Perennial achievers and a couple of newcomers top the list of the most profitable public companies in L.A. County.
Nine of the 11 entries that topped last year’s list finished within the top 11 again this year, based on average three-year return on equity.
Together, these fast-growing companies reflect L.A.’s steady performance in a broad range of economic sectors: apparel (Cherokee Inc., True Religion Apparel Inc., K-Swiss Inc.); consumer products (Big 5 Sporting Goods Corp., Hansen Natural Corp., Mattel Inc.); and homebuilding and mortgage lending (Ryland Group Inc., Fremont General Corp., KB Home).
Apparel marketing firm Cherokee topped the list with an average return on equity of 134 percent. The Van Nuys-based company is the only company to post at least 50 percent returns on equity for each of the past three years. (Return on equity is calculated by dividing net income by shareholders’ common equity.)
“We have a very leverage-able model. We only have 17 employees producing $40 million in revenues,” said Russell Riopelle, chief financial officer.
The company has no manufacturing or inventory costs. It licenses its name globally in strategic partnerships with Target Corp. in North America and Tesco Ltd. in Europe.
As with many companies on the list, a booming economy has helped revive consumer confidence and spending, leading to higher net income. Cherokee reported net income of $17.1 million in 2005 up $3 million from the previous year. “In some ways inflation might help us as long as it doesn’t choke off consumer spending,” said Riopelle.
Big 5 Sporting Goods fell one spot to No. 2 with a 104 percent three-year average ROE, down from 222 percent from last year.
El Segundo-based Big 5 has seen steady growth since its June 2002 initial public offering, although the pace of its expansion has slowed. The company reported a 519 percent return on equity in 2002 followed by a robust 182 and 90 percent in 2003 and 2004, respectively. Last year it reported net income of $27.5 million, down $6 million from the previous year as it returned 45 percent on its shareholders’ equity.
True Religion placed No. 3 this year, supported by a 91 percent return on equity in 2005, the top among listed companies. The jeans manufacturer saw net income increase to $19.5 million in 2005 compared with $4.2 million in 2004 and a slight loss in 2003. True Religion was not included on the list last year because it had negative common equity in 2002.
Moved or bought
Over the past few decades, many Fortune 500 companies headquartered in Los Angeles County have moved or been acquired. The most recent acquisition was Unocal Corp., No. 24 last year, which was acquired by ChevronTexaco Corp.
The remaining companies that trade in natural resources including Occidental Petroleum Corp. and Reliance Steel and Aluminum Co. have realized gains as the price of natural resources continues to skyrocket.
Smaller banking and finance companies are making their presence known. The sector accounted for 14 of the top 50 companies, with an aggregate three-year average ROE of 20 percent.
Some of the most profitable companies include No. 15 Calabasas-based Countrywide Financial Corp., No. 16 Wilshire Bancorp. Inc., No. 18 Zenith National Insurance Corp. and No. 24 Alliance Bancshares California.
Some of the worst performers on the list include companies that have been under regulatory scrutiny. Staar Surgical Co. and Gemstar-TV Guide International Inc. reported negative three-year average ROE of 28 and 34 percent, respectively. While Staar Surgical continues to post annual losses, Gemstar-TV Guide may have a slightly more positive outlook, showing a profit in 2005 after years of major losses.
Overall, 121 of the largest public companies in L.A. County reported positive return on equity.
