Inditex and H&M Financials

Arguably the most important retail trend of the last 10 years has been the emergence of fast fashion retailers.  Inditex (Zara), H&M and Forever 21 have seen explosive growth to the extent that Inditex's founder is now wealthier than Warren Buffett.

What's more amazing is that because Inditex and H&M aren't US listed companies and Forever 21 is private, most US investors haven't had a chance to participate in the trend.  Because of this there's been less focus on the behemoths that these companies have become here in the states.  Inditex has a larger market cap than Target, Macy's, Nordstrom and Gap combined.  Below are some comps to show how it gets there.  Needless to say the multiple is rather generous.

How large would JCP be if it grew by 10-15x?

In an interesting moment yesterday, Bill Ackman said that he believes that he could realize a 10-15x return on his JC Penney investment.  In order to get a sense of what this means, below is a table comparing the market caps of other US retailers to JCP.  If JCP were to increase 10x from its current $4.3B market cap, that would make it the 4th largest retailer in the US.  To increase by 15x would make it the 3rd.  To be a 10 bagger, Ackman has to believe that JCP wont just beat the Kohls, Macy's, Sears and TJ Maxx's of the world, but also be bigger than Target and Costco too.

How much is Lulu Worth?

Below is a comp table for a few specialty apparel retailers that I put together.  Similar to CMG, it's pretty amazing to see the value that the market puts on Lululemon relative to the current size of its business.  LULU has phenomenal operating metrics compared to its peers to be certain, but the price that a shareholder has to pay to own a part of the business is pretty exorbitant.

At a $7.5B enterprise value, LULU's 180 stores are valued at ~$42m per store and a whopping $14,875 per square foot.  Obviously you're paying that price for growth not current operations, but think of the number of stores that need to be opened to bring the price per square foot more in line with the company's peers.  That price is nearly 10x more than the closest comp on this table.  LTD has 16x more stores than LULU but only 2.2x the market value.

Retail Sales June 2012

Retail sales were reported this morning for June and were weak again.  For the third straight month, retail sales declined, which is a reasonably rare occurrence.  Since 1992, there have been 4 periods that retail sales have declined in three straight months.  Two of those periods happened in 2008; one of those periods lasted for 6 months.  Below is a list of negative retail sales streaks:

Looking at the bigger picture, retail sales growth has slowed to just a 3.8% y/y increase in June.  The slowing trend doesn't necessarily indicate recession, but certainly demonstrates that the rapid growth phase of the economic cycle is over.  As recently as this time last year retail sales were up 9.2% y/y, but  now it looks like there isn't the same slack in the economy that there was then to generate large growth numbers.