Perry Ellis International, Inc (PERY) is an apparel company that operates domestically and internationally. They design, distribute and license their high quality men's, women's, and children's apparel, accessories, and fragrances. They hold a brand portfolio of nearly thirty different recognizable brands including Perry Ellis®, Original Penguin® by Munsingwear®, Axis®, and many others. Pery Ellis International also licenses trademarks from Nike®, Callaway® and PGA TOUR® and more. They distribute through regional, national, and international channels including department stores, chain stores, mass merchants, green grass and other specialty stores, corporate wear distributors, company-owned retail stores, and e-commerce websites. A very large majority of our total revenues come from our whole sale operations, 97%, men's sportswear products, 87%, that are domestically sold and distributed, 91%. Pictured in these charts is percent of total revenue by market, business, and region respectively.
Within the Textile- Apparel Clothing industy PERY faces three main competitors.
|Liz Claiborne, Inc.||LIZ||592.78 Million|
|Polo Ralph Lauren Corporation||RL||12.42 Billion|
|Tommy Hilfiger Group||Subsidiary||N/A|
Liz Claiborne internationally markets and distributes a variety of men's, women's and children's apparel. They offer a wide range of products, but the ones that are comparable to PERY include contemporary apparel, casual sportswear, fashion apparel, career and casual sportswear, activewear, and jeanswear. Similar to PERY they also offer some non-apparel items such as accessories. Their brand portfolio consists of nearly 20 widely recognized brands that they sell in department stores and specialty retail stores. LIZ also offers their products online through e-commerce sites. Based on market cap LIZ is notably larger than PERY.
Polo Ralph Lauren is an apparel company for men, women and children. They additionally have products in other markets such as a variety of home products, however these segments do not compare to PERY. Their apparel and accessory products are what compete with PERY. They have nearly fifteen brands in their portfolio which are sold in department stores, specialty stores, golf shops, full-price and factory retail stores, and concessions-based shop-within-shops. Additionally they operate two e-commerce sites where customers can shop for their products. When comparing size and market cap RL blows PERY out of the water. This could be due to their higher end image, or the fact that they break into other segments with their house items. Either way it is clear they have something to offer that PERY does not.
Tommy Hilfiger Group is a privately owned apparel company. They were acquired in May 2010 by Phillips-Van Heusen (PVH), who also owns Calvin Klein. Worldwide they offer men's, women's, and children's apparel and accessories. Similar to RL, they also have home products. However the apparel products that are most comparable to PERY are their casual wear, sportswear, athletic wear, swimwear, and accessories.
High- PERY operates in the apparel industry which is an inherently competitive industry. Companies are constantly trying to stay on top of trends and pricing in order to attract the most customers. If one company can offer the same quality clothing for cheaper, many customers have no problem switching to a new company. This creates a very competitive atmosphere in the apparel industry. Additionally it is not difficult to switch between brands. Often times it is as simple as walking to a different section in a department store. The availability of a wide variety of competitors makes the rivalry strong. Especially for PERY's biggest segments, such as men's sportswear.
Low- The apparel industry is already a saturated market. Especially at the caliber that PERY is at. They have been around for many years and have a very extensive brand portfolio. It is not likely that a company will come in that will be able to reach a similar caliber to PERY or its higher competition.
Very Low- PERY has a wide variety of clothing types available to fit this very basic need. There is no substitute for wearing clothing. Everyone needs to buy clothes, and since there are no alternatives this creates an intense competition within the industry.
High- PERY brings in around half of their revenue from five main customers. The top two customers, Kohl's and Macy's consistently make up over ten percent of revenue each. Kohl's being the largest portion with around twenty percent each year. The fact that a small number of customers accounts for a large portion of revenue means if one of the buyers decided to leave this would affect PERY's business. Also, it is easy for customers to switch between companies so they will go wherever they find most attractive.
Low- The supplies needed for the apparel industry are pretty readily available. It is not difficult to find other suppliers for materials needed to craft clothing. If one supplier increased there costs it is possible to find a new one. However all companies in the apparel industry may be susceptible to increases in cost if raw materials costs increase. Yet, a supplier voluntarily raising their costs may adversely affect them because it is easy to switch.
