industry financial analysis

at 15 companies across three industries: Apparel Stores, Textile –

Apparel Clothing, and Textile – Apparel Footwear & Accessories. All numerical information contained herein has been obtained from Bloomberg Terminals.

Industry Financial Analysis

Southeastern Louisiana University

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Analysis Includes the Following Industries:

Apparel Stores:

Urban Outfitters Inc.

Express Inc.

Gap Inc./The

Guess Inc.

American Eagle Outfitters Inc.

Textile – Apparel Clothing:

American Apparel Inc.

Columbia Sportswear Co.

Lululemon Athletica Inc.

Carter’s Inc.

Joe’s Jeans Inc.

Textile – Apparel Footwear & Accessories:

Nike Inc.

Coach Inc.

Skechers USA Inc.

Steve Madden Ltd.

Crocs Inc.

All numerical information contained herein has been obtained from Bloomberg Terminals.

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Introduction

The industries chosen for this analysis are related to apparel goods. The retail industry is a

major contributor to the economy and therefore is affected immediately and extraordinarily

when an economic crisis arises. Likewise, the retail sector contributes to a large portion of

employment in the United States which, in turn, affects consumers’ ability to purchase goods

and therefore contribute to the country’s GDP. Given the recent recession in 2008, it will be

interesting to see how these retail-related goods have fared over the past four years.

The three industries analyzed are Apparel Stores, Textile – Apparel Clothing, and Textile –

Apparel Footwear & Accessories. Apparel Stores includes Urban Outfitters, Express, The Gap,

Guess, and American Eagle Outfitters. These companies’ merchandise can typically be

purchased through their physical locations or their stores’ websites. Textile – Apparel Clothing

includes American Apparel, Columbia Sportswear, Lululemon Athletica, Carter’s, and Joe’s

Jeans. These companies’ products can usually be purchased only from the stores that they

supply, or in some cases through their physical locations or the stores’ websites. Textile –

Apparel Footwear & Accessories include Nike, Coach, Skechers, Steve Madden, and Crocs.

These companies’ goods can usually be purchased through countless different retail chains.

This exploration has studied the various companies’ short term solvency, long term solvency,

asset management, profitability and ROE drivers, market value and target price one year from

now, economic value added, and supply chain. Each of the companies examined has been

compared to the average within their industry; with the best trending and worst trending


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companies in each industry discussed. A single best company has been chosen based on the

analysis. Similarly, an analysis has been provided that explores between industries as well.

Apparel Stores

Short-Term Solvency

The current, quick, and cash ratios must be taken together because examining just one cannot

give an overall picture of the company. The current ratio, which gives the investor an idea of

whether the company has the ability to pay its short-term obligations, averages across the

industry at 2.43x. The best trending company is American Eagle Outfitters with 3.18x and the

worst trending company is Express with 1.41x. American Eagle Outfitters has almost 2.5x more

ability to pay back its debts and payables with its cash, inventory, and receivables than does

Express. The quick ratio, which is an indicator of a company’s ability to cover its short-term

assets without selling inventory, averages 1.58x across the industry. Express has the lowest

acid-test ratio at .7x and American Eagle Outfitters has the highest at 2.24x. Given that Express

has a quick ratio of <1, it cannot pay its current liabilities. The cash ratio, which is the most

frequently used to determine a company’s ability to repay its short-term debt, averages .99x

across the industry. However, since the cash ratio leaves out inventory and accounts

receivables this ratio should only be used to determine liquidity accompanied by the current

and quick ratio. The best trending company is American Apparel at 1.77x and the worst

trending company is once again Express at .52x. Now that it has been determined that Express

has each of the lowest current, quick, and cash ratios, it is safe to say that it will have the most

difficult time amongst all of the companies in the Apparel Stores industry paying pack its short-

term liabilities with its short-term assets.


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Long-Term Solvency

The equity multiplier is a measure of financial leverage that shows how a company uses its

debt to finance its assets. The average across the Apparel Stores industry is 1.86:1. The best

trending company is Urban Outfitters with 1.32:1. This shows that for every $1.32 that Urban

Outfitters has in assets, $.32 is from creditors. Conversely, Express is the worst trending

company with 2.89:1. This means that for every $2.89 in assets, $1.89 is from creditors.

