Naked Brand Group Limited (NAKD) and L Brands, Inc. (LB) are leading designers and retailers of intimate and other apparel, with diverse portfolios of brands. Based in New Zealand, NAKD sells its products through licensed brands, including Heidi Klum and Fredericks of Hollywood, as well as through company-owned retail stores and online channels. Popular for its Victoria’s Secret brand, LB operates as a retailer of body care products, women’s intimate and other apparel, and personal and beauty care products.
An increasing attention to hygiene issues, changes in lifestyle and the customization of product portfolios has encouraged consumers to seek top intimate apparel market players like LB and NAKD to meet their needs. Since these companies are increasingly investing in e-commerce platforms and specialty retail stores, we believe they are well-positioned to see strong sales in the coming months.
NAKD has gained 38.5% over the past nine months, while LB has returned 168.5% over the same period. In terms of their past year’s performance, LB is the clear winner with 454.3% gains versus NAKD’s negative returns. But which of these stocks is a better pick now? Let’s find out.
In February, NAKD signed a definitive agreement to price a $100 million private placement of restricted ordinary shares. The company expects to use the offering’s gross proceeds to accelerate the development of its digital platform and to support acquisitions of existing e-commerce brands.
In March, LB’s board of directors authorized the repayment of $1.035 billion of debt through the call of $285 million of outstanding bonds due 2022, and $750 million of the outstanding bonds due 2025. The company believes that this leverage reduction will enhance shareholder value.
Recent Financial Results
NAKD’s trailing-12-month revenues was $82.54 million, while its trailing-12-month gross profit was $33.99 million. However, the company reported negative EBITDA of $25.61 million. Furthermore, NAKD generated a $18.10 operating loss and a $44.03 million net loss.
In the fourth quarter, ended January 30, 2021, LB’s total Bath & Body Works revenues increased 21.8% year-over-year to $2.72 billion. Its Victoria’s Secret Direct sales rose 32.7% from its year-ago value to $831.1 million. The company’s gross profit rose 28.6% from the prior-year quarter to $2.31 billion. LB’s net income for the fourth quarter was $860.33 million, compared to $192.26 million for the same quarter of 2019.
Past Financial Performance
LB’s total assets increased at a 12.4% CAGR over the past three years. In comparison, NAKD’s total assets declined at a 0.9% annualized rate over this period.
LB’s trailing-12-month revenue is significantly higher than NAKD’s. LB is also more profitable, with a gross 47.3% profit margin versus NAKD’s 41.2%.
Also, LB’s levered free cash flow margin and net income margin of 14.4% and 7.1%, respectively, compare favorably with NAKD’s negative returns. Also, LB’s $2.04 billion cash from operations billion compares favorably with NAKD’s negative cash from operations of $6.51 million.
In terms of trailing-12-month EV/Sales, NAKD is currently trading at 6.72x, which is 232.7% higher than LB, which is currently trading at 2.02x. But LB’s trailing-12-month Price/Sales of 1.55x is much higher than NAKD’s 0.10x.
LB has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, NAKD has an overall D rating, which translates to Sell. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
In terms of Quality Grade, LB has an A, which is consistent with its higher-than-industry gross profit margin. NAKD’s Quality grade of F is reflective of its lower-than-industry asset turnover ratio.
Both LB and NAKD have an A grade for Momentum, in sync with their price returns over the past nine months.
In terms of Sentiment Grade, LB has a B, given that analysts expect its EPS to increase 199% year-over-year in the current quarter. In comparison, NAKD has a Sentiment Grade of D.
Beyond what we’ve highlighted, our POWR Ratings system has also rated both LB and NAKD for Growth, Stability, and Value. Get all LB ratings here. Also, click here to see the additional POWR Ratings for NAKD.
Although NAKD has some widely known brands, including Lovable, Bendon, and Heidi Klum, the company has failed to capitalize on the growing intimate apparel market. Its inadequate financial performance and poor profitability are the consequences. In comparison, LB has been able to improve its profitability and sales growth significantly through its market-leading Victoria’s Secret and Bath & Body Works brands. So, we believe LB is a much more lucrative investment compared to NAKD.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Fashion & Luxury industry. And click here to see the top-rated stocks in the Consumer Goods industry.
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LB shares were trading at $67.87 per share on Monday morning, up $1.97 (+2.99%). Year-to-date, LB has gained 82.50%, versus a 12.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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