Despite the macroeconomic challenges, the luxury industry is in an excellent position to grow. This is because online shopping is becoming more popular, and social media strongly influences fashion trends, making luxury brands more accessible to people worldwide. Moreover, rising consumer spending and growing disposable incomes are expected to boost the luxury industry’s prospects.
Considering these factors, it could be wise to invest in fundamentally strong luxury stocks Burberry Group plc (BURBY), Nordstrom, Inc. (JWN), and Vera Bradley, Inc. (VRA) this holiday season.
Before delving deeper into their fundamentals, let’s discuss why the luxury industry is well-positioned for growth.
During the pandemic, the luxury industry did well compared to other sectors. It increased its profits even in the face of economic adversity. This growth was primarily influenced by the increasing global demand for luxury goods, driven by the rise of social media and digital platforms.
The global luxury goods market is predicted to reach $392.40 billion by 2030, growing at a CAGR of 4.7%. This expansion is due to rising disposable income, changing consumer preferences, and the widespread use of online shopping platforms.
Likewise, the global luxury fashion market is estimated to reach $294.70 billion by 2028, with a CAGR of 3.6%. Multiple factors, like social media campaigns and celebrity endorsements, are having an impact on luxury fashion. Also, artificial intelligence (AI) is also transforming the fashion industry by improving customer experiences through chatbots, personalized recommendations, and trend predictions.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Fashion & Luxury industry picks, beginning with the third choice.
Stock #3: Burberry Group plc (BURBY)
Headquartered in London, the United Kingdom, BURBY and its subsidiaries manufacture, retail, and wholesale luxury goods under the Burberry brand. The company operates in two segments: Retail/Wholesale and Licensing. It provides womenswear, menswear, childrenswear, beauty, eyewear, shoes, accessories, and leather goods, such as bags.
On October 26, 2023, BURBY partnered with Vestiaire Collective, a global resale platform. Customers in the U.K. and the U.S. can trade their pre-loved BURBY women's outerwear and handbags for a BURBY gift card. The pre-loved items will be available globally on Vestiaire Collective.
BURBY’s Chief Digital, Customer and Innovation Officer, Giorgio Belloli, said, “We are very excited to team up with Vestiaire Collective to provide another way for our customers to give new life to their Burberry pieces. In building on our existing circular initiatives, including our aftercare services through our ReBurberry programme, we hope that these pieces can continue to be enjoyed for generations to come.”
In terms of the trailing-12-month net income margin, BURBY’s 15.84% is 274.3% higher than the 4.23% industry average. Its 20.49% trailing-12-month EBIT margin is 177.7% higher than the 7.38% industry average. Likewise, the stock’s 13.29% trailing-12-month Return on Total Assets is 245.2% higher than the 3.85% industry average.
For the fiscal year that ended April 1, 2023, BURBY’s revenue increased 9.5% year-over-year to £3.09 billion ($3.79 billion). Its adjusted operating profit increased 21.2% year-over-year to £634 million ($778.37 million). Likewise, the company's profit for the year and adjusted EPS came in at £492 million ($604.03 million) and 122.50p, up 23.9% and 30.3% year-over-year.
Street expects BURBY’s revenue for the fiscal year ending March 31, 2024, to increase 2.8% year-over-year to $3.95 billion. Its EPS for the fiscal year ending March 31, 2025, is expected to increase 8.1% year-over-year to $1.59. Over the past month, the stock has declined 7.1% to close the last trading session at $20.81.
BURBY’s strong prospects are reflected in its POWR Ratings. It 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.
It has a B grade for Stability and Quality. It is ranked #19 out of 63 stocks in the B-rated Fashion & Luxury industry. Click here to see BURBY’s Growth, Value, Momentum, and Sentiment ratings.
Stock #2: Nordstrom, Inc. (JWN)
JWN is a fashion retailer that provides apparel, shoes, beauty, accessories, and home goods. It offers a range of brand name and private label merchandise through various channels, such as Nordstrom branded stores and online at Nordstrom.com; Nordstrom.ca; Nordstrom stores; Nordstrom Rack stores; Nordstrom Locals; ASOS; Nordstromrack.com; and clearance stores under the Last Chance name.