Express is getting less from shareholders to buy assets so it is relying more on its debt to finance

its assets. The times interest earned ratio and the cash coverage ratio tell how well a company

can cover its interest expense. The average times interest earned ratio for the Apparel Stores

industry (disregarding outliers) is 13.5x. The Gap is the best trending company with 19.43x and

Express is yet again the worst trending company at 7.57x. These numbers show that The Gap

can cover its interest expense 2.5x better than Express can; Express has a much lower margin of

safety than The Gap. The times interest earned ratio shouldn’t be examined alone and

therefore it should be used in conjunction with the cash coverage ratio to tell a better story.

The average cash coverage ratio for the industry (disregarding outliers) is 17.87x. Once again,

the company with the highest trending cash coverage ratio is The Gap at 26.27x and the lowest

trending company is Express at 9.47x.

Asset Management

The total asset turnover determines the amount of sales generated by the company for every

dollar of the company’s assets. The average across the industry is 1.81x. Express has the

highest trending total asset turnover at 2.4x; well above the industry average indicating it is


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generating sufficient volume given its total asset investment. Guess has the lowest trending

total asset turnover with 1.49x showing it isn’t as efficient at using its assets to generate sales

or revenue.

Profitability

A company’s profit margin, return on assets, and return on equity all combine to tell an

important story of how effective a company is in handling its liquidity, asset management, and

debt. The profit margin is particularly useful in comparing similar companies; it indicates how

much control a company has over its costs compared to its competitors. The average for the

Apparel Stores industry is 7.14%. Guess has the best trending profit margin at 10.07% and

American Eagle Outfitters has the worst profit margin at 5.62%. These numbers show that

Guess has a net income of $.10 for each $1 in sales compared to American Eagle Outfitters at

only $.06 for each $1 in sales. These figures demonstrate that Guess has almost twice the

control over its costs compared to American Eagle Outfitters. The return on assets show what

the company is making for shareholders given what the shareholders and debtors invest. The

industry’s average ROA is 11.11%. The best trending company is Express at 14.77%. This high

percentage shows that they are earning more money on less investment. The worst trending

company is American Eagle Outfitters with 7.92%. This number is well below the industry

average showing that American Eagle Outfitter’s management is less efficient at using its assets

to generate earnings compared to the industry. Return on equity is considered the most

important ratio used to determine the amount of net income returned compared to

shareholders equity. The industry average is 14.18% (discounting an outlier). The best trending


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company is The Gap at 24.37%. This figure is well above the industry average and shows that

The Gap is much better at generating profit with shareholders’ investment. The worst trending

company is Urban Outfitters at 14.95%; almost 10% below The Gap. The Gap has had a 38%

increase in ROE since 2008 while Urban Outfitters has had a 29% decrease since 2008. To

determine what was driving these companies’ ROE, tax burden, interest burden, EBIT margin,

equity multiplier, and total asset turnover have been analyzed. Given that Urban Outfitters

had a 23% decrease in EBIT margin compared to only a 6% decrease in tax burden and a 3%

decrease in interest burden it has been determined that the company’s ROE decrease was

driven by the large decrease in its EBIT margin. Unfortunately, since 2008, Urban Outfitters has

been selling more but their EBIT margin has dropped substantially, which shows it is keeping

less profit. The Gap’s leverage has increased 16% since 2008 and its EBIT margin has increased

18% since 2008. A breakdown of these two ROE components has determined that leverage was

driving the company’s ROE increase.

Market Value

The price/earnings ratio is important because it shows how much investors are willing to pay

per dollar of reported profits. This number expresses what the market thinks about the future

price of the company relative to its past earnings. The industry average is 14.09x. This shows

that investors are willing to pay $14.09 for every $1 of earnings on average for the Apparel

Stores industry. The best trending company is Urban Outfitters with 22.75x, well above the

industry average. The worst trending company is Guess with 9.59x, well below the industry

average. The low ratio for Guess suggests that it is a riskier firm. The market/book ratio is the


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ratio of a stock’s market price to its book value and used along with the P/E ratio to tell a more

complete story. The industry average M/B ratio is 2.51x (excluding an outlier). The best

trending company is Urban Outfitters with 3.59x. This shows that investors are willing to pay

much more for this stock than its accounting book value as compared to the industry average.

