Increasing disposable income, changing preferences, rising demand for exclusivity, and rapid technological advancements are enhancing the outlook for the luxury fashion industry. Given this backdrop, quality fashion and luxury stocks Caleres, Inc. (CAL), Tapestry Inc. (TPR), and PVH Corp. (PVH) could be wise investments now.
Prior to evaluating the fundamentals of these stocks, let's glimpse into the current happenings within the industry.
According to the Bureau of Economic Analysis, personal income increased by $60 billion (0.3% at a monthly rate) in December 2023. Moreover, in the same month, Disposable personal income (DPI) increased by $51.8 billion (0.3%), and personal consumption expenditures (PCE) increased by $133.9 billion (0.7%). This bodes well for the luxury fashion industry.
Amid uncertainties, subdued economic growth, and inflation, the fashion industry is optimistic with the constantly shifting customer priorities. According to McKinsey, the global fashion industry will likely post top-line growth of 2% to 4% in 2024, depending on region and country.
Within the fashion industry, the luxury segment is projected to yield the biggest share of economic profit, with anticipated growth of 3% to 5% globally. Also, in global comparison, the U.S. market is expected to pick up pace after a relatively weak 2023.
The global luxury fashion market is expected to generate revenue of $115.90 billion in 2024. Further, the market is projected to exhibit growth at a CAGR of 3.3% by 2028. The U.S. is expected to lead the market in 2024 with a revenue generation of $27.67 billion.
Moreover, advanced technologies like artificial intelligence (AI), machine learning, and the Internet of Things (IoT) contribute to the growth of the luxury goods segments.
Gen-AI-powered chatbots, virtual shopping assistants and the prevalence of social media platforms are driving the market demand.
Given these encouraging trends, let’s discuss the three Fashion & Luxury industry stock picks, starting with the third choice.
Stock #3: Caleres, Inc. (CAL)
CAL is in a retail and wholesale footwear business. The company operates through Famous Footwear and Brand Portfolio segments. It offers licensed, branded, and private-label athletic, casual, and dress footwear products.
On December 7, CAL announced that its board of directors had declared a regular quarterly cash dividend of $0.07 per share paid on January 5, 2024, to shareholders of record as of December 21, 2023. CAL has paid a consecutive quarterly dividend for more than 100 years.
CAL pays an annual dividend of $0.28, which translates to a yield of 0.77% at the current share price. Its four-year average dividend yield is 1.72%.
CAL’s trailing-12-month gross profit and net income margins of 43.97% and 5.55% are 23.5% and 18.2% higher than the respective industry averages of 30.61% and 4.70%, respectively. Also, the stock’s trailing-12-month ROCE of 32.80% is considerably higher than the industry average of 11.42%.
The forward non-GAAP P/E of CAL is trading at 8.71x, 44.9% lower than the industry average of 15.80x. Further, the stock’s forward EV/Sales multiple of 0.73 is 39.8% lower than the industry average of 1.21. Also, its forward Price/Sales of 0.46x is 49.9% lower than the industry average of 0.91x.
For the third quarter that ended October 28, 2023, CAL reported net sales of $761.90 million. Its adjusted operating earnings increased 17.6% year-over-year to $66.72 million. The company’s adjusted net earnings attributable to CAL and EPS came in at $48.62 million and $1.37, up 15.9% and 19.1% from the prior year’s quarter, respectively.
In addition, its adjusted EBITDA increased 12.1% year-over-year to $81.13 million. The company’s cash and cash equivalents stood at $34.03 million as of October 28, 2023, compared to $32.77 million as of October 29, 2022.
For the fiscal year 2023, CAL expects its adjusted EPS to range between $4.10 and $4.20.
Street expects CAL’s revenue and EPS for the first quarter (ending April 2024) to increase 3% and 9.8% year-over-year to $682.43 million and $1.07, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters, which is remarkable.
Shares of CAL have gained 39.6% over the past six months and 51.5% over the past year to close the last trading session at $37.44.
CAL’s solid 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 are calculated by considering 118 different factors, each weighted to an optimal degree.
CAL has a B grade for Quality and Value. It is ranked #16 out of 62 stocks in the B-rated Fashion & Luxury industry.
In addition to the POWR Ratings we’ve stated above, we also have JILL ratings for Growth, Momentum, Sentiment and Stability. Get all CAL ratings here.
Stock #2: Tapestry, Inc. (TPR)
TPR offers luxury accessories and branded lifestyle products in the United States, Japan, Greater China, and internationally. It operates through three segments: Coach; Kate Spade; and Stuart Weitzman. The company offers women's handbags and accessories, such as small leather goods. It also provides men's products, which include bag collections, such as business cases.
On November 17, TPR announced the opening of its new full-scale fulfillment center in North Las Vegas, Nevada (NVFC). The new facility allows the company to sustain multi-brand fulfillment, meeting customers’ requirements more sustainably and efficiently.
