How Playing it Cute Makes You Money Now
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One company adds an extra $1.5 billion annually to its coffers from its cute couture. Another's entire raison d'etre is a celebration of cute to the tune of $43.76 billion last year. And the third's newest hot line, the epitome of cute, has endeared itself to legions of young women with double digit sales growth quarter after quarter.
A study published in the Journal of Consumer Culture examined the cultural implications of cuteness, from the Japanese culture of kawaii (think Hello Kitty and big eyed anime) to Western perceptions of cute and its relation to retail. Lead researcher Elad Granot's curiosity over the prevalence of the word "cute" as used by females in retail situations prompted the study.
Several companies "get" cute and their stocks are winning from winsome. The "cutest" are L Brands (NYSE: LTD), best known for Victoria's Secret, Walt Disney (NYSE: DIS), and Mattel (NASDAQ: MAT). As Natalie Anger wrote in a New York Times article, "Whatever needs pitching, cute can help."
Dress the portfolio in PINK
The study singles out L Brands' PINK as a successful leveraging of cute. PINK is sold in Victoria's Secret stores and online. The line of underwear, hoodies, sweats, and accessories is aimed at college age women featuring bright colors, cute designs, and soft fleecy fabrics. PINK adds $1.5 billion annually to L Brands' revenues. The company expects to double that number within a few short years.
Their appeal lies in the youthful design at the intersection of flirtatious and cute. It is non-threatening yet still trendy, not so overtly sexual as Victoria's Secret lingerie.
My college student daughter and her friends love the line. Every time we stop in Victoria's Secret it's filled with young women in the PINK section chiming, "Sooo cute!" The line started in 2004 is now so successful they have earned their own freestanding stores...and the sincerest form of flattery, imitation by Urban Outfitters, American Eagle Outfitters, and Hot Topic with their own young, cute lines of lingerie.
L Brands trades at a 19.44 trailing P/E with a 2.4% yield. The company reported in May that Q1 earnings rose 17% from Q1 2012. It has a strong insider hold at 18% with founder and CEO Leslie Wexner holding over 17 million shares.
The awwwww factor
Walt Disney is the premier commercializer of cute; even its documentary March of the Penguins cashed in on cuteness. Disney cartoon characters have front facing big eyes like babies, adorably infantilized. Who else but Disney could make us love a rat like in Ratatouille? This has made Disney the biggest branding company in the world, licensing thousands of products.
Disney has been an outperforming stock as investors realize for the price of the media division (the films, the Disney network shows, ESPN, ABC) you're getting the resorts and the licensing for free.
Disney is one of the world's most recognizable brands. One reason is that cuteness is also associated with freedom from anxiety, which the study likened to emotional carbohydrates or comfort food, dependably untroubling. There's a reason they call Disney resorts the "happiest places on Earth."
Disney's earnings have been untroubled for the last few years after recessionary worries receded and people flowed back into the parks and onto the cruise ships, went to the movies, and bought Disney "stuff." Since the lows of the recession the stock has tripled and shareholders have enjoyed double-digit EPS growth since.
At the March shareholder meeting CEO Bob Iger said, "In Fiscal 2012, we increased revenue by 3% to a record $42 billion, which led to a record $5.7 billion in net income, up 18% over the year before. And our earnings per share were up 24%, setting a new record of $3.13." However, Disney's trailing P/E at 19.33 and 1.20% yield aren't as cute as they used to be as the stock has moved up 35% in the last year.
Another drawback is that Iger is retiring in 2016. His annual compensation of $19.82 million is the main reason the corporate governance risk score is a high 9 instead of a 4 as it is for other risk issues. But Iger deserves it as he took over a troubled Disney in 2005 after CEO Michael Eisner filled the Board with cronies like his lawyer, his children's principal, and other questionable seats. Iger has also been instrumental in the purchase of Marvel and Lucasfilms.
The stock is close to 52 week highs. Its median price target has been raised from $62.50 in March to $72.50 now. Analysts are bullish with 7 Strong Buys, 15 Buys, and 8 Holds.
The All-American cutie
Mattel makes Barbie, Hot Wheels, and Fisher-Price toys but their most popular brand is the American Girl doll. They have their own stores dedicated to all things American Girl (with personal shoppers, yet!) located in high-end malls. These dolls and their accoutrements are pricey. Example: one can buy a scaled down VW bug for their 1970's era Julie Allbright doll for the price of the VW bug I bought in college.
Cute has been working for Mattel offsetting boy brands' underperformance. Boy brands have been so sluggish Mattel is teaching mommy bloggers how to play with boys' toys to encourage mom purchases for their boys.
Mattel is trading at a trailing P/E of 19.44 with a yield of 3.30%. That dividend has grown over 10% annually. Hasbro has a higher yield of 3.70% but comes with a short interest of 16.30% compared to a .90% short interest in Mattel. It also has less exposure to girl brands.
The stock is up 37.91% over the last year. The median price target at $49.00 gives 10% upside, and Argus initiated coverage on June 13 with a buy.
The Foolish Takeaway
Mattel is a buy during its usual summer slump with the highest yield of these and a keen understanding of "cute." L Brands is also a buy, especially since their stock hasn't moved up as much and new freestanding PINK stores should do brisk business. It also has that insider conviction. Disney has moved so far, so fast that it's pricey here and the yield isn't as winsome as it was. Wait for a significant pullback to buy Disney.
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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Mattel and Walt Disney. The Motley Fool owns shares of Walt Disney. 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!