CLOTHING STOCK TIPS

Here are some tips worth considering before you go investing in clothing stocks:

Visit the Stores

Visit the store; check the look and feel of the products for yourself. Use your judgment. (Peter Lynch actually discovered Hanes stock because his wife came home from the store freaking over egg-shaped containers of stockings, called L’Eggs!) While visiting, analyze their promotional activities. Is the company promoting its merchandise to drive foot traffic or earnings? When companies desperately sell their products at deep discounts at the end of a season, margins and earnings are often negatively affected.

Examine Gross Margin Trends

A decline in gross margins (either sequentially or year-over-year) should be a serious red for an investor. Examine gross margins and make sure they are growing before investing.

Examine Same-Store-Sales Data

This data reveals how a store fares on a period-to-period basis and is arguably the most important metric in retail sales analysis.

Examine Inventory/Receivable Trends

When inventories grow at a faster rate than revenues, it’s likely due to the company’s inability to sell certain merchandise. Investors should be checking in on sequential and year-over-year trends in both inventories   and   accounts receivable to ensure that they are growing at the same pace as revenues.

Compare P/E Ratios Vs. Expected Earnings Growth Rates

“Cheap” companies are those that trade at an earnings multiple that is less than the expected growth rate. These companies may be worth a further look.

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