Wealth inequality is creating a fertile ground for the luxury market to thrive. Premium products, known for their superior quality and durability, are priced beyond the reach of the majority. This exclusivity is driving luxury brands to target the affluent, where the uniqueness and prestige of a product outweigh its cost.
Fundamentally robust stocks Ferrari N.V. (RACE), H & M Hennes & Mauritz AB (publ) (HNNMY), and Ralph Lauren Corporation (RL) stand to benefit from this trend. The current wealth disparity positions these luxury stocks for significant growth as the high-net-worth population’s demand for exclusive items rises.
Over the past 60 years, wealth has shifted dramatically from the middle class to the wealthiest families, exacerbating inequality, particularly in America. Despite claims of progress, the racial wealth gap is also widening due to historical and generational wealth transfers, affecting economic disparities.
President Joe Biden's 2024 State of the Union address suggested a narrowing racial wealth gap. However, recent research from Duke University highlights that this gap is, in fact, expanding, driven by deep-rooted racial and economic histories.
In this climate of increasing wealth inequality, luxury stocks are poised for solid growth. As the affluent class grows, their demand for high-end goods fuels sales and profits, making luxury brands a strong investment choice amid economic disparities.
That said, the global luxury market demonstrated impressive resilience in 2023, overcoming geopolitical and economic challenges to surpass a record €1.5 trillion ($1.65 trillion). This indicates a prosperous future for luxury investments.
According to Fortune Business Insights, the global luxury goods market is set to grow to $392.40 billion by 2030 at a CAGR of 4.7%. This growth reflects the increasing influence of technology and the expanding wealth of luxury consumers.
In light of these encouraging trends, let’s examine the fundamentals of three luxury goods stock picks, starting with #3.
Stock #3: Ferrari N.V. (RACE)
Headquartered in Maranello, Italy, RACE designs, engineers, manufactures, and sells luxury performance sports cars worldwide. It also provides spare parts, engines, after-sale services, repair, maintenance, and restoration services for cars. It licenses its Ferrari brand to various producers and retailers of luxury and lifestyle goods.
On July 24, RACE announced the extension of its cryptocurrency payment system to its conglomerate of European dealers. This entry follows the successful launch of the same system in the United States less than a year ago. RACE also expects to expand cryptocurrency transactions to other countries in its international dealer network by the end of 2024.
As payments through cryptocurrencies are getting more and more popular nowadays, the new payment system is expected to make the clients experience more convenient and boost the company’s overall popularity and growth.
On June 21, RACE announced the inauguration of its new e-building, in presence of Italian President Sergio Mattarella. The e-building, equipped with state-of-the-art technology, will produce internal combustion-engined cars, hybrids and Ferrari's first electric model, including high-voltage batteries, electric motors and axles.
Through this new development, RACE is enhancing its production flexibility necessary to supply its growing customer base.
During the fiscal 2024 second quarter, which ended June 30, 2024, RACE’s net revenues increased 16.1% year-over-year to €1.71 billion ($1.88 billion). Its adjusted EBIT grew 16.9% from the year-ago value to €511 million ($561.71 million).
Moreover, the company’s adjusted EBITDA rose 13.6% from the prior year’s quarter to €669 million ($735.39 million). In addition, RACE’s adjusted net profit and adjusted EPS stood at €413 million ($453.98 million) and €2.29, up 23.7% and 25.1% from the year-ago quarter, respectively.
RACE’s revenue and EPS for the fiscal third quarter ending September 2024 are expected to increase 10.6% and 12.4% year-over-year to $1.81 billion and $2.17, respectively. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
RACE shares have gained 29.1% over the past nine months and 43.8% over the past year, closing the last trading session at $454.13.
RACE’s 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 are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
RACE has an A grade for Quality and Sentiment and a B for Stability. Within the Auto & Vehicle Manufacturers industry, it is ranked #16 out of 50 stocks.
To see RACE’s additional Growth, Value, and Momentum ratings, click here.
Stock #2: H & M Hennes & Mauritz AB (publ) (HNNMY)
Based in Stockholm, Sweden, HNNMY designs, manufactures, and markets clothing and accessories. It also operates Sellpy, a digital platform for second-hand fashion, and Creator Studio, a global merchandise design hub. In addition, through Looper Textile, HNNMY extends garment life via reuse and recycling solutions.
On July 9, ARKET, a modern-day market and lifestyle brand owned by HNNMY, announced its opening of two flagship stores in Milan and Barcelona. The stores carry the brand’s full assortment of ready-to-wear and accessories for women and men, childrenswear, body care, and interior design, with both being the first ARKET stores in Italy and Spain.
