Looking for the next up-and-coming fashion house to take market share from Michael Kors (KORS)?
Vince Holding Corp (VNCE) is a leading designer, marketer, and distributor of contemporary, up-scale apparel. Vince products are sold at premium department stores, such as Nordstrom, Saks Fifth Avenue, Neiman Marcus and Bloomingdale’s, as well as about 30 company-operated stores and its ecommerce website Vince.com.
With sales of $288 million in 2013 and tracking 20% revenue growth this year, Vince offers a broad range of women’s and men’s ready-to-wear including its signature cashmere sweaters, leather jackets, luxe leggings, dresses, silk and woven tops, denim and footwear.
For a holiday consumer-focused trading opportunity, VNCE is the new KORS. Especially with their latest news.
Handbags Are Here!
William Blair analysts already had a Buy rating on the stock as a 20%+ grower with “global brand potential.” But this month, they added Vince to their Consumer Focus list that tries to pick stocks with solid appreciation potential over the next 60 days, just like the Zacks Rank.
Here’s what Blair analysts had to say in their report last week…
“Vince launched its much-anticipated handbag collection for preorder online at Vince.com on October 30 (a day earlier than expected). The initial collection will be available at Vince stores as early as November 10 in some locations, as well as in time for the holiday season (mid-November) in 26 Saks Fifth Avenue locations and the Saks web site for a limited exclusive time.”
The Blair analysts see the collection as “brand-right and well-executed.” And they believe the company will be able to exploit “white space” in the $500-999 price point category.
Fresh Brand, Early Stage Opportunities
Wells Fargo analysts met with Vince management in late September at their Retail & Restaurant Conference in Boston. Here’s what they had to say…
“We think Vince has multiple growth drivers including brand momentum, low-hanging fruit in operational improvements, and international & new category expansion opportunities. In our view this combination justifies a premium valuation and the recent pullback represents a great opportunity. There are many opportunities to drive growth, e.g. recently upgraded women’s location in Bloomingdales 59th St. flagship, additional shops, etc. We believe sales momentum continues at VNCE–the current men’s Fall collection is the first one influenced by the new head of men’s, and sell-through rates have been strong. VNCE also noted that sell through rate of higher price point items is strong.”
Vince reports Q3 financial results on Tuesday, December 2, 2014 before the market opens. In addition to learning about sales trends in the late summer/back-to-school quarter, investors will be looking forward to hearing any hints about November’s sales, especially in the new handbag category. Here’s the overall investment thesis from the Wells Fargo team…
“Vince has a strong, differentiated brand that is in its early stages of growth and we expect 15-20% annual sales growth over the next several years from new store openings, higher penetration at wholesale accounts, new product categories, increased brand recognition and international expansion. The EPS growth could approximate 30% per year from modest margin expansion and deleveraging.”
Big Investors Who Like Vince
This Zacks #1 Rank stock has been making a nice long consolidation in the mid-$30s since it was “discovered” in June after its first strong earnings report. I expect it to break out to new highs above $40 in the next month or two.
Vince trades at a premium to KORS, but for a $1.25 billion company, if investors believe they can keep growing that bottom line at 25%+ per year, then they will probably pay more than 30X for that growth.
One of my other key metrics for making a stock investment decision besides the fundamental growth trends is institutional buying. So let’s look at the smart money who believes in that future.
Interestingly, there was a big institutional move into Vince shares in Q2, where the “whales” of the market boosted their possession of the stock by 40%. This is nice to see after the company just had its IPO one year ago next week.
One of the biggest whales was the giant Wellington Management ($380 billion in assets under management) buying 2.44 million shares to bring their haul to just over 3 million.
3 million shares is “not nothing” for these guys and they obviously saw something special in Vince that stood out to them because their Consumer Discretionary sector exposure is so small at only 2.38% of assets.
Another big buyer in Q2 was the $40 billion Adage Capital Partners who brought their stake up by 40% to 1,857,737 shares after adding 535,599.
The big buyers in Q2 are in two camps: those who bought before the company’s first solid earnings report with a likely average near $26 and those who bought after the ramp above $30. Here’s a price chart I made with notes to show you what I’m talking about…
Note the green arrows which roughly mark the beginnings of Q2 and Q3. Also note that the 200-day average line (red) is so short because the stock just IPO’ed in late November of last year.
In Q3, Vanguard added approximately 260,000 shares to bring their stake to 1.1 million shares. And the $21.6 billion London fund Pictet Asset Management bought 382k shares to raise their holdings to 970k. Even the $14.3 billion Columbus Circle bumped their stake by 25% to 483,730 shares.
But the big dog in Q3 (so far from the 13F filings I have) is the $36 billion Eagle Asset Management which increased their position a whopping 57% with a buy of 639,519 shares to bring their stake to 1,755,362 shares.
Investing in Growth for the Long-Haul
I make it my business to follow the moves and the philosophies of institutional investors. Most of them build positions in hundreds of stocks based on their long-term economic outlook. They aren’t buying for a short-term swing trade. So I use their buying as confirmation of my fundamental research.
This is my working theory about the “whales” of the investing universe: They don’t make these kind of investments in small and mid-cap stocks carelessly. They have a thesis about value or growth, or both, that sees the company’s shares moving higher over many quarters as they watch the $1 billion enterprise or brand become the $2 billion one.
Here’s to “our” research being correct.
Disclosure: I own VNCE shares for the Zacks FTM Trader Portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money Trader.
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