The worst trending company is American Eagle Outfitters at 1.91x. The target price has been

calculated by taking the company’s projected earnings per share for 2014 and multiplying it by

the company’s projected P/E for 2014. For Urban Outfitters their target price one year from

now is $36.86, which is a 16% decrease compared to today’s price of $43.83. The target price

one year from now for Guess is $20.62, which is a 29% decrease compared to today’s price of

$28.95.

Economic Value Added and Supply Chain Analysis

Economic value added is the amount above and beyond what a company should make. This

value shows the true economic profit of a company and the extent to which the firm has

increased shareholder value. The average EVA across the industry is $152.5 million. The best

trending company is The Gap with $490.7 million EVA, and the worst trending company is

American Eagle Outfitters with a -$15 million EVA. This negative figure shows that American

Eagle Outfitter’s capital charge exceeds its net operating profit after taxes by $15 million. In

looking at the Apparel Stores industry with regards to supply chain analysis, the one standout

company with many suppliers is The Gap. This company has a massive 70 suppliers. This high

number leads to weak suppliers that have little to no power according to Porter’s Five Forces


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Model. However, Guess has the most buyers at 3, which leads those buyers to be weak and

fragmented, thus giving Guess the upper hand.

Best Company in the Apparel Stores Industry

The Gap is the best overall company in this industry. It has the highest TIE ratio, cash coverage

ratio, ROE, and EVA. Its times interest earned ratio and cash coverage ratio tell the investor

that the company can safely cover its interest expenses. The enormous EVA suggests that The

Gap is operating in a manner that is consistent with maximizing shareholder wealth, one of the

paramount characteristics when looking for a company in which to invest. The other standout

figure is The Gap’s ROE. Return on equity shows an investor what shareholders’ return will be

given what they invest in the company.

Textile – Apparel Clothing

Short-Term Solvency

The current ratio averages across the industry at 3.76x. The best trending company is

Lululemon with 5.10x and the worst trending company is American Apparel with a 1.39x.

Lululemon has over 3x more ability to pay back its debts and payables with its cash, inventory,

and receivables than does American Apparel. The quick ratio averages 2.27x across the

industry. American Apparel has the lowest acid-test ratio at .31x and Lululemon has the highest

at 4.1x. Given that American Apparel has a quick ratio of <1, it cannot pay its current liabilities.

The cash ratio averages 1.57x across the industry. The best trending company yet again is

Lululemon at 3.96x and the worst trending company yet again is American Apparel at .08x.


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Nonetheless, since the cash ratio leaves out inventory and accounts receivables, this ratio

should only be used to determine liquidity along with the current and quick ratios.

Long-Term Solvency

The equity multiplier average across the Textile – Apparel Clothing industry is 1.36:1. The best

trending company is Joe’s Jeans with 1.22:1. This shows that for every $1.22 that Joe’s Jeans

has in assets, $.22 is from creditors. On the other hand, Carter’s is the worst trending company

with 1.69:1. This means that for every $1.69 in assets, $.69 is from creditors. Carter’s is getting

less from shareholders to buy assets so it is relying more on its debt to finance its assets. The

average times interest earned ratio for the Textile – Apparel Clothing industry (disregarding

outliers) is 12.97x. Carter’s is the best trending company with 37.43x and American Apparel is

the worst trending company at .06x. These numbers show that American Apparel may have a

tremendously difficult time covering its interest costs. The average cash coverage ratio for the

industry (disregarding outliers) is 16.14x. Once again, the company with the highest trending

cash coverage ratio is Carter’s at 43.12x and the lowest trending company is once again

American Apparel at .62x.

Asset Management

The total asset turnover average across the industry is 1.54x. American Apparel has the

highest trending total asset turnover at 1.89x. Columbia Sportswear has the lowest trending

total asset turnover with 1.18x showing it isn’t as efficient at using its assets to generate sales

or revenue.


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Profitability

The profit margin average (disregarding outliers) for the Textile – Apparel Clothing industry is

5.81%. Carter’s has the best trending profit margin at 6.77%. Joe’s Jeans has the worst profit

margin at 4.69%. This shows that Carter’s has a net income of $.07 for each $1 in sales

compared to Joe’s Jeans at only $.05 for each $1 in sales. The industry’s average return on

assets (excluding an outlier) is 13.55%. The best trending company is Lululemon at 29.83%.

