Assessment of Apparel Retailers’ Dividend Yields and Valuations

Dividend yield

The dividend yield is the cash flow an investor gets for each dollar invested in a company’s stock. It’s calculated by dividing a company’s annual dividend per share by its stock price on a given date. A high dividend yield is attractive for investors. Urban Outfitters (URBN) doesn’t pay a dividend but has a share buyback plan in place.

Abercrombie & Fitch’s (ANF) quarterly dividend is $0.20, which takes its annual dividend to $0.80. As of September 27, ANF’s dividend yield is 3.8% based on its closing price of $20.99.

Assessment of Apparel Retailers’ Dividend Yields and Valuations

L Brands’ (LB) quarterly dividend stands at $0.60, taking its annual dividend to $2.40. L Brands’ dividend yield is an impressive 7.9% based on its September 27 closing price of $30.20.

American Eagle Outfitters’ (AEO) quarterly dividend is $0.138, taking its annual dividend to $0.55. AEO’s dividend yield is 2.2% based on its September 27 closing price of $24.68.

PE comparison

A company’s forward PE is calculated by dividing its stock price by analysts’ earnings estimates for it over the coming four quarters. It’s one of the most used metrics for investment decisions.

As of September 27, Abercrombie & Fitch is trading at a 12-month forward PE of 22.7x, higher than the multiples of its apparel retail peers. In comparison, American Eagle Outfitters, Urban Outfitters, and L Brands are trading 12-month forward PEs of 15.7x, 14.8x, and 11.7x, respectively.

Comparing growth estimates for the current year

Analysts expect Abercrombie & Fitch, American Eagle Outfitters, Urban Outfitters, and L Brands to report top line growth of 2.2%, 6.5%, 9.7%, and 3.9%, respectively.

Wall Street is relatively bullish on Urban Outfitters given the strength in its brands (Free People, Anthropologie, and Urban Outfitters). It’s also looking to expand in international markets such as China, and its digital sales are rising due to an improved product assortment. The company is improving its website and providing better visuals.

As far as adjusted EPS are concerned, ANF, AEO, and URBN are expected to deliver growth of 29.2%, 28.4%, and 69.4%, respectively, in their fiscal years. L Brands is expected to report a 20.6% fall in adjusted EPS in fiscal 2018, its subdued PINK business being the main contributor.