These new locations would help HNNMY gather more customers, while inviting customers from other locations as well because of the stores’ exclusivity, boosting the company’s growth prospects.
On February 1, ARKET announced its plans to open its first store in Poland. Located in Warsaw, the new store will have collections offering ready-to-wear and accessories for women, men, and children, complemented by interior essentials for the home.
Expansions like these could help HNNMY gather a number of customers, boosting its popularity and presence. This is expected to boost the company's income stream.
HNNMY’s net sales for the fiscal 2024 second quarter that ended May 31 stood at SEK 59.61 billion ($5.68 billion), increasing 3.5% year-over-year. Its gross profit rose 10.7% year-over-year to SEK 33.57 billion ($3.20 billion).
Moreover, profit for the period attributable to shareholders of HNNMY stood at SEK 5.01 billion ($477.02 million), up 51.9% from the year-ago quarter. Also, the company’s earnings per share increased 54% from the prior-year quarter to SEK 3.11.
Analysts expect HNNMY’s revenue for the fiscal third quarter ending August 2024 to increase 7% year-over-year to $5.83 billion. Likewise, the company's revenue for the next fiscal quarter (ending November 2024) is estimated to grow 1.9% from last year’s quarter to $6.14 billion.
Shares of HNNMY have gained 12.4% over the past six months, closing the last trading session at $2.99.
HNNMY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
HNNMY has an A grade for Quality and a B for Growth and Stability. The stock is ranked #2 out of 59 stocks in the Fashion & Luxury industry.
Click here to access the additional HNNMY ratings (Momentum, Value, and Sentiment).
Stock #1: Ralph Lauren Corporation (RL)
For more than 50 years, RL has been a global leader in luxury lifestyle products, including apparel, footwear, accessories, home, fragrances, and hospitality. Its renowned brands, such as Ralph Lauren, Polo Ralph Lauren, and others, represent one of the most recognized families of consumer brands worldwide.
In the fiscal 2025 first quarter, the company reported stable momentum in its customer acquisition and loyalty, with 1.3 million new customers in its direct-to-consumer business. The company also reported an overall growth in its net promoter scores and bolstered a low-teens increase in its social media followers of 60 million since last year.
As the company actively participates in gathering new and loyal customers and maintains a popular social media presence, its popularity is expected to go nowhere but up from here driving the company’s growth.
Furthermore, RL opened eight new owned and partnered stores in the first quarter. The company also reported its newly renovated World of Ralph Lauren store on Chicago's Michigan Avenue, including its iconic RL restaurant and its first Ralph's Coffee shop in the Midwest.
With these new expansions the company is proving its steadfast mission in providing its customers with new Ralph Lauren experiences which would help the company to keep a steady increase in its new consumers numbers, boosting its popularity to new levels.
During the fiscal 2025 first quarter that ended June 29, 2024, RL’s net revenues increased 1% year-over-year to $1.51 billion. Its adjusted gross profit grew 3.5% from the year-ago value to $1.07 billion. Moreover, the company’s adjusted operating income rose 7.9% from the prior year’s period to $215.90 million.
In addition, RL’s adjusted net income and adjusted net income per common share increased 10.5% and 15.4% over the prior-year quarter to $174.60 million and $2.70, respectively.
Looking forward, for the fiscal second quarter, RL expects constant currency revenues to increase by approximately 3% to 4% compared to last year, reflecting low- to mid-single-digit growth.
Operating margin is anticipated to expand by 80 to 120 basis points in constant currency, with gross margin expansion of 110 to 130 basis points offsetting higher planned operating expenses for key marketing campaigns.
On the other hand, for the second quarter of fiscal 2025 (ending September 2024), analysts expect RL’s revenue to increase 2.5% year-over-year to $1.67 billion. Its EPS for the same quarter is expected to rise 12.5% from the prior year’s quarter to $2.36. Also, the company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of RL have gained 32.6% over the past nine months and 27.3% over the past year, closing the last trading session at $164.27.
RL’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
RL has an A grade for Quality. It is ranked #17 out of 59 in the Fashion & Luxury industry.
Get RL’s Value, Momentum, Growth, Stability, and Sentiment ratings here.
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RACE shares were trading at $458.10 per share on Friday morning, up $3.97 (+0.87%). Year-to-date, RACE has gained 35.36%, versus a 16.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
3 Luxury Goods Stocks to Buy as Wealth Inequality Widens StockNews.com
