After previously writing about Fifth & Pacific Companies Inc (NYSE:FNP) when the stock was trading around $14, the recent jump to the $19 level is worth reviewing. The stock has been on a steady rise as brand kate spade registered 27% comp sales growth in Q4 and rumors spread that the company was looking to sell positions in the lagging brands.
The former Liz Claiborne is probably even less known having changed names to Fifth & Pacific Companies Inc (NYSE:FNP) back in 2012. After selling off numerous brands over the last few years, the company is left with kate spade, Juicy Couture, Lucky Brand, and the Adelington Design Group.
With a market cap nearing $2.3 billion, does the stock still provide good value?
Kate spade alone worth $2.3 billion?
One could easily argue that the kate spade brand alone is worth the whole value of the company. The brand did $462 million in revenue for 2012 and saw that revenue grow 57% during Q4 to $173 million. Based on trailing revenue, the stock only trades at 5 times revenue. Assuming the valuation of kate spade equals all of the value in Fifth & Pacific isn’t much of a stretch.
The company guided towards mid-teen comps and with the specialty retail stores base finally growing, kate spade should easily be a $600 million brand in 2013. On that basis, kate spade alone is only valued at 3.8 times revenue, which is inline with mega-cap Coach, Inc. (NYSE:COH) .
The brand ended the year with only 89 specialty retail stores and 32 outlet stores allowing for major growth going forward. As an example, Michael Kors Holdings Ltd (NYSE:KORS) has operates nearly 300 stores and has 388 total stores worldwide. The company added 66 net new stores in the last 12 months alone.
Is Lucky Brand turning into a valuable commodity again?
According to management, Lucky Brand is in the midst of a turnaround with comps expected to growth in the mid-to upper single digits this year. Lucky now accounts for 28% of the revenue base, but it is only the 3rd largest brand. The brand provides a solid EBITDA margin though it could improve considerably.
Lucky currently achieves $461 of annual revenue per square foot with hopes of achieving over $600 on average. The current top 50 stores are already seeing numbers easily north of that goal.
The brand has 177 specialty retail stores and 47 outlet stores reflecting a net closure of 7 stores in 2012. The net EBITDA was $21 million in Q4 though down from $23 million in 2011.
The rumors continue to swirl that the company wants to unload it with Juicy Couture to focus mainly on the huge opportunities of kate spade. Difficult to say what the brand could achieve in a sale as the current margins are lower than the potential if the brand reports strong comps this year. The expectations are that the company will keep Lucky in order to obtain higher numbers after executing on the existing turnaround plan.
The not so juicy brand
Juicy Couture has gone from a hot brand to a lead weight holding back kate spade. The brand entered the year at 35% of revenue and exited it with only a 33% share that will fall under 30% this year.
Management claims the brand is in a turnaround with finishing touches in 2013 placing it back on a profitable trajectory. With a revenue base of near $500 million and a forecast of flat comps, the company needs to complete the turnaround or sell the division so that it doesn’t drag down the top brands.
Still the next Michael Kors?
Kate spade has the potential to be the next Michael Kors Holdings Ltd (NYSE:KORS) though the company expects slower growth in 2013. Also, the stock won’t garner the higher Michael Kors Holdings Ltd (NYSE:KORS) multiples unless Juicy Couture and Lucky Brands are indeed sold. The multiple of Coach, Inc. (NYSE:COH) might be the best it can do until that point.