5 Profitable Dividends Apparel Stocks With Encouraging Inventory Trends

When a business is doing particularly well in comparison to their industry competitors investors want to find out why.

To identify some particularly profitable firms in the apparel stock sector and analyze the underlying causes we searched for names with the following characteristics:

1. We began with names in the  apparel sector paying dividend yields above 1%. Since company profits fund the dividend, we then screened for those with strong sources of profitability. To do this we ran the DuPont analysis.

DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:

ROE

= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,

•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.

2. After checking for profitability, we explore a reason they could be doing better. We screened for those stocks with  encouraging sales trends and higher growth in revenue than inventory year-over-year, as well as  inventory comprising a smaller portion of current assets over the same time period.

To understand why these trends are positive, think why the opposite trends would be negative. If a company sees higher growth in inventory than revenue, it may indicate that the company is having trouble selling its inventory. This is an especially valuable indicator for apparel stocks, whose inventory can quickly become dated.

Business Section: Investing Ideas

Below is the list of stocks from the above-mentioned ideas. All apparel firms have  market caps over $50 million and are trading at  over $1 per share. We also focused on stocks paying out dividend yields above 1%.

We compared the profitability of the names in the list with their competitors in the industry. Then we analyzed their inventory actions for positive trends to give light to why they might be doing so well.

Read on for the relevant accounting data for each firm.  Do you think they will maintain their status as “more profitable” in the coming quarters? List sorted by dividend yield.

 

1. The Men’s Wearhouse, Inc. Operates as a specialty retailer of men’s suits in the United States and Canada. Market cap at $1.55B, most recent closing price at $30.48. Dividend yield at 2.36%.

MRQ net profit margin at 7.74% vs. 6.82% y/y. MRQ sales/assets at 0.411 vs. 0.405 y/y. MRQ assets/equity at 1.388 vs. 1.402 y/y.

Revenue grew by 7.93% during the most recent quarter ($630.97M vs. $584.6M y/y). Inventory grew by 1.15% during the same time period ($623.86M vs. $616.76M y/y). Inventory, as a percentage of current assets, decreased from 69.89% to 68.3% during the most recent quarter (comparing 3 months ending 2012-10-27 to 3 months ending 2011-10-29).

 

2. Foot Locker, Inc. Operates as a retailer of athletic footwear and apparel. Market cap at $5.31B, most recent closing price at $35.26. Dividend yield at 2.04%.

MRQ net profit margin at 6.96% vs. 4.73% y/y. MRQ sales/assets at 0.462 vs. 0.458 y/y. MRQ assets/equity at 1.441 vs. 1.455 y/y.

Revenue grew by 9.33% during the most recent quarter ($1,524M vs. $1,394M y/y). Inventory grew by 2.99% during the same time period ($1,240M vs. $1,204M y/y). Inventory, as a percentage of current assets, decreased from 58.47% to 54.03% during the most recent quarter (comparing 13 weeks ending 2012-10-27 to 13 weeks ending 2011-10-29).

 

3. Gap Inc. Operates as a specialty retailing company. Market cap at $15.25B, most recent closing price at $31.81. Dividend yield at 1.57%.

MRQ net profit margin at 7.97% vs. 5.38% y/y. MRQ sales/assets at 0.483 vs. 0.468 y/y. MRQ assets/equity at 2.533 vs. 2.88 y/y.

Revenue grew by 7.78% during the most recent quarter ($3,864M vs. $3,585M y/y). Inventory grew by -2.28% during the same time period ($2,269M vs. $2,322M y/y). Inventory, as a percentage of current assets, decreased from 50.99% to 46.95% during the most recent quarter (comparing 13 weeks ending 2012-10-27 to 13 weeks ending 2011-10-29).

 

4. Cintas Corporation Provides corporate identity uniforms and related business services in North America and Latin America, Europe, and Asia. Market cap at $5.25B, most recent closing price at $42.0. Dividend yield at 1.52%.

MRQ net profit margin at 7.3% vs. 6.75% y/y. MRQ sales/assets at 0.253 vs. 0.246 y/y. MRQ assets/equity at 1.927 vs. 1.952 y/y.

Revenue grew by 3.36% during the most recent quarter ($1,051.33M vs. $1,017.18M y/y). Inventory grew by -13.74% during the same time period ($241.7M vs. $280.21M y/y). Inventory, as a percentage of current assets, decreased from 18.9% to 15.86% during the most recent quarter (comparing 3 months ending 2012-08-31 to 3 months ending 2011-08-31).

 

5. Chico’s FAS Inc. Operates as a specialty retailer of casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items. Market cap at $3.01B, most recent closing price at $18.11. Dividend yield at 1.16%.

MRQ net profit margin at 6.54% vs. 4.92% y/y. MRQ sales/assets at 0.391 vs. 0.368 y/y. MRQ assets/equity at 1.441 vs. 1.447 y/y.

Revenue grew by 18.22% during the most recent quarter ($636.66M vs. $538.55M y/y). Inventory grew by -5.39% during the same time period ($234.2M vs. $247.53M y/y). Inventory, as a percentage of current assets, decreased from 45.54% to 35.32% during the most recent quarter (comparing 13 weeks ending 2012-10-27 to 13 weeks ending 2011-10-29).

 

 

Compare dividend yields, and press play to see how they have changed over the past two years.

Compare changes in average analyst recommendation. Click through (and log-in – it’s free) to access more data points to chart.

 

 

Did you find this list useful as a starting point for your analysis? Do you have a list requests? Leave your comments below and we’ll do our best to deliver.

 

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