This high percentage shows that it is earning more money on less investment. The worst

trending company is Joe’s Jeans with 6.7%. This number is well below the industry average

suggesting that Joe’s Jeans management is less efficient at using its assets to generate earnings

compared to the industry. The return on equity industry average is 17.99% (discounting an

outlier). The best trending company is Lululemon at 37.12%. The worst trending company is

Joe’s Jeans at 8.15%; almost 30% below Lululemon. Lululemon has had only a 10% decrease in

ROE since 2008 while Joe’s Jeans has had a whopping 45% decrease since 2008. To determine

what was driving these companies’ ROE, tax burden, interest burden, EBIT margin, equity

multiplier, and total asset turnover have been analyzed. Given that Lululemon has an 18%

decrease in leverage compared to a large 32% decrease in total asset turnover it has been

determined that their ROE decrease was driven in large part by its total asset turnover. Joe’s

Jeans leverage has decreased only 23% since 2008 but its tax burden has seen a 40% change. It

has been determined that Joe’s Jeans decrease in ROE is attributed to the massive change in its

tax burden.


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Market Value

The price/earnings ratio industry average is 31.17x. This shows that investors are willing to pay

$31.17 for every $1 of earnings on average for the Textile – Apparel Clothing industry. The best

trending company is Lululemon with 50.49x, well above the industry average. The worst

trending company is Columbia Sportswear with 17.73x, well below the industry average. The

market/book ratio industry average is 5.36x (excluding an outlier). The best trending company

is Lululemon with 11.74x. The worst trending company is Columbia Sportswear at 1.56x. The

target price has been calculated by taking the company’s projected earnings per share for 2014

and multiplying that number by its projected P/E for 2014. For Lululemon, its target price one

year from now is $98.46, which is a 22% increase compared to today’s price of $80.41. The

target price one year from now for Columbia Sportswear is $45.03, which is a 24% decrease

compared to today’s price of $59.52.


The average EVA across the industry was $32.57 million. The best trending company is

Lululemon with $73.78 million EVA and the worst trending company is Columbia Sportswear

with a -$31.64 million EVA. This negative number shows that Columbia Sportswear’s capital

charge exceeds its net operating profit after taxes by a total of $31.64 million. In looking at the

Textile – Apparel Clothing industry from a supply chain stance, the one standout company is

Carter’s, with the most buyers at 21. This high number leads to the buyers being weak and

fragmented, thus giving Carter’s the advantage.


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Best Company in the Textile – Apparel Clothing Industry

Lululemon is the standout company in this industry. It has the highest current, quick, and cash

ratios, as well as the highest ROA, ROE, P/E, M/B, and EVA. The large EVA suggests that

Lululemon is operating in a manner that is consistent with maximizing shareholder wealth, one

of the principal characteristics when looking for a company to invest in. The other important

figure is its ROE. Return on equity shows an investor what shareholders’ return will be based

on what they invest in the company.

Textile – Apparel Footwear and Accessories

Short-Term Solvency

The current ratio averages across the industry at 3.17x. The best trending company is Crocs

with 3.88x and the worst trending company is Coach with a 2.51x. The quick ratio averages

2.33x across the industry. Coach has the lowest acid-test ratio at 1.81x and Crocs has the

highest at 2.84x. The cash ratio averages 1.38x across the industry (excluding an outlier). The

best trending company yet again is Crocs at 1.86x and the worst trending company is Skechers

at 1.11x. However, since the cash ratio leaves out inventory and accounts receivables, this ratio

should only be used to determine liquidity along with the current and quick ratio.

Long-Term Solvency

The equity multiplier average across the Textile – Apparel Footwear and Accessories industry is

1.46:1. The best trending company is Steve Madden with 1.31:1. This shows that for every

$1.31 that Steve Madden has in assets, $.31 is from creditors. On the other hand, Coach is the


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worst trending company with 1.59:1. This means that for every $1.59 in assets, $.59 is from

creditors. Coach is getting less from shareholders to buy assets so it is relying more on its debt

to finance its assets. The average times interest earned ratio for the Textile – Apparel

Footwear and Accessories industry (disregarding outliers and unavailable information) is

46.93x. Nike is the best trending company with 92.12x and Skechers is the worst trending

company at 1.74x. These numbers show that Skechers may have an immensely difficult time

covering their interest costs. The average cash coverage ratio for the industry (disregarding

outliers) is 54.17x. Once again, the company with the highest trending cash coverage ratio is

Nike at 103.42x and the lowest trending company is once again Skechers at 4.92x..

