There is an interesting article over at the Motley Fool (click here for the article in its entirety) about J.Crew's stock price and whether it's current value is a true representation of its worth.
Ditch This Overpriced Retail StockBy Alyce Lomax
August 12, 2009
The market's recent rally has sent many retail stocks on a wild ride. But their lofty new heights have left many vastly overpriced, especially in a market full of fickle shoppers. As one of the priciest stocks in the retail sector, I think buyers should beware J.Crew (NYSE: JCG).
J.Crew's stock has skyrocketed more than 60% over the last six months. Perhaps investors have been heartened by first lady Michelle Obama's apparent fondness for J.Crew outfits. However nice that may be for the retailer's brand, it's still no reason for the stock to trade at a nosebleed-inducing 44 times earnings.
Though J.Crew has remained profitable, it hasn't been doing that well. Let's compare its actual performance with that of a few other mall-based retailers: (click here for chart).
As you can tell, J.Crew's trading at a major premium to the retail peers outlined above, especially given its declining profitability and staid single-digit revenue growth. The premium that investors have given J.Crew seems better suited to a gold-standard tech stock such as Amazon.com (Nasdaq: AMZN), which has proven its power to generate unprecedented levels of growth in online retail.
Remember, Hot Topic also traded at dizzying premiums not too long ago. Now that it's losing business momentum, its share price has cooled off considerably. Meanwhile, Buckle and Aeropostale look incredibly appetizing, with their relatively low P/E ratios and debt-free balance sheets.
J.Crew doesn't belong on a retail deathwatch, unlike some of the market's more debt-laden and struggling retailers. Still, the company's stock looks way too expensive when compared with bargain-priced retail rivals with impressively resilient performance.
If you think J.Crew's enough of a class act to warrant its crazy stock price, we'd like to hear your thesis. ...
It's worth noting that this article is just one person's opinion on J.Crew's current stock worth. :)
What are your thoughts on the article? Do you disagree or agree with the advice offered? Would you consider purchasing J.Crew stock? :)
Hi Alexis,
ReplyDeleteI found your blog via a search for a specific J. Crew item and became (temporarily) more interested in this article. I appreciate you posting this.
I agree with many analysts' assertions that a P/E of 44+ is very, very high for a retailer (especially, in a questionable economy). However, I did quickly crunch a couple of numbers from their balance sheet and JCG doesn't look too bad on paper (for a retailer), so to speak. This is NOT to serve as an incentive to buy OR sell -- everyone should do their own due diligence. All I can say is that, with the exception of Amazon or Apple (a retailer of sorts :)), I feel like there are much better investment opportunities available outside of the retail arena. Again, this is my opinion.
I will sign off now so I can read the rest of your lovely blog :)
TTYL,
Carole
sasy.com
"From a products standpoint"
ReplyDeleteAfter speaking to three employees of brick and mortar stores (one a manager)in Connecticut, I came away with the same thoughts as 'The Fools'. They all mentioned that while J Crew has a very wonderful product, the designers have been spending way too much time in Manhattan and have forgotten the core of what made J Crew. Sizing.
While the argument could be made that a company needs to grow and change to be successful, the same amount of data could be piled on when it comes to what actual people look like.
Not everyone is the skinny waif or 2000 calorie burning, 1000 calorie consuming gym obsessor.
The vast majority of people are, well, normal sized.
Bringing this subject up on the internet invites the trollish response of the need to lose weight and "stop being so fat".
That is not what this is all about, trust me.
When you produce high quality clothing that is beautiful, but out-size your core customer who has been buying J Crew since college, you simply lose customers.
Losing customers means shallower sales.
Shallower sales means the company has less value in an economic arena.
And sharholders sell.
The brick and mortar manager of the J Crew in an affluent Connecticut town told me that corporate has been making the rounds and asking point blank questions as to why certain lines, the men's in particular, are not selling as well as they used to.
