The demand for luxury goods would remain strong due to solid consumer spending as inflation eases in a still-tight jobs market. Furthermore, luxury brands are poised to surge this year as high-spending Chinese buyers emerge from COVID restrictions. Also, the growing adoption of new technology should boost the industry’s expansion.
Given the industry’s bright growth prospects, it could be wise to add fundamentally sound luxury stocks Ross Stores, Inc. (ROST), Coty Inc. (COTY), and Ralph Lauren Corporation (RL) to your portfolio for potential gains.
Inflation dropped to its lowest annual rate in more than two years during June. The consumer price index (CPI), which measures inflation, grew 0.2% for the month and 3% year-over-year. That compared with Dow Jones estimates for respective increases of 3.1% and 0.3%.
While the economy added fewer jobs in June, persistently solid wage growth pointed to still-tight labor market conditions. Average hourly earnings increased 0.4%, keeping the annual increase in wages at 4.4% in June. Also, the Unemployment rate fell to 3.6% in June from 3.7% in May.
Americans bumped their retail spending in June for the third straight month, signaling consumers’ continued resilience amid cooling inflation and a robust labor market. Retail sales rose a seasonally-adjusted 0.2% from May to June, the Commerce Department reported. The luxury industry would fare well with solid consumer spending amid continued easing in inflation and still-tight labor market.
In addition, China’s reopening after three years of strict COVID-19 control measures should be highly beneficial for the luxury industry. The re-emergence of Chinese consumers is expected to drive demand for high-end clothing, accessories, and other items by 20% this year. In the long term, Chinese shoppers will likely account for 60% of total spending growth on luxury goods by 2030.
Also, according to Chiara Battistini, Head of European Luxury and Sporting Goods, J.P. Morgan, “We think that if pent-up demand comes through fully in 2023, luxury companies could post around 35–40% sales growth in China this year.”
The luxury goods industry is further accelerating its adoption of new technologies. The industry is expected to grow at a fast pace due to several latest trends, including the integration of AI and machine learning, increasing adoption of omni-channel retailing, the emergence of NFTs and the metaverse, a surge in online shopping, and rising demand for second-hand luxury goods.
Moreover, the increasing use of social media and digital platforms to promote and advertise personalized luxury products and the rise in celebrity endorsements should positively contribute to boosting consumer awareness about high-end luxury goods.
According to a report by Fortune Business Insights, the global luxury goods market size is anticipated to reach $392.40 billion by 2030, growing at a CAGR of 4.7%. The growing wealthy population, rapid urbanization, and rising demand for luxury goods among millennials should boost the market’s expansion.
Given the industry tailwinds, quality luxury stocks ROST, COTY, and RL could be solid additions to one’s portfolio.
Let’s take a closer look at the fundamentals of these stocks.
Ross Stores, Inc. (ROST)
ROST operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brand names in the United States. The company’s stores primarily provide branded clothing, accessories, footwear, and home fashions.
On July 17, ROST announced the opening of 18 Ross Dress for Less® and nine dd's DISCOUNTS® stores across 14 different states in June and July. These new locations are part of the company’s plans to add nearly 100 new stores, including 75 Ross and 25 dd's DISCOUNTS, during fiscal 2023.
“These recent openings reflect our ongoing plans to continue building our presence in both existing and newer markets,” said Gregg McGillis, Group Executive Vice President, Property Development.
On May 17, ROST declared a regular quarterly dividend of $0.335 per common share, paid to its shareholders on June 30, 2023. The company’s annual dividend of $1.34 translates to a 1.19% yield on prevailing prices. Its dividend payouts have grown at CAGRs of 17.5% and 10.9% over the past three and five years, respectively.
ROST’s trailing-12-month net income margin of 8.19% is 95.1% higher than the 4.20% industry average. In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 36.94%, 12.52%, and 11.34% are considerably higher than the respective industry averages of 9.84%, 6.15%, and 3.64%.
ROST’s sales increased 3.7% year-over-year to $4.49 billion in the first quarter that ended July 29, 2023. Its earnings before taxes were $487.26 million, an increase of 8.4% from the prior year’s quarter. In addition, the company’s net earnings were $371.19 million and $1.09 per share, up 9.7% and 12.4% year-over-year, respectively.
The consensus revenue estimate of $19.60 billion for the fiscal year (ending January 2024) reflects a 4.8% year-over-year improvement. Likewise, the consensus EPS estimate of $4.96 for the ongoing year indicates a 13.2% rise year-over-year. Moreover, the company surpassed its consensus EPS estimates in all four trailing quarters.