Asset Management

The total asset turnover average across the industry is 1.52x. Coach has the highest trending

total asset turnover at 1.66x. Skechers has the lowest trending total asset turnover with 1.19x

showing that it isnt as efficient at using its assets to generate sales or revenue.

Profitability

The profit margin average for the Textile – Apparel Footwear & Accessories industry

(disregarding an outlier) is 11.50%. Coach has the best trending profit margin at 21.81%.

Skechers has the worst profit margin at 2.75%. This shows that Coach has a net income of $.22

for each $1 of sales compared to Skechers at only $.03 for each $1 of sales. The industry’s

average return on assets (excluding an outlier) is 21.15%. The best trending company is Coach

at 36.20%. This high percentage shows that the company is earning more money on less

investment. The worst trending company is Nike with 14.59%. This number is well below the


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industry average showing that Nike’s management is less efficient at using its assets to

generate earnings compared to the industry. The return on equity industry average is 31.25%

(discounting an outlier). The best trending company is Coach at 57.63%. The worst trending

company is Steve Madden at 21.72%; almost 36% below Coach. Coach has had a 25% increase

in ROE since 2008 while Steve Madden has had a whopping 64% increase since 2008. To

determine what was driving these companies’ ROE, tax burden, interest burden, EBIT margin,

equity multiplier, and total asset turnover have been analyzed. Given that Coach had a 23%

increase in total asset turnover compared to 15% increase in leverage it has been determined

that its ROE increase was driven by its total asset turnover. Steve Madden’s total asset

turnover has increased only 3% since 2008, its tax burden has seen only an 8% change, yet its

EBIT margin has increased a massive 55%. It has been determined that Steve Madden’s

increase in ROE was driven by its massive increase in EBIT margin.

Market Value

The price/earnings ratio industry average is 16.13x (disregarding an outlier). This shows that

investors are willing to pay $16.13 for every $1 of earnings on average for the Textile – Apparel

Footwear and Accessories industry. The best trending company is Nike with 22.71x, well above

the industry average. The worst trending company is Crocs with 9.59x, well below the industry

average. The market/book ratio industry average is 4.32x (excluding an outlier). The best

trending company is Coach with 8.37x. The worst trending company is Skechers at 1.06x. The

target price has been calculated by taking the company’s projected earnings per share for 2014

and multiplying that number by its projected P/E for 2014. For Nike its target price one year


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from now is $60.64, which is a 6% decrease compared to today’s price of $64.76. The target

price one year from now for Crocs is $13.52, which is a 20% decrease compared to today’s price

of $16.95.


The average EVA across the industry was $172.60 million. The best trending company is Coach

with $783.83 million EVA and the worst trending company is Skechers with -$118.86 million

EVA. The negative figure from Skechers shows that its capital charge exceeds its net operating

profit after taxes by a hefty $118.86 million. In looking at the Textile – Apparel Footwear and

Accessories industry from a supply chain stance, the one standout company with many

suppliers is Nike. This company has 52 suppliers, which makes the suppliers weak and have

little bargaining power according to Porter’s Five Forces Model. Nike also has the most buyers

at 64, which lead the buyers to be weak and fragmented, thus giving these three companies the

ascendancy.

Best Company in the Textile – Apparel Footwear and Accessories

Coach is the standout company in this industry. It has the highest total asset turnover, profit

margin, ROA, ROE, M/B, and EVA. The large EVA suggests that Coach is operating in a manner

that is consistent with maximizing shareholder wealth, one of the principal characteristics when

looking for a company to invest in. The other important figure is the company’s large ROE.

Return on equity shows an investor what shareholders’ return will be provided what they invest

in the company.


