Inflation has shown signs of cooling as consumer prices in March rose at the slowest pace since May 2021. Easing inflation is driving optimism, but consumers are still jittery about spending. The annual personal consumption expenditures (PCE) eased from 5.1% in February to 4.2% in March.
Although consumers are cutting back on spending, the demand for luxury goods remains high. Given the strong demand the luxury industry is witnessing, I believe it could be wise to buy fundamentally strong luxury stocks Inter Parfums, Inc. (IPAR) and Steven Madden, Ltd. (SHOO).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the luxury industry.
At a time when consumers are thinking twice before loosening their purse strings, the demand for luxury items has been surprising. J.P. Morgan Research shows that the luxury market grew 7% organically year-over-year during the fourth quarter of fiscal 2022.
J.P. Morgan’s Head of European Luxury and Sporting Goods, Chiara Battistini, said, “Investors are seemingly turning more constructive on the luxury sector. But while the sector is more resilient, we also note that it has never been immune to macro dynamics and has historically been late cyclical.”
With China lifting its restrictions, the luxury industry could continue to prosper. The global market for luxury goods is projected to reach $369.80 billion by 2030, growing at a CAGR of 5.4%.
Amid this backdrop, it could be wise to buy the featured stocks. Let’s discuss their fundamentals.
Inter Parfums, Inc. (IPAR)
IPAR manufactures, markets, and distributes a range of fragrances and fragrance related products worldwide. It operates in two segments, European Based Operations and United States Based Operations.
In terms of the trailing-12-month EBIT margin, IPAR’s 18.59% is 143.5% higher than the 7.64% industry average. Its 11.13% trailing-12-month net income margin is 247.3% higher than the 3.20% industry average. Likewise, its 9.24% trailing-12-month Return on Total Assets is 113.6% higher than the industry average of 4.33%.
IPAR’s net sales for the fourth quarter that ended December 31, 2022, increased 47.5% year-over-year to $310.79 million. The company’s income from operations came in at $23.21 million, compared to its loss from operations of $12.20 million in the prior-year quarter.
Its net income attributable to IPAR came in at $16.60 million, compared to a net loss of $1.22 million. Additionally, its EPS attributable to IPAR common shareholders came in at $0.52, compared to a loss per share of $0.04 in the prior-year period.
IPAR’s EPS and revenue for the quarter ended March 31, 2023, are expected to increase 30% and 24.5% year-over-year to $1.43 and $312.07 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 92.5% to close the last trading session at $152.66.
IPAR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #22 out of 67 stocks in the B-rated Fashion & Luxury industry. It has an A grade for Sentiment.
We have also given IPAR grades for Growth, Value, Momentum, Stability, and Quality. Get all IPAR ratings here.
Steven Madden, Ltd. (SHOO)
SHOO designs, sources, and markets fashion-forward branded and private label footwear, accessories, and apparel for women, men, and children worldwide. It operates through Wholesale Footwear, Wholesale Accessories/Apparel, Direct-to- Consumer, First Cost, and Licensing segments.
In terms of the trailing-12-month EBIT margin, SHOO’s 13% is 68.7% higher than the 7.70% industry average. Its 17.18% trailing-12-month Return on Total Assets is 327.3% higher than the 4.02% industry average. Likewise, its 10.05% trailing-12-month levered FCF margin is 257.2% higher than the industry average of 2.82%.
For the fiscal year ended December 31, 2022, SHOO’s total revenue rose 13.9% year-over-year to $2.11 billion. The company’s net income attributable to SHOO increased 13.3% year-over-year to $216.06 million. Its EPS came in at $2.77, representing an increase of 18.4% year-over-year.
Analysts expect SHOO’s EPS for the quarter ending September 30, 2023, to increase 6.8% year-over-year to $0.84. Its revenue for fiscal 2024 is expected to increase 5.4% year-over-year to $2.07 billion. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 9% to close the last trading session at $32.77.
SHOO’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #23 in the same industry. The stock has a B grade for Value and Quality. Click here to access the additional ratings of SHOO for Growth, Momentum, Stability, and Sentiment.
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IPAR shares were trading at $151.73 per share on Monday afternoon, down $0.93 (-0.61%). Year-to-date, IPAR has gained 57.94%, versus a 8.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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