The J Crew staff have told the decision makers about the customer complaints. About how sizing does not reflect what J Crew used to produce, and how, even though the company states that they listen to what the customers say, they are not making clothes that fit like they used to.
If J Crew has a business plan that is mirroring Abercrombie's move towards the tween and teen customer,
I will have to sell my stock.
I bought low, so I shall make a profit.
The Fools have a point, and J Crew, while a wonderful company, is at the Rubicon.
Gap Corp. made the same mistake, and all you have to do is look at how they have slid towards the lower half of the market...
(BTW, my J Crew mens XL Tall and XXL Tall [yes, guys, J Crew DID produce XXL tall at one time!] from the early to mid 90's STILL fit quite well, so don't snipe at me and tell me to spend more time in the gym...while that MAY be true, it has yet to affect the fit of my clothing.)
Sub-par clothing line, season after season, higher price points, lack of customer service in stores and over the phone, unexpected changes and inconsistant policy changes (i.e., no price matching from store to online), higher than necessary shipping costs and final sale that doesn't allow for anyone to return something (especially when most of the items are not at my brick and mortar)...I would totally sell. There's no loyalty to a store that has no loyalty to it's customers.
ReplyDeleteYes, the quality has really declined over the past couple of years. The customer service is going down the tubes as well. I am very disappointed in JCrew. I will still buy the occasional piece or two but I no longer buy their clothes in huge quantities. A sweater should last more than a couple of wearings or with stand one wash!
ReplyDeleteBuyers should be worried about JCrew stock. There is too much retail in this country, some estimates are 30% above saturation. I personally would never pay full price for anything at J Crew. I think their sales policy is crazy. Have a few promotions a season and a final sale. That's it. I think its wrong that five different people could buy the same pair of pants within a 2 week time frame and each one would pay a different price. Who can trust them? Crewcuts is a vanity line for parents' who wish they lived in the Hamptons during the summer and on the UES during the year. You can get the same "look" at department stores for a fraction of the price.
ReplyDeleteEmpire--ditto what you said as to the woman's line. I do workout 4x per week but am still a size 14/16 because I am tall and have hips and a chest! JC has been scaling back many of their women's items to only size 10 or 12. I have a JC silver card from spending $$$ on shoes, accessories and knits, but they would be getting 3 times what I already spend per month if they would make more skirts, sheath dresses, etc. in my size. Instead I have been buying from BR, AT, Nordstrom, Neiman etc who carry nice dresses pants and skirts in my size. I prefer the styles at JC but I have no choice.
ReplyDeleteI would even be willing to pay a few dollars extra for the extra fabric that is used for the larger/tall sizes. For example VS charges more for DD bras than it does for A-D bras. To me this is rational and I don't think it upsets customers who know more material has to be used to make the product.
Re: the quality. Even a SA at the store I go to has had whispered convos with me about the declining quality. We were discussing older lines and she said ouright that today the quality is not there for the price point. Kudos to her for being honest.
ReplyDeleteI'd pay a few dollars extra for quality. I am thoroughly depressed about my recent purchases, which have had holes and other defects. I've tried valiantly to find another place to buy my clothes, but keep coming back to JCrew for the style. I don't know when I'll say enough is enough.
ReplyDeleteAnyone else notice that there are not "inspected by" stickers in JCrew clothing, which are in the clothes I buy from other retailers? A theory: they have completely done away with quality control because of the cost. It is more cost-effective for them to rely on the customer to complain. A certain percentage of customers will keep the item; another percentage will return it without complaining too loudly; another percentage will complain loudly and get a gift card. All in all, cheaper than having to hire staff to check for holes, bad seams, etc.
One area they don't skimp, I expect: you can bet they go over whatever gets sent to Michelle Obama with a fine-tooth comb.
Re Quality, I agree the quality has gone down the tubes, their tees and sweaters are so thin. Why do they make everything so thin and sheer? It tears easy and it is not worth the price.