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Cross-Industry Comparison

Given that all three industries are somewhat related, similar figures have been found for most

of the ratios. The current ratio is similar between industries, ranging from 2.34x to 3.76x. The

quick ratio is also comparable between industries with a range of 1.58x to 2.33x. Likewise, the

cash ratio is similar amongst industries, ranging from .99x to 1.6x. The leverage ratio is also

very similar cross-industry with a range of 1.36:1 to 1.86:1. Regarding the times interest earned

ratio and cash coverage ratio, the Apparel Stores industry and Textile – Apparel Clothing

industry are similar with ranges between 12.97x to 17.87x. However, the Textile – Apparel

Footwear and Accessories industry has higher overall times interest earned and cash coverage

ratios at 46.93x and 54.17x respectively. The profit margin varies a bit more across industries,

fluctuating from 5.81% to 11.50%. The return on assets and return on equity are similar

between the Apparel Stores industry and the Textile – Apparel Clothing industry, at 11.10% and

17.99%. Interestingly, the return on assets and return on equity for the Textile – Apparel

Footwear and Accessories industry are higher than the other two industries with 21.15% and

31.25% respectively. The Apparel Stores industry and Textile – Apparel Footwear and

Accessories industry P/E ratios are similar at 14.09x and 16.13x correspondingly. The Textile –

Apparel Clothing industry has almost twice as much P/E ratio at 31.17x than the other two

industries. The M/B ratios are all in very close range across industries from 2.51x to 4.33x. The

economic value added amount for the Apparel Stores industry is very similar to the Textile –

Apparel Footwear and Accessories industry at $152.52 million compared to $172.60 million.

The Textile – Apparel Clothing industry has an extremely low EVA amount compared to the

other two industries at $32.57 million. The ROE drivers for the three industries are all very


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different. The Apparel Stores industry sees ROE drivers of EBIT margin as well as leverage. The

Textile – Apparel Clothing industry has ROE drivers of tax burden and total asset turnover. The

Textile – Apparel Footwear and Accessories industry sees ROE drivers of EBIT margin and total

asset turnover. With regards to the supply chain analysis, the Apparel Stores industry has the

highest number of suppliers at 81. The Textile – Apparel Clothing industry also has a fairly high

number of suppliers at 65. The Textile – Apparel Clothing industry has very few suppliers at 12.

Concerning buyers, there is no similarity between the industries. The Apparel Stores industry

has only four buyers, the Textile – Apparel Clothing industry has 29 buyers and the Textile –

Apparel Footwear and Accessories has a massive 126 buyers. The trend with regards to the

projected target prices for 2014 across industries is a general decrease which ranges from a 6%

decrease to a 29% decrease. Only one company, which is in the Textile – Apparel Clothing

industry is anticipated to increase their projected 2014 target price at 22%.

Current News

The recent tragedies in two Bangladesh garment factories have brought to light ethical issues

regarding overseas garment factory practices. United States buyers have been asked to

cooperate with each other, the Government of Bangladesh, and the Bangladesh Garment

Manufacturers & Exporters Association (BGMEA), civil society, and labor groups regarding

factory safety and fire initiatives (Marian, 2013). Unfortunately, this could negatively affect the

bottom line of companies in the Apparel Stores, Textile – Apparel Clothing, and Textile –

Apparel Footwear and Accessories industries in the long run. Consumers are becoming more

aware of the environmental and outsourcing issues and are demanding accountability. To


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address this, Nike is developing an index that will include labor, social, and environmental

measures. Addressing these concerns may or may not have a negative impact on a company’s

overall profit. A 2012 study by MIT and Harvard showed that some consumers, although they

typically purchased items at a discount, were not only willing to, but actually DID pay more for

clothes that had “fair-labor practice” labels (Clifford, 2013). These new fair labor practice

initiatives may bring fresh consumers through participating retailers’ doors that may not have

patronized those companies before, which may be used as a point of differentiation to increase

the retailers’ bottom line. In particular, The Gap has been targeted by the International Labor

Rights Forum and the United Students against Sweatshops groups in an effort to pressure the

company into abandoning its self-regulation policy and to sign the Bangladesh Fire and Building

Safety Agreement that is meant to ensure safer factory conditions (McDonough, 2013).

Columbia Sportswear recently created a position of “Vice President of Retail” with the hope of

leading the company’s physical retail and ecommerce operations in the U.S., Europe, and

Canada. Shawn Cox’s experience in “developing, managing, and improving profitability of

branded retail” may help improve Columbia Sportswear’s ROE, which has decreased 11% since

2008 (“Columbia Sportswear adds,” 2013).