With the new fulfillment center, TPR has reinforced its dedication to investing in its employees and community and ensuring customer satisfaction.
TPR’s trailing-12-month gross profit and EBIT margins of 72.28% and 18.56% are 103% and 147% higher than the respective industry averages of 35.61% and 7.51%, respectively. Likewise, the stock’s trailing-12-month net income margin of 13.80% is 193.7% higher than the industry average of 4.70%.
In terms of forward EV/EBIT, TPR is trading at 9.37x, 32.4% lower than the industry average of 13.85x. Likewise, the stock’s forward non-GAAP P/E multiple of 10.07 is 36.3% lower than the industry average of 15.80. Also, its forward EV/EBITDA of 8.15x is 17.9% lower than the industry average of 9.92x.
For the second quarter, which ended December 30, 2023, TPR’s net sales increased 2.9% year-over-year to $2.08 billion. The company’s gross profit grew 7.5% from the year-ago value to $1.49 billion. Its operating income rose 7.0% year-over-year to $447.60 million.
In addition, the company’s net income came in at $322.30 million and $1.39 per share for the quarter, respectively. Its total assets as of December 30, 2023, were $13.81 billion, compared to total assets of $7.12 billion as of July 1, 2023.
The company updated its fiscal 2024 guidance. The company expects revenue of $6.70 billion, indicating a 1% increase on a reported basis. Its EPS is expected to be $4.20 to $4.25, up 8% to 9% from the prior year. It further expects a free cash flow of approximately $1.1 billion, excluding deal-related costs.
Street expects TPR’s revenue and EPS for the fourth quarter (ending June 2024) to increase 1.4% and 7.3% year-over-year to $1.64 billion and $1.02, respectively. Moreover, the company has surpassed the consensus EPS estimates in three of the four trailing quarters.
Over the past month, the stock has gained 23.9% and 24.5% over the past six months to close the last trading session at $44.25.
TPR’s bright prospects 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 stock has an A grade for Quality and a B for Sentiment. Within the B-rated Fashion & Luxury industry, TPR is ranked #11 of 62 stocks.
Click here to access additional ratings of TPR for Growth, Momentum and Stability Value.
Stock #1: PVH Corp. (PVH)
PVH operates as an apparel company internationally. It operates through six segments: Tommy Hilfiger North America; Tommy Hilfiger International; Calvin Klein North America; Calvin Klein International; Heritage Brands Wholesale; and Heritage Brands Retail. It designs, markets, and retails men's, women's, and children's apparel and accessories.
During the third quarter of 2023, PVH continued delivering on its commitment under the PVH+ Plan to return excess cash to stockholders. PVH repurchased 0.9 million shares of its common stock for $68 million during the third quarter, bringing total share repurchases for the first nine months of 2023 to 3.2 million shares for $268 million.
PVH’s trailing-12-month EBIT and net income margins of 9.28% and 5.76% are 23.5% and 22.5% higher than the respective industry averages of 7.51% and 4.70%, respectively. Further, the stock’s trailing-12-month gross profit margin of 56.99% is 60% higher than the industry average of 35.61%.
The forward Price/Sales of PVH is trading at 0.83x, 8.8% lower than the industry average of 0.91x. Likewise, the stock’s forward EV/EBIT multiple of 11.89 is 14.2% lower than the industry average of 13.85. Furthermore, its forward non-GAAP PEG of 0.91x is 42.5% lower than the industry average of 1.58x.
During the third quarter that ended October 29, 2023, PVH’s total revenue grew 3.6% year-over-year to $2.36 billion. The company’s gross profit increased 5.1% from the year-ago value to $1.34 billion. Its non-GAAP earnings before interest and taxes of $248.60 million indicate growth of 13.1% from the previous year’s quarter.
Furthermore, the company’s non-GAAP net income came in at $176.40 million and $2.90, up 4.1% and 11.5% from the prior year’s quarter, respectively.
For the fiscal year 2023, PVH expects net income per common share of $9.75, indicating an increase from the previous estimate of $9.60.
Analysts expect PVH’s revenue for the fiscal year (ended January 2024) to increase 1.2% year-over-year to $9.14 billion, while its EPS is expected to grow 16.7% year-over-year to $10.46. Furthermore, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
PVH's stock has surged 54.3% over the past six months and 58.1% over the past year to close the last trading session at $128.52.
PVH’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth and Value. PVH is ranked #10 among the 62 stocks in the B-rated Fashion & Luxury industry.
Click here to access PVH’s additional ratings for Stability, Sentiment, Quality, and Momentum.
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TPR shares were trading at $45.34 per share on Thursday afternoon, up $1.09 (+2.46%). Year-to-date, TPR has gained 23.17%, versus a 5.48% 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.
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