Hedge Funds are Making Millions in Apparel, Can You Do The Same?

PVH Corp (NYSE:PVH) made some big money for funds a few days ago when it announced it would bring together the Calvin Klein underwear, jean and sportswear lines together by purchasing Warnaco Group Inc (NYSE:WRC) for $2.8 billion. Before the deal, PVH sold Klein’s formal and sportswear, while Warnaco sold jeans and underwear. Warnaco will also bring other major brands like Speedo and Chaps to PVH’s already robust brand offering that includes Tommy Hilfiger and Van Heusen. PVH was up over 20% on the news, and Warnaco was up over 35%.

LONE PINE CAPITAL

The top two hedge funds invested in PVH were new shareholders in 2Q. MSD Capital bought up 1.3 million shares and Tiger Consumer Management purchased 740,000 shares. For Warnaco, top funds included Chuck Royce with 2.5 million shares, Jana Partners with 1.2 million shares, and Adage Capital Management with 1.1 million shares. Chuck Royce increased his 1Q position by over 70% in 2Q, while Jana Partners’ position was an entirely new one. Assuming all of these funds own the same number of shares now as they did at the end of 2Q, top winners include PVH investor MSD Capital—making as much as $26 million—and Warnaco investor Chuck Royce, who made over $45 million; check out other firms making big money on the Warnaco deal.

Other major apparel competitors for PVH include V.F. Corporation (NYSE:VFC), Ralph Lauren Corp (NYSE:RL) and Perry Ellis International, Inc. (NASDAQ:PERY). VF Corp is trading at the low end of the industry P/E range at 17x, under pressure after continued implementation concerns of its Timberland acquisition. The company has also been hurt by a slow in demand for its higher-end brands due to the generally shoddy macroeconomic environment. Funds with possible concerns over VF Corp’s performance include Lone Pine Capital and Jim Simons, both of whom dumped over 30% of their 1Q shares in 2Q. However, we believe the company is a possible buy given their previous ability to integrate brands, as evidenced by their past success of North Face and Vans.

Ralph Lauren and Perry Ellis are trading in line with each other on a P/E basis, at 21x. However, Ralph Lauren saw positive fund interest in 2Q, while Perry Ellis’s was negative. Ralph Lauren got votes of confidence from Jim Simons and Lone Pine Capital, yet Perry Ellis saw Whitebox Advisors, D.E. Shaw, and Hutchin Hill Capital all dump their shares.

We see Ralph Lauren as being fairly valued, as growth slows from 21% in 2012 to 4.5% in 2013. This is due to the company’s slumping sales in Europe and Asia. The company has initiatives that could help the company grow long-term, yet these will strain margins in the interim. Planned initiatives include breaking into the international e-commerce market, as well as offering childrenswear.

Being a bit less diversified than Ralph Lauren, and very much less diversified than PVH or VF, Perry Ellis has surprised many investors by showing positive growth amid a weak economy, rebounding from a 2011 slide to be up 40% in 2012 thus far. We believe the company’s multiple price point strategy has been a driving factor, as well as its 2.2 beta, yet we would be much more interested in an apparel company with a bit more diversity, say PVH for example.

The recent price jump for PVH has put it at the top end of the industry, now trading at 25x, however the company does have the highest expected five-year EPS growth rate at a 16% CAGR. We still believe the company is an attractive buy given its ability to offer the full Calvin Klein brand across various international markets, including Europe and Asia. Its acquisition is expected to add $0.35 to earnings during the first year, and $1.00 to its bottom line by the third year. As a result, PVH now expects full-year earnings of $6.32 to $6.37, which would mark a growth of 17% from last year’s totals.

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

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways 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

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

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!