Nike has decided to move its current Vice President into a new “Vice President and GM of

Greater China” position effective July 1, 2013. Michael Spillane has “strong leadership, brand

expertise, and global experience” that is expected to “drive continued growth for Nike in [the]

very important geography of [Greater China] (“Nike Promotes,” 2013). This move will hopefully


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intensify Nike’s global presence to the point of increasing its ROE, which has decreased 13%

since 2008.

Carter’s Board of Directors has approved a $300 million share repurchase, and, for the first time

since going public in 2003, has decided to cut a dividend of $.16 per share. This decision

supports the company’s new strategy of improving its “capital structure and capital allocation

disciplines” (“Carter’s BoD Approves,” 2013). Likewise, the decision to pay dividends for the

first time may be a signal to the marketplace of Carter’s financial well-being, although the

company’s ROE has decreased 9% since 2008. However, a good sign for Carter’s is the recent

jump in its current stock price, which is up 4.5% since May 10, 2013, the day of the dividend

announcement.

Recently, Lululemon came under attack for a flaw in its popular yoga pants. A manufacturing

mistake left them “overly see-through” and may have affected “one out of every six pairs” that

the company currently has in stock (Weissmann, 2013). Investors reacted quickly and the

company’s share price decreased 5%. Lululemon also fired its chief product officer after the

recent misfortune (Trotter, 2013). The company may already be considered one that has hit its

growth potential, which may be recognized in its 32% decrease in total asset turnover since

2008.

Best Overall Company

Based on the three standout companies across industries, Coach has been chosen as the

dominant company. Given that ROE is the single most important ratio, Coach’s ROE at 57.63%

is 20% higher than the second best company, Lululemon, and 33% higher than the third ranked


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company, The Gap. Although Coach does not have the best liquidity ratios, it has the best total

asset turnover, profit margin, and ROA of the top three companies analyzed. Another

important figure is Coach’s economic value added amount of $783.38 million. This number

shows that Coach’s net operating profit after taxes is above and beyond its capital charge,

therefore telling a strong story of Coach’s true economic profit for the year. Another good sign

for Coach going forward is that the company can seemingly endure during an economic crisis;

its ROE increased 25% since 2008 while many of the other retail companies’ ROE declined.

Since 2008, Coach has also increased its total asset turnover 23% while many other companies

total asset turnover declined. These figures prove that Coach has what it takes to maintain the

top spot even through declines in the economy, something imperative to potential investors.


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References

“Carter’s BoD Approves $300mn Share Repurchase Program.” (10 May 2013). Retrieved from

http://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?news_id=145963

Clifford, Stephanie. (8 May 2013). “Some Retailers Say More about Their Clothing’s Origins.”

Retrieved from http://finance.yahoo.com/news/retailers-more-clothing-origins-

165625040.html

“Columbia Sportswear adds Shawn Cox as Sr. VP – Retail.” (30 April 2013). Retrieved from

http://www.fibre2fashion.com/news/company-news/columbia-sportswear/

newsdetails.aspx?news_id=145495

Marian, Petah. (10 May 2013). “Bangladesh: U.S. Urges Buyers to Collaborate on Safety.”

Retrieved from http://www.just-style.com/news/us-urges-buyers-to-collaborate-on-

safety_id117803.aspx

McDonough, Katie. (8 May 2013). “Gap Inc. Targeted by Post-Bangladesh Corporate Reform

Campaign.” Retrieved from

http://www.salon.com/2013/05/08/gap_inc_targeted_by_post_bangladesh_corporate_

reform_campaign/singleton/

“Nike Promotes Michael Spillane as GM of Greater China.” (2 May 2013). Retrieved from

http://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?news_id=145595

Trotter, J. K. (3 April 2013). “After Selling See-Through Yoga Pants, Lululemon’s Looking for a

New Product Designer.” Retrieved from


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http://www.theatlanticwire.com/national/2013/04/after-selling-see-through-yoga-

pants-lululemons-looking-new-product-designer/63854/

Weissman, Jordan. (19 March 2013). “The Great Lululemon Panic: It’s Not Just About the See-

Through Pants.” Retrieved from

http://www.theatlantic.com/business/archive/2013/03/the-great-lululemon-panic-its-

not-just-about-the-see-through-pants/274156/


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