Which of These 3 Retailers Has the Best Corporate Genes?

With 2013 resting comfortably upon us, I want to take a look at one of my personal favorites to see who's got what it takes this year. I'm talking about jeans -- America's favorite pants. The U.S. denim market is over $15 billion annually and is still growing. As evidence of Americans' obsession with jeans, some of the biggest names in apparel got their start with denim. Today, we're going to look at three of the current pack to see which one makes the most sense for 2013.

Making up the shortlist, we've got Gap , Guess? , and Buckle . All of these companies have a long history with denim and none of them are going to go away over the next 10months. We'll be looking for brand strength and sales growth to determine which company is best poised for success. May the best pair win.

Brand strength
There are two ways that we can look at brand strength. One is in the income statement, by looking at operating and gross margins. The second is to look at how consumers perceive the brand. We'll start with margin comparisons from the most recently reported quarters.

Buckle is the clear winner in the margin game, which is no big surprise. The company sells a range of premium jeans including its own brand, and they aren't cheap. The average pair of men's jeans goes for around $90 while women's averages closer to $100. Considering a pair of Gap jeans sets you back only $60, it's a step up to buy at Buckle.

But Buckle isn't as strong as far as general perception goes. In part, that's because it's not just one brand; it sells lots of different designers. Buckle is more of a general denim retailer than either Gap or Guess?. According to the 2012 Interbrand retail survey, Gap's brand is valued at $4 billion while Guess? comes in at only $1.7 billion. On top of its main brand, Gap also gets another $4.2 billion in brand value from Banana Republic and Old Navy -- Buckle is a distant third at $970 million.

With gross margin a close call but brand value running so high at Gap, I'm going to call it the winner of brand strength.

Sales growth
A great brand is excellent, unless no one is buying it -- see Borders. Here's a look at sales growth in the last reported quarter.

This one is a no-brainer -- Gap is the clear winner. Sales have been going in two directions at Gap over the past year, up and further up. The company's reimaging and focus on its core brand have made a huge impact on both sales and stock price. Gap stock is up 41% over the last 12 months, and is now trading at a P/E of 16. That's still lower than the industry average, but higher than either Buckle or Guess, at 13 and 12, respectively.

So looking at both the strength of the brand and the way it's been brought to market, it looks like Gap is our 2013 denim winner. But there are a few things to keep in mind.

Red flags and final thoughts
Gap may be sailing right now, but the company has been up against some pretty easy numbers. 2011 was a bad year for the retailer, and so recent comps haven't had to show much strength to really grow. Long-term investors are going to want to watch the trajectory of sales very closely as the company starts to compare performance against its strong 2012. Gap is also going to be sinking cash and energy into growing two of its newest brands, Athleta and Intermix. Athleta is a high-end yogawear brand that's poised to compete with lululemon athletica. Intermix is a boutique brand with 32 locations across the U.S.

I have high hopes for both of the new brands, and if Gap can take Athleta to the international stage quickly enough, it might find itself pushing ahead of Lululemon, which has been slow to expand outside of North America. Overall, Gap is a strong brand with a lot of room left to run. 2013 should be a fun year to watch this company grow.

Dig deeper into Lululemon
Lululemon has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but without question, the competitive landscape is starting to increase. Can Lululemon fight off larger retailers like Gap, and ultimately deliver huge profits for savvy investors like yourself? The Motley Fool answers these questions and more in our most in-depth Lululemon research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

The article Which of These 3 Retailers Has the Best Corporate Genes? originally appeared on Fool.com.

Fool contributor Andrew Marder owns shares of The Buckle. The Motley Fool recommends Guess?, lululemon athletica, and The Buckle. The Motley Fool owns shares of Guess? and The Buckle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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