The 27th Annual ROTH OC Conference included presentations and panels featuring more than 50 publicly-held and many private Consumer companies across the Active Lifestyle, Apparel, Brand Management, Consumer Electronics, Food & Beverage, Healthy Living, Infant & Juvenile, and Restaurants subsectors. We came from this year’s 4-day event feeling incrementally more positive on select names, including Performance Sports Group, Skullcandy, and Escalade.
Brand Panel Highlights Our Growing Your Brand In 2015 panel featured the founders of American Apparel (APP, Buy), American Rag Cie, and Neff as well as the former President & CEO of Nasty Gal and Star Jones of The View fame. Panelists highlighted the importance of authenticity, consistency of brand, and philosophy of product, as well as emerging themes in “making it yourself”.
Branding & Performance Imperative In Active Lifestyle Industry companies like Performance Sports Group (PSG, Buy), Escalade (ESCA, Buy), and Gaiam (GAIA, Not Covered) seem well-positioned for continued growth given their leading brands and focus on product quality and performance. Meanwhile, strong participation growth in lacrosse, yoga, and outdoor activities should continue to provide support. PSG, in particular, looks poised for continued market share gains and we remain comfortable with near-term consensus estimates despite currency pressures.
Retailers Consolidating Number Of Electronics Accessories Vendors Skullcandy (SKUL, Buy) and ZAGG (ZAGG, Neutral) have recently benefitted from strong growth in iPhone 6, new doors both domestically and internationally, and retailers consolidating their number of preferred vendors. Skullcandy, in particular, looks positioned to benefit from new doors and shelf space at Walmart beginning in June. This, combined with continued growth in gaming, internationally, and in sell-through from new fixtures/listening stations, suggests that 2015 revenue and EPS guidance remains conservative.
M&A Multiples Moving Higher Given accommodative capital markets, we believe many consumer-focused companies are pursuing acquisitions in the absence of material end market growth. Jarden’s (JAH, Not Covered) Martin Franklin noted a frothy deal environment, but an increased number of attractive targets and still reasonable multiples. Escalade and Crown Crafts (CRWS, Buy) noted similar trends as well as increased activity.
Growing Interest In Brand Licensor Business Model Sequential Brands, (SQBG, Buy), Cherokee (CHKE, Buy), and Xcel Brands (XELB, Buy) continue to make a strong push into brand licensing, with slight variations to the traditional Iconix (ICON, Buy) business model of focusing on brand management and marketing while licensing out manufacturing and distribution. This is pushing deal multiples higher and creating a need for larger acquisitions to move the needle. While this creates certain risks, we believe the model remains attractive, given high margins, limited working capital requirements, and annuity-like revenue streams. Cherokee shares should hold up best in an environment with investors somewhat questioning this business model due to management’s conservative nature and focus on organic growth, while Sequential looks positioned for the most long-term upside given its aggressive pursuit of accretive acquisitions and strong licensee relationships.
Increased I&J Spending Spending on Infant & Juvenile products is rising, helped by increased spending per child due to older and more affluent parents and with grandparents more involved in the upbringing process. Meanwhile, the U.S. birth rate likely bottomed in 2013 and should continue to increase with higher employment and household formation.These trends should benefit companies like Crown Crafts (CRWS, Buy) and Summer Infant (SUMR, Buy).
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