By: David Goodboy of Street Authority
Popular apparel brands like Andrew Marc, Wilson Leather, Cole Haan, Levi's, Nine West, Sean John, Calvin Klein and even Tommy Hilfiger all have a secret. If this secret was widely known, it might change many consumers' perceptions of their favorite clothing brand. Years of expensive and highly effective marketing have differentiated each brand into a specific demographic, price range and even perceived quality.
One of the more extreme examples of brand marketing differentiation is the high-end swimsuit brand Vilebrequin. These swimsuits start at around $200 and go to over $8,000 for a pair of swim trunks embroidered with 24-karat gold thread. Marketed to the international jet-setters who party in Ibiza or Saint-Tropez, Vilebrequin swim trunks are truly high end.
On the other end of the exclusivity scale is a brand like Tommy Hilfiger. Hilfiger swim trunks look very similar to Vilebrequin, but can often be found in discount outlets for around $25 or full-price retail for about $55. Even when compared side by side, it's difficult to see much of a quality difference between the two brands. Other than the label and the fact that the Vilebrequins are sold in a cool little waterproof drawstring bag, I was hard-pressed to see the difference.
This is the secret of all the brands named above, among many others: All those brands, Vilebrequin included, are all made by the same company. One of the leading companies in this "one owner, many brands" approach is G-III Apparel Group (Nasdaq: GIII). Not only does this company rule the apparel brand landscape, it offers a strong stock for investors.
G-III was founded in 1956 by Aron Goldfarb, a Holocaust survivor who had recently immigrated to New York. Goldfarb built strong relationships with Pacific Rim manufacturers that provided quality and unbeatable prices. G-III went public in 1989 and began building licensing agreements with nationally recognized brands. In addition, G-III built relationships with several major U.S. sports leagues and more than 100 universities to manufacturer officially licensed clothing. G-III soon began acquiring name brands; its portfolio now includes more than 30 licensed and proprietary names.
Boasting a market cap of $1.4 billion, G-III posted a gross yearly profit of just over $450 million on revenue of $1.5 billion. Those solid figures were bolstered by an impressive third quarter, with a 23% increase in net sales and a 164% increase in earnings. In addition, G-III lifted full-year net sales guidance for fiscal 2014 from just over $1.6 billion to $1.7 billion.
These impressive fundamentals pushed share prices up by nearly 90% this year. The company's ability to continually license or acquire hot brands gives me confidence in its future within the fickle apparel business.
Risks to Consider: All investments -- especially in the hotly contested and trend-conscious apparel industry -- contain risk. No matter how enticing a stock appears, always diversify and use stop-loss orders.
Action to Take -- I really like this company right now. The flexibility of always being in the clothing trend and having a diverse client base are keys to survival in this business. G-III boasts these attributes in spades. Based on the chart and fundamental picture, I expect to see $88 within the next 12 months. Buying on a breakout close above $68 with initial stops at $59 makes solid investment sense.
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