On October 10, 2023, JWN announced opening a new Nordstrom Rack store in Mooresville, North Carolina, within the Mooresville Crossing shopping center. This 28,000-square-foot store will open in fall 2024, becoming the third Nordstrom Rack store in North Carolina. Nordstrom Rack, known for its discounted products, is a part of the company's customer-focused strategy, and the new store will help reach a broader customer base.
Carl Jenkins, Senior VP at Nordstrom Rack Stores, JWN, expressed anticipation for the new Nordstrom Rack location in Mooresville, highlighting its role in expanding their store network and introducing customers to their unique product offerings. He also noted the convenience of the location for picking up online orders and making returns.
In terms of the trailing-12-month levered FCF margin, JWN’s 5.58% is 4.5% higher than the 5.34% industry average. Its 35.77% trailing-12-month gross profit margin is 0.2% higher than the 35.71% industry average. Likewise, the stock’s 1.65x trailing-12-month asset turnover ratio is 65.4% higher than the 1x industry average.
JWN’s total revenues for the fiscal second quarter that ended July 29, 2023, came in at $3.77 billion. Its net earnings rose 8.7% year-over-year to $137 million. The company’s adjusted EPS stood at $0.84, representing an increase of 3.7% year-over-year. Additionally, its adjusted EBITDA came in at $316 million.
Analysts expect JWN’s EPS and revenues for the quarter ending January 31, 2024, to increase 31.7% and 1.4% year-over-year to $0.97 and $4.38 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 0.7% to close the last trading session at $14.10.
JWN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, and Quality. Within the same industry, it is ranked #12. To see JWN’s Stability and Sentiment ratings, click here.
Stock #1: Vera Bradley, Inc. (VRA)
VRA designs, manufactures, and sells women’s handbags, luggage and travel items, fashion and home accessories, and gifts. It operates through three segments: Vera Bradley Direct, Vera Bradley Indirect, and Pura Vida.
On October 24, 2023, VRA announced a collaboration with Disney and Pixar to launch their first-ever collection inspired by the Toy Story franchise, featuring over 60 styles with new patterns and characters. The collection is available for purchase.
Alison Hiatt, CMO at VRA, noted the significance of celebrating friendship with the new Pixar | Vera Bradley Toy Story Collection and expressed confidence that franchise fans would appreciate the colorful and festive patterns.
On August 10, 2023, VRA announced a three-year licensed product partnership with the NFL to create a collection of officially licensed handbags, accessories, travel styles, and game-day essentials for select NFL teams, available for the 2023 NFL season.
Jackie Ardrey, CEO at VRA, said, “We’re proud to partner with the NFL to help Vera Bradley enthusiasts and football fans alike show their team spirit. Women and girls make up 47% of the NFL fan base, and we’re excited to make their game-watching experience even more fun by adding playful and approachable Vera Bradley style to game-day essentials.”
In terms of the trailing-12-month gross profit margin, VRA’s 50.58% is 41.7% higher than the 35.71% industry average. Likewise, its 10.32% trailing-12-month levered FCF margin is 93.1% higher than the industry average of 5.34%. Furthermore, the stock’s 1.13x trailing-12-month asset turnover ratio is 13.3% higher than the industry average 1x.
VRA’s net revenues for the fiscal second quarter that ended July 29, 2023, came in at $128.17 million. The company’s gross profit rose 19% year-over-year to $72.02 million.
Also, its net income attributable to VRA came in at $9.25 million, compared to a net loss of $29.77 million in the year-ago quarter. Its net income per share attributable to VRA came in at $0.30, compared to a loss per share of $0.95 in the prior-year quarter.
For the quarter ending January 31, 2024, VRA’s EPS and revenue are expected to increase 65.6% and 1.1% year-over-year to $0.27 and $148.69 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 125.2% to close the last trading session at $7.41.
It’s no surprise that VRA has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has an A grade for Sentiment and a B for Value and Quality. It is ranked #4 in the Fashion & Luxury industry. In total, we rate VRA on eight different levels. Beyond what we stated above, we also have given VRA grades for Growth, Momentum, and Stability. Get all the VRA ratings here.
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BURBY shares were trading at $21.12 per share on Thursday afternoon, up $0.31 (+1.49%). Year-to-date, BURBY has declined -11.22%, versus a 15.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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