One of my favorite types of stocks to trade is a retail company that I shop at. Why? Because if I profit off the stock I don’t feel guilty about “reinvesting my profits” at the store (see: the absurd amount of lululemon clothes I own). Given this, I was quite excited to see an article on Motley Fool this morning comparing potential 2014 IPOs from two of my favorite retailers, Tory Burch and J.Crew: Tory Burch vs. J. Crew — IPO-Off!
You can check out the Motley Fool article for more background on the companies. The article concludes: “The differences between Tory Burch and J. Crew make both companies interesting options for a portfolio light on retailers. The strength of both brands coupled with their growth potential is good news for investors, and the strong and proven leadership at both should help you rest easy. For many, it will simply come down to how fast you think Tory Burch can grow compared to how big you think J. Crew can be. I’m a fan of the latter, but I can see the case for the former.”
In my opinion though, there are a few key metrics that the article did not examine, which indicate Tory Burch as the significantly better option should there be an IPO.
1. Sales per Square Foot
Sales per square foot is an extremely important metric in the retail industry. Quite literally, it’s the total revenue divided by the size of the stores – it’s almost a measure of how efficient the store is. Apple currently has the highest sales per square foot of any retailer, at slightly over a crazy $6000.
According to the article, “J.Crew operates 300 locations — three times Tory Burch’s footprint — but generates only twice the revenue.” I don’t have actual sales per square foot revenues but some quick calculations show Tory Burch’s to be much higher. Assuming the two companies have stores of the same size, Tory’s sales per square foot are a third higher than J. Crew’s. However, I’ve been in both stores and in general J. Crew stores seem to be a lot bigger. So that difference is likely much higher.
2. Growth Prospects
Tory Burch has been growing at a crazily fast rate since it first started in 2004. Tory Burch is said to have posted sales of $760 million in 2012, a growth of 55.1% over the prior year. This also translated to a 3-year revenue CAGR of 50%. In comparison, J. Crew Q3 revenues increased 11% over the prior year. And for future growth I think Tory Burch is a lot less saturated in the market than J. Crew is, leaving it more room to grow.
3. Discount Pricing
It is on a very rare occasion that I’ll pay full price for something from J. Crew. It seems like every other week I get an email from them offering 25% off of my full price purchase. Plus, their clothes go on sale fairly quickly and are then often an extra 40% off the sale price. For Tory Burch on the other hand I’m lucky if I can get 20% off at Bloomingdale’s Friends and Family (it’s often excluded).
Granted, this difference could just be a factor of two different pricing strategies. But if not , it could indicate a higher demand for Tory’s product, plus richer customers who are less sensitive to fluctuations in the economy.
If Tory Burch does IPO this year I’ll be buying it. And then I’m buying these shoes.