects an 11.54% five year growth rate (yoy) and give the company a price target of $62.00. The stocks compares favorably with Macy's, although Macy's is a slightly better value with a lower PEG of 0.86 and a slightly higher yield of 2.10%.  

A women's specialty retailer that has exposure to the lush and fabulous is Chico's FAS, owner of brands Chico's, Soma Intimates, WhiteHouse/Black Market, and Boston Proper. It has 600 Chico's, 400 White House/Black Market, and 190 Soma boutiques. Boston Proper is mainly an e-commerce site with one bricks and mortar store. Analysts like the name, with 4 Strong Buys, 4 Buys, and 8 Holds.

Chico's has a 13.37 forward P/E and a 1.10% yield with a 0.95 PEG. When they last reported in February the company boasted an increase of net income of 25.6%, and 26.7% in diluted EPS for Q4 2012 compared to Q4 2011. Net sales came in at $651.9 million. 

One of their most promising strategies is omni-channel sales with catalogs, websites, mobile apps, call center, and in-store. The company has opened 125 new stores in the last year, with another 125 to 135 for 2013. The Boston Proper website will be expanded to several bricks and mortar stores sometime in 2013. The company is moving into Canada and exploring other international possibilities.

The company has been buying back its stock under a $300 million share repurchase program, with $107 million bought back in FY 2012. The company has no debt, and at the same time returned $142 million to shareholders in 2012.

One thing that is outstanding about Chico's is its attention to fit and service, with expert bra fittings at Soma stores and what they call their MAPS (Most Amazing Personal Service). Although not specifically targeting the plus-sized, they feature curvier models on their Soma website than Victoria's Secret.

Best known for full-figured fashion is Ascena Retail, owner of Lane Bryant, Maurices, Justice, dressbarn, and Catherines brand stores. The company has 3,800 stores in the US, Puerto Rico, and Canada. Catherines and Lane Bryant are its full figure focus stores, with over 1,200 stores between them. Justice is its tween targeted brands.

Rival Hot Topic is being bought at a premium by private equity. It competed directly on plus size fashion with Torrid and tweens with Hot Topic, so there is investor demand for these specialty retail niches.

Ascena has an attractive 12.26 forward P/E and a 1.06 PEG.  Analysts expect a fat five year growth rate of 15%. The company reports full-figured annualized revenues of $4.5 billion. However, Q2 results in March disappointed with weak holiday sales and acquisition costs for Lane Bryant and Catherines. When the company reports again in June its numbers will likely be better as it's ramping up e-commerce (sales up 126% online yoy).

Whipped cream and cherry on top

The recent purchase of Hot Topic will send some investors to Ascena as the logical alternative. Despite no yield it's the most fairly valued of these companies. For those investors sick of their Abercrombie stock buy Ascena, Nordstrom, or Chico's instead. There's a lot to be said for attractive and fat.

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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Ascena Retail Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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