The demand for luxury goods is anticipated to increase due to increased disposable income, innovation, and adaptation to shifting customer preferences. The sector is also gaining from rising demand from developing nations and the popularity of online shopping. So, investors interested in investing in quality luxury stocks can consider buying Guess?, Inc. (GES), Tapestry, Inc. (TPR), and Urban Outfitters, Inc. (URBN).
The US luxury market is expected to reach $126 billion by 2026, growing at a CAGR of 1.3%. Additionally, the luxury fashion market is projected to be worth $346.39 billion in 2029, growing at a CAGR of 4.0%.
The increasing number of affluent consumers and their rising income levels, the growing desire for exclusivity and uniqueness, the strength of branding and brand equity, the expanding importance of social media and digital platforms, and fast globalization are some of the primary reasons driving the market.
Furthermore, social media and online shopping platforms, which have supported industry expansion in recent years, are driving the sales of trendy luxury clothing. Consumer preferences have been significantly influenced by the rise of influencers and fashion bloggers on social media, which has also enhanced the visibility of luxury apparel manufacturers.
In light of these encouraging trends, let’s look at the fundamentals of the three Fashion & Luxury stocks, beginning with number 3.
Stock #3: Guess?, Inc. (GES)
GES designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. It operates through five segments: Americas Retail; Americas Wholesale; Europe; Asia; and Licensing.
GES’ forward EV/Sales of 0.84x is 29.7% lower than the industry average of 1.20x. Its forward Price/Sales of 0.48x is 45% lower than the industry average of 0.87x.
GES’ trailing-12-month ROTA of 5.82% is 51.2% higher than the industry average of 3.85%. Its trailing-12-month ROCE of 31.90% is 191.7% higher than the industry average of 10.93%.
GES’ net revenue for the second quarter ended July 29, 2023, increased 3.4% year-over-year to $664.51 million. Its gross profit came in at $294.44 million, up 8.9% year-over-year.
Also, its adjusted net income and adjusted EPS came in at $39.71 million and $0.72, up 73.6% and 84.6% year-over-year, respectively.
The consensus revenue estimate of $2.77 billion for the year ending January 2024 represents a 3.1% increase year-over-year. Its EPS is expected to grow 9% year-over-year to $2.99 for the same period. It has surpassed EPS estimates in three of four trailing quarters. GES’ shares have gained 39.6% over the past year to close the last trading session at $24.71.
GES’ POWR Ratings reflect this promising outlook. The stock 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.
GES also has a B grade for Growth and Value. It is ranked #10 out of 65 stocks in the Fashion & Luxury industry. Click here for the additional POWR Ratings for Sentiment, Stability, Momentum, and Quality for GES.
Stock #2: Tapestry, Inc. (TPR)
TPR provides luxury accessories and branded lifestyle products in the United States, Japan, Greater China, and internationally. The company operates in three segments, Coach; Kate Spade; and Stuart Weitzman.
On August 10, 2023, TPR and Capri Holdings Limited (CPRI), a worldwide fashion luxury group comprised of Versace, Jimmy Choo, and Michael Kors, signed a formal agreement under which TPR will purchase Capri Holdings. Capri Holdings stockholders will get $57.00 per share in cash under the terms of the transaction, for a total enterprise value of nearly $8.5 billion.
TPR’s forward EV/EBITDA multiple of 7.07 is 28% lower than the industry average of 9.81. Its forward EV/EBIT multiple of 8.21% is 40.6% lower than the industry average of 13.82.
TPR’s trailing-12-month gross profit margin of 70.78% is 100.4% higher than the 35.32% industry average. Its trailing-12-month net income margin of 14.05% is 218.3% higher than the 4.42% industry average.
During the fiscal fourth quarter ended July 1, 2023, TPR’s gross profit increased 4.8% year-over-year to $1.17 billion. Also, its net income increased 18.7% year-over-year to $224.10 million, and net income per share increased 26.7% year-over-year to $0.95.
Street expects TPR’s revenue to increase 3.4% year-over-year to $6.89 billion for the year ending June 2024. Its EPS is expected to grow 6.6% year-over-year to $4.13 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Shares of TPR have gained marginally intraday to close the last trading session at $33.42.
TPR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #7 in the same industry. It has an A grade for Quality and a B for Value. To see additional TPR’s ratings for Growth, Stability, Momentum, and Sentiment, click here.
Stock #1: Urban Outfitters, Inc. (URBN)
URBN engages in the retail and wholesale of general consumer products. The company operates through three segments: Retail; Wholesale; and Nully.
URBN’s forward Price/Sales multiple of 0.59 is 31.8% lower than the industry average of 0.87. Its forward EV/EBIT multiple of 9.25% is 33.1% lower than the industry average of 13.82.
URBN’s trailing-12-month ROTA of 5.68% is 47.6% higher than the industry average of 3.85%. Its trailing-12-month ROCE of 12.28% is 12.3% higher than the industry average of 10.93%.
For the second quarter that ended July 31, 2023, URBN’s net sales increased 7.5% year-over-year to $1.27 billion, while its income from operations rose 53.9% from the year-ago value to $132.10 million. The company’s net income and EPS amounted to $104.09 million and $1.10, representing increases of 75% and 71.9% from the prior-year quarter, respectively.
Analysts expect URBN’s revenue to increase 6.7% year-over-year to $5.11 billion for the year ending January 2024. Its EPS is expected to grow 88.1% year-over-year to $3.20 for the same period. The stock has gained 55.5% over the past year to close the last trading session at $32.66.
It’s no surprise that URBN has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Sentiment, and Quality. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated URBN for Stability, Momentum, and Value. Get all URBN ratings here.
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TPR shares were trading at $33.29 per share on Thursday afternoon, down $0.13 (-0.39%). Year-to-date, TPR has declined -11.35%, versus a 19.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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