ReplyDeleteCNN had an article about retailers are making clothes bigger in the smaller sizes because America is getting bigger, and the sizes are growing along with the population. There have been many complaints on this blog about vanity sizing for sizes 10 and under.
Many of their items are just not worth the price, even if they have great styles IMO.
Re: Sizing.
ReplyDeleteI started wearing J. Crew clothes in 1993 when I was 19. I was 5'3" and weighed 95 pounds. Almost anything that was XS I could make work for me. I never could buy pants because, at the time, they didn't carry petites(I think that started in 1994?).
Fast forward to 2009, I'm still 5'3" but weigh around 108 pounds. Everything I buy at J. Crew that isn't petite I literally swim in. I can't buy a single top that isn't hanging off of me.
Two years ago I bought a pair of jeans in size 27S. They were perfect. I've never had a pair of jeans that fit as well as these. Last year I attempted to buy another pair. Same cut, but 27S was ridiculously big on me. So I tried a 26S, again way too big. This year I found a pair of 25S(their smallest size) that fit me pretty well, but are still slightly big in the back waist band.
Honestly, I think they vanity size the cr@p out of their clothes so I would think that would make it easier for *normal* sized people to buy their stuff. I can say, for me, they certainly aren't making it easy for *smaller* people.
I agree with the others:
ReplyDeletehigher prices ($100 for unpadded flats?), poor CS in some stores (recently had an unpleasant return for a pair of pants that came apart after one washing!), inconsistent policies (e.g. student discount, price matching, online/store price difference, FS returns), highly stylized looks (ruffles and chiffon on everything, humongous jewelry), poorer quality (tissue tees that hole immediately, pants that fall apart[see above], silk tops that are fraying in the store, sweaters that pill), high shipping prices ($17 for a couple sweaters??), final sale (when most of the merchandise can't be found in nearby stores and sells out in B/Ms within a week), vanity sizing (a 34D wearing size 0 camis??)....I could go on..
And yet I still have a JC card and spend each month!
Like others, I keep coming back for the style-- I also shop at BR, Gap(although not often anymore), ON for basics, Ann Taylor, and Martin and Osa-- but none has the tailoring and style as JC.. hopefully the higher-ups will hear our message and bring back more of the classic pieces, strong CS and QC, reasonable prices (although I doubt this), consistent policies, and excellent quality that made us fall in love with JC in the first place!
I find as far as J.Crew quality these days I have mixed reviews. As a result I buy some items in multiples and I have begun avoiding others and looking to other retailers for alternatives.
ReplyDeleteWhat's been good and has lasted and I love:
-double serge winter skirts
-stretch wool suiting peices
-jackie cardigans and cashmere T sweaters (I hand wash these)
-slim stretch cotton button down work shirts
-blazers
-winter jackets
-cotton cafe capris
-merino sweaters (when they are for winter not summer)
What tends to fall apart for me:
-T shirts especially perfect fit tees the white ones are see through, lose thier shape quickly and get holes. They usually have lasted 1 season.
-I avoid the tissue tees also after everyones reviews.
-anything that is a blended fabrics sweater whether its wool-cashmere or cotton-cashmere etc. In the past I have found these items need lots of combing to get out the lumps. If one sticks with the solid fabric sweaters one has better luck. But ohhh I have been temped by some of the gorgeous designs of this year's Dream Sweaters!
So as far as J.Crew stock I think it may fall in the long run. J.Crew is getting a lot of publicity right now much of it good but with the mass exposure I think more items are being produced for the masses but with lesser quality.
i agree w/ all of the above...im surprised that there arent more commenting...as if everyone doesnt want to hear the truth, and brush it under the rug....1 thing's for sure we all keep buying , Crew after all is still crew and it gets me every time...
ReplyDeleteNicely put, pretty boy. I suppose I keep hoping the Crew will get their act straightened out...
ReplyDeleteI also wish that there was an actual BB that we could post to that could further this conversation...
If there is, I simply don't know about it. I wonder if the powers that be at Crew would even pay attention?