Your Cheatin' Heart and Your Portfolio
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Does your bride sport RayBan aviators and a Michael Kors watch? Has she been buying more Victoria's Secret underwear of late? These are favorite brands of ladies who cheat according to the extramarital site, Ashley Madison, which surveyed its female members for their favorite brands.
Good news for retailers, the shady ladies spend twice as much on apparel once they start cheating. Cheating may be the salvation of fashion retailers whose clothes philanderesses (?) like to buy. Maybe there should be a line called Philandress at Banana Republic, owned by The Gap (NYSE: GPS), the number one favorite apparel of cheaters. Unsurprisingly, Victoria's Secret, owned by L Brands (NYSE: LTD) made the top ten. They could call theirs Philundress.
Their cheatin' hearts
While you may picture a fashionable femme fatale it turns out the lady cheaters also wear clothes from J.C. Penney?! Who knew? Most of the cheating ladies at Ashley Madison are career women in their 30s according to its CEO Noel Biderman and these are the retailers that demographic shops.
Their cheatin' hearts also fall for Macy's at number three and Ann Taylor at number four favorite brand. Lane Bryant, the plus size store owned by Ascena Retail (NASDAQ: ASNA) also came in at number seven after Bebe Stores (NASDAQ: BEBE). Trailing at eight and nine are Chico's and Lululemon Athletica, respectively.
Gap has turned itself around after some shaky quarters. Gap owns Old Navy, Banana Republic, Piperlime, Athleta, Intermix, and the Gap with a total number of 300 franchisee-run stores, 3,100 company-operated stores and web sites in 90 countries.
Gap is trading at 52 week highs at a 16.24 trailing P/E with a 1.50% yield. The stock is up 53.33% in the last year. As the family-friendly apparel retailer of the group (despite the Banana Republic rating by cheaters) selling to men, women, and children it has benefited from increasing consumer confidence.
It competes against most of these other retailers listed including Lululemon with its ladies' Athleta brand. Taking a page from Lululemon's playbook it is reaching out to the yoga communities with classes just last week sponsoring for the first time the NYC Times Square summer solstice yoga event. Jefferies analyst Randal Konik wrote in a note in April that Athleta could almost triple from its current 34 store count to 100 and add $5-10 per share to Gap stock.
Piperlime, Gap's e-commerce site, was dubbed "best shopping like a department store" by on online poll of fashionistas in April. Watch out, Macy's and Amazon!
The company is now trading 6.18 times book as the stock has climbed with a 42.90% quarterly earnings growth rate year (yoy). Since February analysts have revised upward their five year EPS growth rate from 9.37% to 12.17%. They have also been revising the median price target upward from $40.00 in April to $45.00 now.
In May the company reported same store sales up 7%, double the number for most retailers reporting at 3.4%.
Ascena Retail probably expected more bounce to the ounce from its acquisitions of Lane Bryant and Catherines plus-size brands but these key buys haven't been enough to offset some of its foundering divisions like dress barn. The company reported disappointing Q3 results on June 5 guiding lower on FY 2013 earnings to $1.10-1.15 and reporting a drop in comps of 4% ex-e-commerce. EPS dropped from $0.34 to $0.26 from Q3 of 2012.
Ascena Retail has a trailing P/E of 22.87 and a forward P/E of 12.46 with a PEG of 1.04. It also owns maurice's (teens), dress barn, and Justice (tweens) for a total of 3,800 stores in the US, Puerto Rico, and Canada.
Analysts believe that Ascena will perform better than Gap with a 15.87% five year EPS growth rate and a median price target of $21.00 for 20% upside.
Bebe Stores is a speculative small-cap name ($442.83 million) and only covered by four analysts but it does have a yield of 1.90%. The stock is down 4.94% over the last year and has a short interest of 11.80%. Nonetheless, it has a large insider hold of 59.52%.
The company operates 244 stores in the US, US Virgin Islands, Canada, Puerto Rico, and Japan and internationally licenses its bebe, 2b, and BEBE SPORT brands aimed at the 21-34 year old woman.
On June 27 the stock rose 6% on a positive Janney Capital Markets analyst note. Analyst predict a15.00 % five year EPS growth rate, same as The Gap. It is a volatile name but one to inspire some due diligence for a small flutter (Britspeak for tiny bet.)
L Brands, owner of Victoria's Secret, Pink, La Senza, Bath & Body Works, and Henri Bendel for over 3,300 stores worldwide as well as the much-admired catalogs and e-commerce sites. L Brands offers the highest yield of these four names at 2.30% with a trailing P/E of 18.84 and a forward P/E of 14.03. The PEG stands at 1.55.
The company reported a 3% rise in same store sales in May and also reported Q1 net sales at $2.268 billion and EPS rose 17% from Q1 in 2012. The company has strong insider conviction with CEO and founder Leslie Wexner holding over 17 million shares.
It recently honored its Pink brand, the very popular line for collegiate age girls, to freestanding store status. Its Victoria Secret and Bath & Body Works command a dominant position in fragrance and lingerie.
Although the stock has underperformed the S&P 500 this last year it has been a five bagger since 2009. Over the last five years the dividend has grown by 64.92%.
Cheaters never prosper
But they do like to dress well and spend twice as much money doing it.
I like the yield and dividend growth at L Brands best but Gap is making some progress with Piperlime and Athleta that bears watching. Ascena Retail needs to show improving earnings and accretion from Lane Bryant and Catherines. Bebe Stores is interesting as a speculative trade.
Caveat for the gentlemen: don't rifle through your lady's closet for these brands. Millions of women wear them because these are popular brands. That's why you want to buy the stocks. Trust your bride and buy her some roses and a Victoria's Secret gift card.
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
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!