Here is a chart that summarizes some of the key executives and officers at Perry Ellis International. Included in the chart is their name, age, positions held at PERY, year they became officer and total compensation.
PERY offers a wide variety of products that can be categorized as tops, bottoms, swimwear, women's dress and contemporary, and accessories. To cover all of these categories they have a massive brand portfolio consisting of nearly thirty brands (listed below). Tops have consistently brought in the biggest percentage of net sales over the last 3 years. The types of tops they offer range from sports shirts, dress shirts, and sweaters to fleeces, outerwear and jackets. Not far behind tops in terms of percentage of net sales is bottoms. PERY bottoms line includes a wide variety of dress pants, casual pants, and walking shorts. For their swimwear segment they offer men's, women's and junior's swimming apparel and accessories. A very small fraction of their net sales come from women's dress and contemporary which consists of contemporary products and dress and sportswear for women. The remaining portion of net sales comes from accessories, and a majority of the accessories they sell are leather. Below is a chart that details the portion of net sales provided by each product category.
PERY has to maintain competitive prices due to the highly competitive industry they operate in. The main driver of their prices comes from the costs of the raw materials that go into their products. These raw materials include cotton and chemical components of synthetic fabrics. These items are not immune to price changes. In fact the prices could fluctuate based on many external factors such as poor weather, government regulations, economic climate and others. Another indirect raw material is the fuel used for transportation of products to their customers. An abrupt increase in these costs could affect profitability because passing the higher prices onto customers is not always feasible. Another factor that could influence price is the prices of competitors. If one competitor is able to reduce costs for some reason and thus reduce their price, PERY will be pressured to react accordingly.
PERY distributes its products both domestically and internationally. They use a variety of distribution channels to reach a vast spectrum of customers. The largest portion of revenue comes from specialy and sports retailers, luxury stores, and others. The next biggest segment is brought in from mid-tear markets. The other notable portion comes from department stores. The remaining percentage of revenue comes from retail, licensing and international, and mass markets. All of these percentages are detailed in the chart to the right. In addition to utilizing many distribution channels, PERY is a global company. They cover all of North America, the United Kingdom, and Europe. As far as distribution facilities and centers go they have buildings that they either own or lease in Florida, South Carolina, Texas, Wisconsin, California, and the United Kingdom.
In order to promote their products PERY employs traditional advertising methods such as print and media, and also developing methods such as e-commerce and social networking. Their print ads can be seen in different consumer trade magazines and newspapers. They also use outdoor ads such as billboards. PERY uses print and broadcast media in order to promote their menswear. Around holidays they will hold events and promotions to market in-store. Other in-store marketing they do involves displays and signs of their products in retail establishments. To reach the online market PERY has informational websites, and e-commerce sites. Plus they have increased their focus on the social media marketing in order to expand their reach of customers. Additionally PERY attends industry trade shows for apparel, golf, swimwear, and corporate businesses. Their marketing is done by in-house employees as well as exclusive and non-exclusive independent commissioned sales representatives.
A competitive advantage can boil down to one main force, barriers to entry. If a company is able to create and nurture this they will be able to take a leading role in the industry. There are three main types of competitive advantages, supply, demand, and economies of scale.
A company can create a supply competitive advantage by having superior technology or privileged access to resources. These would allow you to produce your products at a lower cost than competitors. As far as PERY is concerned they do not benefit from a significant advantage here. Although it is true that they have design expertise and advanced design technology, they do not have enough to put them over the edge. All apparel companies have cutting edge design teams. Also the technology they use is not unheard of, or exclusive to them. So while these help PERY operate more efficiently and timely, they do not create a competitive advantage for them based on supply.
Another type of competitive advantage deals with demand and stems from customer preference. If you create a product that competitors cannot match you have done the trick. This could be due to a customer's habit, wanting to avoid switching costs, or not wanting to put in the effort to search for a new product. PERY does not have a competitive advantage in this area either. In the apparel industry it is very simple to switch from one brand to another. They are so readily available that a customer, barring extremely loyal ones, will switch based on price or convenience or appeal. This is not to say some people don't prefer PERY products, but they do not have enough of an edge to be considered as having a competitive advantage based on demand.
