Iconix Brand Group Inc (ICON), Guess?, Inc. (GES), The Gap Inc. (GPS): A Look into the Apparel Market

Iconix Brand Group Inc (NASDAQ:ICON)As we know, the apparel industry is highly competitive and promotional, and is sensitive to emerging fashion trends. The companies in the industry have a perishable inventory and have to find buyers for their expiring seasonal merchandise each season. In addition, the sluggish US economy combined with declining consumer spending and currency headwinds represents a threat to the firms operating in the industry.

I will analyze three well-known apparel companies and find out what their futures may look like.

Iconix Brand Group Inc (NASDAQ:ICON): New licences and new projects

Iconix Brand Group Inc (NASDAQ:ICON) licenses the Candie’s, Bongo, Badgley Mischka and Joe Boxer trademarks on a variety of footwear, apparel and fashion products.

The company’s fourth quarter earnings-per-share of $0.41 was flat year-over-year, but ahead of analyst’s estimates. Revenues declined 10.9% in the quarter compared to the same quarter in 2011, driven largely by a decrease in men’s business and a license transition of Royal Velvet brand.

The company had success in keeping a strong presence in both the US and Europe, and it has also increased its penetration in emerging markets. In addition, Iconix Brand Group Inc (NASDAQ:ICON)‘s top-line will grow as a result of new direct-to-retail agreements.

Growth will also come from the acquisition of the soccer brand Umbro and the lifestyle brand Lee Cooper for $72 million. Lee Cooper by itself is expected to generate $14 million in annual royalty revenues. The company also acquired the Peanuts brand and made an agreement with Twentieth Century Fox Animation to produce an animated film featuring Peanuts characters such as Charlie Brown and Snoopy. I find these projects to be very encouraging.

Guess?, Inc. (NYSE:GES): Poor performance and low sales estimates

Guess?, Inc. (NYSE:GES) designs, markets, distributes and licenses apparel and accessories for men, women and children. Its products are sold through retail, wholesale, e-commerce and licensing distribution channels.

The company’s fourth-quarter EPS of $0.95 was down 9.5% compared to the previous year earnings of $1.05 per share. Revenues were up 5.1%, reaching $815.1 million and exceeding management’s prediction of $780 to $800 million.

The slow recovery of the US economy and low consumer demand are both affecting Guess?, Inc. (NYSE:GES). Low traffic in stores in North America are a cause of concern for the company. However, the company’s long-term international expansion plans are inspiring. The company’s growing e-commerce business and presence in social networks also give investors hope.

Despite the strong brand portfolio and international presence, sales estimates are low and continuously reviewed. The fact that Guess reported declines in its revenue every single quarter of fiscal 2013 is a matter of great concern.

The Gap Inc. (NYSE:GPS): Stock price up 31% this year

The Gap Inc. (NYSE:GPS) is a global specialty apparel company that offers apparel, accessories, and personal care products for men, women, children, and babies.

The company’s stock price has advanced by 31.7% for this year, closing at over $40 on May 15. This shows that investor confidence is up and that The Gap Inc. (NYSE:GPS) is being seen as an investment opportunity. The company has registered positive year-over-year comparable-store sales growth almost every month since Feb. 2012, with the only exceptions being April and June. Total sales rose 5% in April 2013 to reach $1.21 billion, up from $1.15 billion a year ago. Gap’s conservative capital management, free cash flow generation and strong balance sheet are also good factors to consider.

The Gap Inc. (NYSE:GPS) will report its first quarter earnings on May 23. Management expects earnings to be $0.68 to $0.69 per share, as opposed to last year when they were $0.47 per share.

Regarding international strategy, however, the company’s plan involves splitting each country by brand in order to maximize growth. I believe this global expansion plan is a matter of concern, especially since the company is still reporting negative international comp results. However, reducing its dependence on the North American specialty business is something absolutely necessary.

Bottom line

Iconix Brand Group Inc (NASDAQ:ICON)‘ diversified portfolio of well-known brands and acquisition strategy are major strengths in its business model. Although sales are not extremely satisfactory, I would recommend buying this stock.

Guess?, Inc. (NYSE:GES) is not a company I would have in my portfolio for now. Some aspects of the company are promising, but until sales pick up I would stay away from this stock.

The Gap Inc. (NYSE:GPS) looks attractive when trading below the industry average, based on forward earnings estimates. Now that the price has increased enough I will remain neutral on the stock. Hopefully, the next second quarter report will make me change my mind.

The article A Look into the Apparel Market originally appeared on Fool.com and is written by Damian Illia.

Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Guess?. The Motley Fool owns shares of Guess? Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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