Naked Brand Group Limited (NAKD) and Hanesbrands Inc. (HBI) are two leading designers and manufacturers of intimate apparel and swimwear in the United States, Canada and internationally. Headquartered in Double Bay, Australia, NAKD sells its products under the 74-year-old licensed Frederick’s of Hollywood brand. The company offers its products through its online channel. Founded in 1901, HBI operates through Innerwear, Activewear, and International segments, under the Hanes, Champion, Maidenform, JMS/Just My Size, Bali brand names.
A substantial rise in consumer spending, the increased availability of fashionable intimate apparel, and a demand for customized and luxurious intimate wear have been fueling the growth of the intimate apparel industry. Also, a rising awareness by consumers about fabric, hygiene and comfort needs have been motivating customers to buy their intimate apparel from top players like NAKD and HBI. So, as these companies continue to expand their global footprints and enhance their online platforms, we think they are uniquely positioned to witness long-term growth.
NAKD has gained 6.9% over the past year, while HBI has returned 62.1% over the same period. In terms of past three-months’ performance, HBI is the clear winner with 4.9% gains versus NAKD’s negative returns. But which of these stocks is a better pick now? Let’s find out.
In April, NAKD announced that its shareholders had approved the divestiture of its Bendon brick-and-mortar operations. The company plans to transform its business into a pure play e-commerce platform and focus its development efforts on the Frederick’s of Hollywood online business. While the rapid acceleration of its e-commerce business could leverage its brand, the intense competition in the e-commerce industry could prevent it from growing its market share.
Last month, HBI announced its “Full Potential” plan–a three-year growth plan to drive innerwear growth with $200 million in incremental sales and approximately $1.2 billion in incremental revenue. The company also plans to undertake greater investments in key global brands in its key growth markets of North America, China, Japan, South Korea and Europe.
Recent Financial Results
NAKD’s trailing-12-month total revenue was $80.04 million, while its trailing-12-month gross profit was t $33.89 million. But the company reported a trailing-12-month negative EBITDA of $51.17 million. Also, NAKD generated a trailing-12-month operating loss of $9.67 million and a net loss of $68.35 million. Its trailing-12-month net interest income was negative $8.21 million.
In the first quarter ended April 3, 2021, HBI’s net sales increased 25.3% year-over-year to $1.51 billion, driven by double-digit growth in its global innerwear and activewear businesses. Its gross margin rose 520 basis points from the year-ago value to 40%. The company’s operating profit came in at $190.12 million, representing a 296.5% increase from the prior-year period.
Past Financial Performance
NAKD’s revenue have declined at a 15.25 CAGR over the past three years. In comparison, HBI’s revenue increased at a 2% annualized rate over this period.
HBI’s trailing-12-month revenue is significantly higher than NAKD’s. But NAKD is more profitable, with a 42.3% gross profit margin versus HBI’s 39.1%.
However, HBI’s EBITDA margin and ROE of 15.3% and 7%, respectively, compare favorably with NAKD’s negative 15.4% and negative 164.9%. Also, HBI’s $548.63 million in cash from operations compares favorably with NAKD’s negative cash from operations of $7.92 million.
In terms of trailing-12-month EV/Sales, NAKD is currently trading at 8.84x, which is 493.3% higher than HBI, which is currently trading at 1.49x. Also, NAKD’s 1.33x trailing-12-month Price/Sales is 37.1% higher than HBI’s 0.97x.
HBI 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 Value Grade, HBI has a B, which is consistent with its relative undervaluation. In contrast, NAKD has an F grade for Value.
Also, in terms of Momentum Grade, both NAKD and HBI have a B, which is in sync with their price returns over the past year.
Beyond what we’ve highlighted, our POWR Ratings system has also rated both HBI and NAKD for Growth, Quality, Stability, and Sentiment. Get all HBI ratings here. Also, click here to see the additional POWR Ratings for NAKD.
While NAKD has been ramping up its e-commerce platform to focus exclusively on its Frederick’s of Hollywood online business, the company’s weak financials may be a cause for concern in the booming e-commerce market. In comparison, HBI’s strong growth across all business segments and its focus growth in key geographies make it a better investment option.
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. Also, click here to see the top-rated stocks in the Consumer Goods industry.
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NAKD shares were trading at $0.80 per share on Monday morning, up $0.10 (+14.58%). Year-to-date, NAKD has gained 316.67%, versus a 13.13% 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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