Fifth & Pacific Companies Inc (FNP): This Fashion Makeover Looks Pretty Good

Page 1 of 2

Fifth & Pacific Companies Inc (NYSE:FNP) , a designer and marketer of premium fashion brands, has undergone a major transformation. By boldly discarding old labels and emphasizing new trendier ones, the new Fifth & Pacific looks like a very interesting company with a compelling valuation and great potential.

Out with the old, in with the new

Fifth & Pacific Companies IncThe firm, formerly known as Liz Claiborne, aggressively sold off its legacy brands to focus on three more contemporary lines — kate spade, Juicy Couture and Lucky Brand. But the company’s restructuring may not be complete. It has been reported that even the Lucky Brand and Juicy Couture labels could be for sale to private- equity or strategic buyers. Apparel-maker V.F. Corporation (NYSE:VFC), men’s clothier Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) and buyout firms like Leonard Green and Advent International have all been bandied about as possible suitors. It’s believed that some have already signed confidentiality agreements for detailed information with the goal for a transaction later this summer.

A sale of one or both of these lines would not be surprising, since Fifth & Pacific Companies Inc (NYSE:FNP)’s future really depends on the kate spade name. Since its 2006 purchase, kate spade has grown to an expected $750 million in sales for 2013 and a possible $1.2 billion by the end of 2016. A key component of this growth is the Kate Spade Saturday label. Launched earlier this year, it’s a younger and more affordable version of the main brand, and on its own could grow to as much as $275 million in sales by 2016.

What’s the new Fifth & Pacific worth?

Maybe the best way to value Fifth & Pacific Companies Inc (NYSE:FNP) is a sum-of-the-parts method because of the probable divestment of its brands. This technique entails valuing each line separately and then combing them for a total company worth.

Juicy Couture looks most likely to be sold. Its latest quarterly performance, though consistent with expectations, has been disappointing. Gross margins were down significantly and sales dropped 11%. The recent hiring of a new brand CEO implies a turnaround plan. There is something to work with, with 75 specialty retail and 53 outlet stores with a respectable $646 of annual sales per square foot.

Assuming annual revenue of around $450 million, which is discounted from the $487 million booked in the last 12 months, with a valuation at 1.0x sales, Juicy Couture might be worth around $450 million, or roughly $2 a share net of debt.

Lucky Brand’s latest quarter was much better. Total sales increased 16%, driven primarily by the timing impact of wholesale shipments. Lucky continued to generate strong full-price selling, which resulted in a sizable direct–to-consumer gross margin improvement.

The label ran 171 specialty retail stores and 50 outlet stores with annual sales per square foot of $462. This line might be worth around $550 million, about $4 a share net of debt, based on 1.1x its trailing 12-month sales of $478 million.

A comparable can help verify if these valuations are reasonable. True Religion Apparel, Inc. (NASDAQ:TRLG), the maker of designer jeans worn by celebrities, recently agreed to be bought for about $822 million. Based on expected 2013 sales of $517 million and an estimated 9% to 10% top-line growth rate, that purchase amount was roughly 1.6x revenue. This deal and a recent buyout of teen retailer rue21 at slightly less than 1.0x sales seems to indicate that our value estimates are probably in the ballpark.

The real value rests with kate spade

Fifth & Pacific Companies Inc (NYSE:FNP)’s crown jewel is kate spade. Its sales in the last quarter were $141 million, a 63.1% increase compared to 2012. The brand’s 86 specialty retail stores, 41 outlet stores and 35 concessions indicate it has plenty of room to grow and the $1,144 annual sales per square foot figure shows its luxury standing.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!