The third type of competitive advantage deals with economies of scale. The size of the firm is not the main focus, but the difference in size between the company and its competitors is what's really important. What happens with high economies of scale is the company's cost per unit goes down due to higher volumes; fixed costs are spread over more units. It is very clear when looking at market cap that PERY does not employ a competitive advantage in economies of scale. Not only are they not that large of a company, but compared to the rest of the industry they are very middle of the road.
Overall, PERY does not possess any sort of outright competitive advantage creating any barriers to entry. They do have other strengths that are summarized below. But concerning competitive advantage they do not make the cut.
Return on assets is a profitability measure that compares net income to total assets. PERY has been fairly consistent over the last ten years in their ROA around three and four percent. The only problem was in the fiscal year ending Jan 2009 they recorded a net loss. This loss was due to a large impairment they took after revaluing their future cash flows from a trademark. They lowered the expected cash flows due to the poor economic health of the time. After they took the impairment they were able to bounce back to their normal level ROA within the next two years. This shows promise considering they expected cash flows to decrease considerably, which was the whole reason for the impairment.
Return on equity is another profitability measure that compares net income to total stockholder's equity. Over the last ten years PERY has been within eight to twelve percent. Except during the year ended Jan 2009 again. The net loss they recorded caused their ROE to fall below zero as well. Again they were able to get back to their previous levels within the next two years.
Return on invested capital comes from taking net income minus dividends and then dividing by total capital. This measure shows how effectively a company can turn its capital into profitable investments. The range for PERY over the last ten years has been between four and six percent. Yet again they took a hit from their net loss and their profitability fell below zero. Fortunately for them they were able to rebound back to typical levels in two years.
A company's efficiency can be measured by their cash conversion cycle. This tells how long it takes for them to convert resources into cash. It is found by adding days in inventory to days sales outstanding and subtracting payables period. PERY has been able to increase their efficiency over the last ten years by lowering their CCC. The only tick was in the year ended Jan 2006 when efficiency was noticeably better than other years. When looking at the year ended Jan 2009 when they recorded the net loss it should be noticed that efficiency was not affected negatively. This is intuitive considering the impairment PERY took had nothing to do with how efficiently they produce cash. Most recently their CCC was at 116.65 days, down notably from 151.42 ten years ago.
Solvency measures if a company is able to sustain long term growth and pay off their expenses. The metrics used to show this here are the current ratio and the quick ratio. The current ratio comes from current assets over current liabilities and it measures short term debt paying ability. PERY has had a current ratio between two and five for the last ten years. The quick ratio is cash, marketable securities, and receivables all over current liabilities.This is used to show immediate short term liquidity. For PERY they have had a quick ratio around one and two for the last ten years. Both of these metrics are acceptable for the industry in which PERY operates.
Leverage measures how much debt a company has. Higher leverage comes with more risk but also more upside. Debt/ Equity is commonly used to evaluate a companies leverage. PERY has been around one half to two for the past ten years. This is also understandable considering PERY as a company. They are very well diversified which helps to diminish some of the other risk, so levering for them is not alarming.
When looking at PERY next to LIZ and RL you can get a better sense of where they fit within the industry. LIZ has been operating at a loss so all of their profitability measures are very negative. When PERY is stacked up against LIZ they seem to be doing very well. However if you compare them to RL you can see they may not be exceeding as previously thought. RL is outperforming them greatly, more than double all the profitability measures. The table shows all three companies lined up next to each other with their most recent years data.
Based on efficiency PERY is the least efficient of the three companies. Both LIZ and RL have nearly half of the days sales outstanding that PERY has. DSO measures the average number of days a company takes to collect revenue after a sale. The fact that LIZ and RL both have much lower DSO leads them to be much more efficient overall based on CCC. This table shows efficiency metrics for all three companies.
For solvency there was not much of a notable difference between PERY and RL. The only stand out was LIZ. They had a current ratio nearly one-third of the other two companies, and a quick ratio one-third of PERY and one-fifth of RL. This shows that LIZ is much more solvent than the other two companies. As far as leverage goes PERY is the highest levered company. LIZ did not have any leverage metrics provided for this most recent year. PERY was relatively close to RL for this period with their leverage. Both companies are within reasonable levels for the types of companies they are.