Brean Capital Initiates Perry Ellis With Buy Rating, $30 Target

In a report published Wednesday, Brean Capital analyst Liz Pierce initiated coverage of

with a Buy rating and price target of $30. The analyst believes that the company's initiatives to optimize its portfolio are bearing fruit. "Over the past two years, the company has shed many of the low-margin/low-growth brands, allowing it to focus on a core group of high-profile brands and higher-margin businesses such as direct-to-consumer (DTC) and licensing," analyst Pierce explained. The analyst believes that the company's diverse products and "sophisticated" supply chain give Perry Ellis a competitive advantage in the current volatile and changing retail scenario. The company has also time and again demonstrated its ability to launch and build new brands, as well as to integrate acquisitions successfully, which the analyst believes is due to the experienced management team. Perry Ellis has a meaningful opportunity to further its globalization efforts in the form of licensing, which would help the company monetize its brands without having to commit to non-core businesses. "To that end, by seeking out new licensing relationships, the company expects to add ~$10 million of royalty revenue over the next four years, which we view as conservative given strong brand awareness," the Brean Capital report said. In addition, the analyst believes that the company's goal of international sales contributing 40 percent of its total royalty revenue over the next four years is not only achievable, it might prove conservative. "In our opinion, as lifestyle- versus "item-" driven brands have considerable global brand awareness, growth is not confined to a single product, category or channel; in fact, we believe as multi-faceted brands, they have the potential to encompass a wide range of products across multiple channels and geographies," analyst Pierce added. Perry Ellis is also expected to continue to grow its DTC channel, given its comparatively higher margins.