The global luxury goods industry has increased in value for several years. These goods are generally considered to be in the highest-end market in terms of price and quality. Luxury goods revenue worldwide is expected to rise to $382 billion-plus by 2025. In addition, the U.S. has the largest personal luxury goods market.
Despite raging inflation, and supply chain issues, consumer spending has remained buoyant in the new year. The luxury goods market witnessed a 45.3% surge, and jewelry sales were up 18.8% year-over-year in the run-up to Valentine’s Day.
Given this backdrop, we think fundamentally strong luxury goods stocks Tapestry, Inc. (TPR) and Signet Jewelers Limited (SIG) might be valuable additions to one’s investment portfolio.
Tapestry, Inc. (TPR)
TPR operates as a luxury accessory and branded lifestyle products provider internationally. The New York City-based company operates through the Coach; Kate Spade; and Stuart Weitzman segments. Its offerings include women’s accessories, novelty accessories, and keys and charms.
On November 17, TPR priced $500 million of 3.050% senior unsecured notes, due 2032. The company intends to use the net proceeds from the offering to purchase up to $500 million of its outstanding 4.250% senior notes, due 2025 and 4.125% senior notes due 2027, and for general corporate purposes.
On November 16, the company announced the commencement of construction of its new Fulfillment Center in North Las Vegas, Nevada. The new fulfillment center is expected to strengthen TPR’s omnichannel capabilities.
For its second fiscal quarter, ended Jan.1, 2022, TPR’s net sales increased 27% year-over-year to $2.14 billion. Its gross profit rose 24.2% from the prior-year quarter to $1.46 billion. Its net income and net income per share came in at $317.90 million and $1.15, respectively, up 2.2% and 3.6% from the same period the prior year.
The $0.95 consensus EPS estimate for the fiscal quarter, ending June 2022 indicates a 28.4% year-over-year increase. Likewise, the $1.70 billion consensus revenue estimate for the same period reflects a 5.2% improvement of 5.2% from the prior-year quarter. Furthermore, TPR has an impressive surprise earnings history, as it has topped consensus estimates in each of the trailing four quarters.
The stock has gained 2.3% over the past year and 1.3% over the past five days to close Friday’s trading session at $39.18.
TPR’s strong fundamentals are reflected in its POWR Ratings. The stock has a Value and Quality grade of B. In the 65-stock Fashion & Luxury industry, it is ranked #42. The industry is rated A. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Click here to see the additional POWR Ratings for TPR (Growth, Momentum, Stability, and Sentiment).
Signet Jewelers Limited (SIG)
SIG is a retail seller of diamond jewelry, watches, and other products, operating through the three broad segments of North America; International; and Others. The company is based in Hamilton, Bermuda.
On October 12, SIG announced it had agreed to acquire Diamonds Direct USA Inc., an off-mall, destination jeweler in the U.S. The acquisition is expected to drive shareholder value and help the company reach its $9 billion revenue goal.
SIG’s sales increased 18.3% year-over-year to $1.54 billion in its fiscal third quarter, ended October 30. Its total non-GAAP operating income improved 124.8% from the prior-year quarter to $105.20 million, while non-GAAP gross margin improved by 31.9% versus the same period the prior year to $575.60 million. And its non-GAAP EPS stood at $1.43, up 1,200% from the prior-year period.
The Street’s EPS $4.99 estimate for its fiscal quarter ended January 31, 2022, reflects a 20.2% improvement from the prior-year quarter. And the Street’s $2.77 billion revenue estimate for the same period indicates a 26.9% increase year-over-year. In addition, SIG has beaten consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 86.4% in price and 17.9% over the past six months to close Friday’s trading session at $81.29.
It is no surprise that SIG has an overall B rating, which translates to Buy in our POWR Rating system. SIG has a B grade for Value, Momentum, and Quality. It is ranked #16 in the Fashion & Luxury industry. To see the additional POWR Ratings for Growth, Stability, and Sentiment for SIG, click here.
TPR shares were trading at $39.49 per share on Monday afternoon, up $0.31 (+0.79%). Year-to-date, TPR has declined -2.73%, versus a -7.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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