CAND was featured in thestreetdotcom's $10 Store last month. Nice story. (i don't own it and made no effort to verify any of this)
thestreet.com
$10 Store: Candie's
By Erle Norton
Senior News Editor
7/24/98 8:39 PM ET
Enough about slides.
Sure, Candie's (CAND:Nasdaq) made its name in the late 1970s
with those sexy strapless shoes, those high heels that Olivia
Newton-John slipped into when she shed her Sandra Dee
personality to don the slick black outfit of a bad girl in Grease. But
today, far too many people think Candie's product line ends there.
There's plenty more to Candie's than slides, which make up less
than 10% of the company's sales. The Purchase, N.Y.-based
company also sells casual shoes for women, as well as handbags
and small leather goods.
And, on Wednesday, Candie's displayed one of its biggest
initiatives toward its main goal -- becoming a brand. The company
announced a long-term licensing agreement with Liz Claiborne
(LIZ:NYSE), which will make and sell a collection of Candie's
fragrance, cosmetic and beauty products starting next year.
"The marketing agreement with Liz Claiborne was a stroke of
genius for both sides," says Laurence Leeds, managing director of
New York's Buckingham Research Group, whose Buckingham
Capital Management affiliate owned 264,000 shares of Candie's
at March 31, according to data-tracker Technimetrics.
For Liz Claiborne, the deal will enable it to reach a younger market.
For Candie's, it will aid its brand-building effort, thanks in part to
the $9 million Liz Claiborne will give the shoemaker for advertising,
says James Palczynski, an analyst at New York's Ladenburg
Thalmann. To get an idea of how big that is, consider that
Candie's itself will spend about that same amount on advertising
this year, Palczynski says.
"This is the most significant step yet in Candie's evolution to a
megabrand," Neil Cole, Candie's chairman and chief executive,
said in a statement Wednesday. "The same opportunity that we
have capitalized on in footwear exists within the fragrance and
beauty category."
Meanwhile, Candie's is posting improving results. For the year
ended Jan. 31, Candie's earned $4.5 million, or 33 cents per share,
which included a $1.3 million tax-related gain. That compares with
$1.1 million, or 11 cents per share, in fiscal 1997, a figure which
includes a $1.1 million tax-related gain. In the fiscal first quarter, it
earned $1.06 million, or 7 cents per share, up from $823,000, or 6
cents per share, a year earlier.
Analysts figure it will earn 50 cents per share in fiscal 1999 and 74
cents in fiscal 2000, according to First Call. And its stock? It has
climbed nearly 50% since February, but it still looks cheap, thanks
in part to continuing fears that Candie's is a one-product fad, as
well as limited institutional ownership -- 23%.
The stock closed Friday at 6 23/32, down 21/32. At that level, it
trades at just under one times sales. Value investors shoot for
stocks with price-to-sales ratios below one. Its price-to-earnings
ratio based on fiscal 1999 estimates is just over 13, while its
earnings excluding special items are projected to grow 92%.
Palczynski calls Candie's his single best idea this year, and he
has a 14 per share price target on it. He says the Liz Clairborne
deal also will give Candie's a 5% royalty on fragrance sales, which
he estimates will add about 6 cents per share to fiscal 2000
earnings. As a result, Palczynski boosted his estimate to 76 cents
per share. His firm has done some investment banking business
for Candie's, but has not participated in any underwriting projects.
One money manager, who asked to remain anonymous because
he's active in the stock now, is loading up on the shares. Like
Leeds and Palczynski, he likes Candie's chances to build a real
brand.
Candie's started in 1965 as El Greco, a footwear company
founded by Charles Cole. In 1978, with Cole's children onboard
(one of whom eventually left to start Kenneth Cole), El Greco
began importing shoes, the first of which was the Candie's slide.
The shoes were a quick success in those disco days, and the
company added other shoes for young girls.
In 1986, the family sold the company, but after its sales plunged, a
group led by Neil Cole bought it back in 1991. Cole shut down the
company for more than a year and then relaunched it, focusing on
casual shoes. The casual shoes had a tough time getting shelf
space, says Palczynski at Ladenburg.
Then, in October 1996, fashion came looking for the slide, and
Candie's reintroduced it -- both the original version and several new
versions with a twist. The company worked with four fashion
designers -- Nicole Miller, Anna Sui, Betsey Johnson and
Vivienne Tam -- to create the Designer Candie's Collection.
The success of the slides got retailers to take a second look at the
casual shoes, Palczynski says.
Around this same time, Candie's began an aggressive -- and, some
would say, not so tasteful -- advertising campaign. It hired Jenny
McCarthy, the Playboy (PLA:NYSE) Playmate turned MTV game
show host turned failed sitcom star, for the ads, one of which
showed her practically nude on the toilet, and, oh yeah, wearing
slides. While the ads were criticized, they also displayed the edgy
nature of Candie's -- exactly what young people want.
Now, Candie's is launching a new ad campaign featuring four
popular female singers: Brandy, Lil' Kim, Lisa Loeb and Shania
Twain.
All this momentum helped make the Liz Claiborne deal possible.
Now, it just needs to keep sliding Candie's stock in the right
direction. |