In addition, analysts expect ROST’s revenue and EPS for the fiscal year 2025 to grow 4.6% and 10.7% year-over-year to $20.50 billion and $5.49, respectively. Shares of ROST have gained 4.4% over the past month and 36% over the past year to close the last trading session at $112.20.
ROST’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ROST has a B grade for Sentiment and Quality. Within the Fashion & Luxury industry, it is ranked #13 out of 66 stocks.
Click here to see the other ratings of ROST for Growth, Value, Momentum, and Stability.
Coty Inc. (COTY)
COTY engages in manufacturing, marketing, distributing, and selling beauty products globally. The company operates through Prestige and Consumer Beauty segments. It offers fragrances, color cosmetics, and skin and body care products.
On May 13, COTY launched an innovative new serum by ultra-premium skincare line Orveda and Infiniment Coty Paris, the company’s most ambitious fragrance project to date. At a gala launch event in Cannes, the company unveiled “Coty Protopia,” its vision for empowering bold and creative expression of beauty. The new launches should boost COTY’s revenue stream and growth.
On May 3, COTY announced the renewal of its license agreement with Davidoff, extending their long-running collaboration beyond 20 years. The extended partnership provides a solid foundation for further geographic expansion, cementing Davidoff’s position as a global fragrance leader.
COTY’s trailing-12-month gross profit margin of 63.76% is 103.6% higher than the 31.32% industry average. Likewise, the stock’s 15.79% trailing-12-month EBITDA margin is 59.1% higher than the industry average of 9.92%.
COTY’s net revenues increased 9% year-over-year to $1.29 billion for the third quarter that ended March 31, 2023. Its adjusted operating income grew 8% over the year-ago value to $113.60 million. The company reported an adjusted net income of $168.10 million, up from an adjusted net income of $27 million in the prior year’s quarter.
Furthermore, the company’s third-quarter adjusted earnings per share increased 533.3% year-over-year to $0.19.
Analysts expect COTY’s revenue and EPS for the fiscal year (ended June 2023) to increase by 3.8% and 93.5% year-over-year to $5.50 billion and $0.54, respectively. Also, the company topped its consensus revenue estimates in all four trailing quarters, which is impressive.
The stock has gained 25.5% over the past six months and 52.8% over the past year to close the last trading session at $11.95.
COTY’s POWR Ratings reflect its solid growth outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
COTY has a grade A for Growth. In the Fashion & Luxury industry, it is ranked #12 of 66 stocks.
Beyond what we stated above, we also have COTY’s ratings for Momentum, Stability, Value, Sentiment, and Quality. Get all COTY ratings here.
Ralph Lauren Corporation (RL)
RL designs, markets, and distributes lifestyle products in North America, Europe, Asia, and internationally. The company provides apparel, including a range of men’s, women’s, and children’s clothing; footwear and accessories; home products; and fragrances.
On April 4, RL teamed up with the Miami-based Web3 company, Poolsuite to provide a series of innovative and immersive experiences to their customers. This would be the first Ralph Lauren store to accept crypto payments. This store is part of RL’s current expansion plan for North America, Europe, and Asia.
The company strongly believes that achieving the next phase of growth in its grand strategy will require building integrated ecosystems that blend digital platforms with physical stores.
RL’s trailing-12-month gross profit margin of 64.89% is 84.1% higher than the industry average of 35.25%. And the stock’s trailing-12-month EBITDA margin of 15.01% is 37.9% higher than the 10.88% industry average. Also, its trailing-12-month net income margin of 8.11% compares to the industry average of 4.20%.
For the fourth quarter that ended April 1, 2023, RL’s net revenues increased 1.2% year-over-year to $1.54 billion. Its operating income rose 9.2% from the prior-year period to $40.20 million. The company’s net income and net income per common share amounted to $32.30 million and $0.48, up 32.4% and 41.2% year-over-year, respectively.
Analysts expect RL’s revenue for the fiscal year (ending March 2024) to grow 2.7% from the previous year to $6.61 billion. The $9.35 consensus EPS estimate for the ongoing year represents a 12.1% rise year-over-year. Additionally, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 16.6% year-to-date and 29.6% over the past year to close the last trading session at $127.21.
RL’s POWR Ratings reflect a promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
RL has a grade of B for Quality. Within the same industry, it is ranked #14.
Click here to access RL’s additional POWR Ratings (Value, Stability, Growth, Momentum, and Sentiment).
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:
ROST shares were trading at $113.20 per share on Friday morning, up $1.00 (+0.89%). Year-to-date, ROST has declined -1.84%, versus a 19.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
The post Top 3 Luxury Stocks to Add to Your Portfolio appeared first on StockNews.com