Mary Lynn Cesar, Kapitall: Fashion Week isn't just about style – there are investment opportunities on the catwalk too.
New York Fashion Week kicked off yesterday, and over the next six days, nearly 90 designers will display their Spring 2014 collections in 350 shows and presentations around the city. Now in its unofficial 70th year, the semi-annual fashion showcase gives designers the opportunity to parade their sartorial talents and catch the eye of an editor or retailer. It's also the first major Fashion Week of the season and is immediately followed by shows in London, Milan, and Paris.
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Fashion publicist Eleanor Lambert founded New York Fashion Week back in 1943, when she assembled an event to highlight collections by American designers for the international press. Dubbed Fashion Press Week, the showings elevated the industry’s perception of American fashion and led to increased coverage within Vogue, Harper’s Bazaar, and other magazines. Back then, only 53 women’s page editors attended Fashion Press Week. These days, more than 200,000 people attend each Fashion Week.
In February 2012, the New York City Economic Development Corporation (EDC) analyzed the economic benefits of Fashion Week. The EDC found that the spring and fall events are responsible for $532 million in direct visitor spending each year, which leads to an annual total economic impact of $865 million in the city. For context, the 2011 New York City Marathon generated $340 million for the Big Apple, an unprecedented amount for the race, while this year’s US Open is expected to bring $720 million to the city. Meanwhile in New Jersey, the next Super Bowl will be in East Rutherford, and is poised to deliver $430 million to the greater New York metropolitan area.
The evidence makes it pretty clear: there’s a lot of money associated with New York fashion. For the following screen, we decided to take a closer look at American clothing brands that are typically involved with New York Fashion Week. We began by constructing a universe of clothing stocks from the Apparel Store, Speciality Retail – Other, and Textile – Apparel Clothing industries. Next, we cross referenced our initial group of stocks with the list of designers presenting in the ongoing New York Fashion Week, as listed on the Mercedes-Benz Fashion Week site, as well as designers featured in Style.com’s coverage of previous Fashion Weeks.
We then screened that list for companies with a return on equity (ROE) higher than the industry average, which is 20.4% for the Apparel Store industry, 10.5% for Specialty Retail – Other, and 14.9% for Textile Apparel – Clothing. ROE measures a firm's profitability by expressing a company's profits as a percentage of shareholder equity. The formula for calculating ROE is:
ROE = Net Income / Shareholder's Equity
Net income is a company’s profit (also referred to as total earnings) for an entire fiscal year, minus dividends paid to preferred stock. The preferred shares are also excluded from shareholder’s equity.
We were left with four stocks on our list.
Click on the interactive chart below to see sales data over time.Do you think Fashion Week helps these companies maintain high ROE? Use this list as a starting point for your own analysis.
1. Fifth and Pacific Companies, Inc. ( FNP): Engages in the design and marketing of a range of apparel and accessories within four segments: Juicy Couture, Lucky Brand, Kate Spade, and Adelington Design Group.Market cap at $2.93B, most recent closing price at $24.46. Return on Equity: 42.30% vs. 14.9%. The company’s Kate Spade brand is presenting its spring collection today, marking the brand’s third consecutive appearance at New York Fashion Week.
2. Ralph Lauren Corporation ( RL): Engages in the design, marketing, and distribution of lifestyle products. Market cap at $15.13B, most recent closing price at $165.79. Return on Equity: 19.60% vs. 14.9%. One of New York Fashion Week’s most iconic designers, Ralph Lauren will be closing out New York Fashion Week with a show on September 12.
3. Michael Kors Holdings Ltd. ( KORS): Engages in the design, marketing, distribution, and retailing of branded women’s apparel and accessories, and men’s apparel. Market cap at $15.17B, most recent closing price at $75.89. Return on Equity: 46.00% vs. 10.5%. Another popular Fashion Week designer, Michael Kors will present his collection on September 11.
4. V.F. Corporation ( VFC): Designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. Market cap at $20.99B, most recent closing price at $193.12. Return on Equity: 22.10% vs. 14.9%. Nautica, one of V.F. Corporation’s 25 brands, is presenting its collection today. ( List compiled by Mary-Lynn Cesar, a Kapitall Contributer. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from Finviz.)