Warnaco Group Inc. Stock Downgraded (WRC)

NEW YORK ( TheStreet) -- Warnaco Group (NYSE: WRC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • Although WRC's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average. To add to this, WRC has a quick ratio of 1.59, which demonstrates the ability of the company to cover short-term liquidity needs.
  • 41.20% is the gross profit margin for WARNACO GROUP INC which we consider to be strong. Regardless of WRC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.70% trails the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry. The net income has significantly decreased by 78.4% when compared to the same quarter one year ago, falling from $45.50 million to $9.82 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, WARNACO GROUP INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.

The Warnaco Group, Inc., together with its subsidiaries, designs, sources, markets, licenses, and distributes a line of intimate apparel, sportswear, and swimwear products. The company has a P/E ratio of 14.5, equal to the average consumer non-durables industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Warnaco Group has a market cap of $1.68 billion and is part of the consumer goods sector and consumer non-durables industry. Shares are down 18.4% year to date as of the close of trading on Tuesday.

You can view the full Warnaco Group Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
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