The luxury industry is set for solid growth this year due to rising consumer demand for high-end goods, digital transformation, and social media influence. Additionally, the increasing purchasing power of millennials and Gen Z, along with technologies like AR/VR and blockchain, enhances customer experience and trust, boosting the sector's outlook.
Considering these factors, it could be wise to buy fundamentally strong luxury stocks: Burlington Stores, Inc. (BURL), Burberry Group plc (BURBY), and Gap Inc. (GPS) for high-end investors.
The luxury industry's resilience and adaptation to changing consumer behaviors boost its growth. A focus on sustainability, immersive digital experiences, and a strong online presence enhances its prospects. With online shopping expanding its audience, the National Retail Federation forecasts retail sales will increase by 2.5% to 3.5% in 2024, reaching up to $5.28 trillion.
This year, the luxury goods market is projected to generate $368.90 billion in revenue, growing at a CAGR of 3.22%. The largest segment, luxury fashion, is expected to reach $115.90 billion in market volume. This growth is driven by strong demand for unique experiences, digital innovation, and high-value investments in jewelry and small luxuries, despite economic uncertainties.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Fashion & Luxury industry picks, beginning with the third choice.
Stock #3: Burlington Stores, Inc. (BURL)
BURL operates as a retailer of branded merchandise. The company provides fashion-focused merchandise, including women's ready-to-wear apparel, menswear, youth apparel, footwear, accessories, toys, gifts, and coats, as well as baby, home, and beauty products. It operates stores under the Burlington Stores and Cohoes Fashions brand names in Washington D.C. and Puerto Rico.
In terms of the trailing-12-month gross profit margin, BURL’s 42.84% is 16.6% higher than the 36.75% industry average. Its 42.06% trailing-12-month Return on Common Equity is 255% higher than the 11.85% industry average. Likewise, the stock’s 5.01% trailing-12-month Return on Total Assets is 18.5% higher than the 4.23% industry average.
BURL’s sales for the first quarter that ended May 4, 2024, increased 10.5% year-over-year to $2.36 billion. Its adjusted net income and adjusted earnings per share of $86.81 million and $1.35 indicate growth of 57.8% and 60.7% year-over-year, respectively. In addition, BURL’s adjusted EBITDA was $211.36 million, up 34.4% over the prior-year quarter.
Street expects BURL’s EPS and revenue for the quarter ending July 31, 2024, to increase 54.3% and 10.4% year-over-year to $0.93 and $2.40 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 99.6% to close the last trading session at $246.20.
BURL’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Momentum, and Quality. It is ranked #22 out of 59 stocks in the A-rated Fashion & Luxury industry. Click here to see BURL’s Value, Stability, and Sentiment ratings.
Stock #2: Burberry Group plc (BURBY)
Headquartered in London, the United Kingdom, BURBY and its subsidiaries manufacture, retail, and wholesale luxury goods under the Burberry brand. The company operates in two segments: Retail/Wholesale and Licensing. It provides womenswear, menswear, childrenswear, beauty, eyewear, shoes, accessories, and leather goods, such as bags.
On May 29, 2024, BURBY announced the opening of a new store in Hangzhou, Zhejiang Province, China, located in the Hubin Yintai In77 shopping mall. The store features the latest collections and unique design elements, reflecting BURBY’s British heritage and commitment to supporting independent artists.
In terms of the trailing-12-month levered FCF margin, BURBY’s 9.25% is 70.7% higher than the 5.42% industry average. Its 14.08% trailing-12-month EBIT margin is 81% higher than the 7.78% industry average. Also, the stock’s 8.01% trailing-12-month Return on Total Assets is 89.5% higher than the 4.23% industry average.
For the fiscal year that ended March 30, 2024, BURBY’s revenue amounted to £2.97 billion ($3.85 billion). Its adjusted operating profit was £418 million ($542.50 million). Likewise, the company's adjusted profit before taxation and adjusted EPS were £383 million ($497.08 million) and 73.90p, respectively.
For fiscal 2026 BURBY’s EPS and revenue are expected to increase 25.2% and 6.9% year-over-year to $0.82 and $3.64 billion, respectively. Over the past month, the stock has gained 22.7% to close the last trading session at $9.90.
It’s no surprise that BURBY has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Value and Quality. It is ranked #19 in the same industry. Beyond what we stated above, we also have given BURBY grades for Growth, Momentum, Stability, and Sentiment. Get all the BURBY ratings here.
Stock #1: Gap Inc. (GPS)
GPS operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.
In terms of the trailing-12-month Return on Common Equity, GPS’ 27.72% is 134% higher than the 11.85% industry average. Its 48.18% trailing-12-month gross profit margin is 31.1% higher than the 36.75% industry average. Likewise, the stock’s 1.37x trailing-12-month asset turnover ratio is 38.1% higher than the 0.99x industry average.
During the first quarter that ended May 4, 2024, GPS’ net sales increased 3.4% year-over-year to $3.39 billion. Its gross profit grew 15.1% from the year-ago value to $1.40 billion.
For the same quarter, its net income stood at $158 million, compared to a net loss of $18 million in the previous-year quarter. Additionally, the GPS’ EPS came in at $0.41, compared to a loss per share of $0.05 in the year-ago quarter.
Analysts expect GPS’s EPS for the quarter ending July 31, 2024, to increase 19.3% year-over-year to $0.41. Its revenue for the same quarter is expected to increase 2.4% year-over-year to $3.63 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 146.8% to close the last trading session at $22.83.
GPS’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. Within the Fashion & Luxury industry, it is ranked #7. To see GPS’ Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
BURL shares were trading at $245.12 per share on Friday afternoon, down $1.08 (-0.44%). Year-to-date, BURL has gained 26.04%, versus a 16.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 Luxury Brand Stocks for High-End Investors StockNews.com
