Luxury brands epitomizing craftsmanship and exclusivity are now pioneering technology and digitalization, venturing into new realms. Artificial Intelligence (AI) is notably permeating the sector, transforming its landscape.
Considering the industry's trajectory, investing in fundamentally robust luxury stocks Dillard's, Inc. (DDS), Industria de Diseño Textil, S.A. (IDEXY), and Weyco Group, Inc. (WEYS) could yield significant weekly gains. Before exploring the highlighted stocks, let's examine the dynamics of the luxury sector in detail.
Luxury brands are utilizing AI to deliver personalized product recommendations, styling advice, and real-time customer support through GenAI-powered chatbots and virtual shopping assistants. Such technological transformation aims to create a more unique and enjoyable shopping experience.
Moreover, the industry is progressing toward a circular economy model facilitated by AI and technology. Digital Product Passports (DPP) and Digital IDs are being utilized to track a product's sustainability and circularity from inception to disposal, enhancing transparency and accountability.
These initiatives yield numerous benefits, such as heightened consumer trust, enhanced brand sentiment, mitigated greenwashing risks, thorough product tracking, reduced circulation of goods, and the exploration of novel business models.
Furthermore, as contemporary generations are coming of age in the era of mobile technologies, they are highly accustomed to the omnichannel experience and possess extensive knowledge about available luxury fashion brands. They view luxury products as integral to their lifestyle, potentially amplifying the demand for luxury fashion items.
Statista anticipates that in 2024, the global luxury fashion market will yield $115.90 billion in revenue. Among nations, the United States is forecasted to lead with $27.67 billion. Considering population figures, the estimated per-person revenue for 2024 stands at $14.95.
Also, McKinsey's fashion forecast analysis projects global industry growth of 2 to 4% in 2024. Once more, the luxury sector is anticipated to command the largest portion of economic profit. According to a report by Straits Research, the global luxury fashion market is projected to reach $198.55 billion by 2031, expanding at a CAGR of 5.5%.
In light of these encouraging trends, let’s look at the fundamentals of the three best Fashion & Luxury stocks, beginning with number 3.
Stock #3: Dillard's, Inc. (DDS)
DDS operates retail department stores, providing a wide array of merchandise, such as fashion apparel for women, men, and children, along with accessories, cosmetics, home furnishings, and various consumer goods. Additionally, the company participates in general contracting construction activities.
Over the past three years, DINO’s revenue and EBITDA increased at CAGRs of 12.9% and 149.1%, respectively. Its tangible book value and total assets grew at respective CAGRs of 9.5% and 5.6% over the same time frame. In addition, the company’s levered free cash flow rose at a CAGR of 48.6% during the period.
On January 29, 2024, DDS forged alliances with Citi (C) and Mastercard (MA) to introduce a credit card program. With C acquiring DDS' credit card accounts and MA as the exclusive payment network, DDS can anticipate heightened customer loyalty, expanded market reach, and increased revenue streams.
DDS’ trailing-12-month gross profit margin of 41.70% is 17.4% higher than the 35.51% industry average. Moreover, its trailing-12-month EBITDA margin and trailing-12-month net income margin of 16.45% and 11.30% are 51.5% and 145.4% higher than the industry averages of 10.86% and 4.61%, respectively.
For nine months that ended October 28, 2023, DDS’ cash inflow from investing activities stood at $8 million, compared to a cash outflow of $278.60 million in the previous year’s period.
Additionally, as of October 28, 2023, the company’s cash and cash equivalents amounted to $842 million, compared to $532.70 million as of October 29, 2022. Also, its total current assets came in at $2.67 billion, up from $2.52 billion as of October 29, 2022.
Shares of DDS have gained 9% over the past month and 24.5% over the past six months to close the last trading session at $424.89.
DDS’ solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
DDS has an A grade for Quality and a B for Value and Momentum. It is ranked #9 out of 62 stocks within the B-rated Fashion & Luxury industry.
In addition to the POWR Ratings I’ve highlighted, you can see DDS’ Growth, Stability, and Sentiment ratings here.
Stock #2: Industria de Diseño Textil, S.A. (IDEXY)
Based in A Coruña, Spain, IDEXY focuses on retail and online distribution of clothing, footwear, accessories, and household textiles across diverse retail concepts. Additionally, it operates in textile manufacturing, logistics, design, insurance, construction, real estate, and financial services sectors.
IDEXY's revenue increased at a CAGR of 15.9% over the past three years. In addition, the company’s EBITDA and net income grew at a CAGR of 29.4% and 47.85, respectively, during the period. Moreover, its total assets rose at a CAGR of 6.4% over the same time frame.
On October 25, 2023, IDEXY unveiled its alliance with Ambercycle, a Los Angeles material science firm, to expand textile-to-textile recycled polyester production. By investing over €70 million ($75.46 million) in a three-year commitment to purchase cycora®, a groundbreaking material derived from recycled polyester, IDEXY anticipates cost savings, enhanced sustainability credentials, and potential revenue growth opportunities.
The stock’s trailing-12-month gross profit margin of 55.52% is 56.4% higher than the 35.51% industry average. Additionally, IDEXY’s trailing-12-month net income margin and levered FCF margin of 14.63% and 17.73% are 217.4% and 223.7% higher than the industry averages of 4.61% and 5.48%, respectively.
For the nine months that ended October 31, 2023, IDEXY’s net sales increased 11.1% year-over-year to €25.61 billion ($27.61 billion). Its EBITDA grew 13.9% from the year-ago value to €7.43 billion ($8.01 billion). Also, the company’s net income and EPS rose 32.3% and 32.6% from the prior year’s period to €4.11 billion ($4.43 billion) and €1.32, respectively.
The consensus revenue estimate of $39.18 billion for the fiscal year that ended January 2024 indicates a 13.7% year-over-year growth. Likewise, the consensus EPS estimate of $0.95 for the same period reflects a 35.6% year-over-year increase. Furthermore, the company topped the consensus revenue estimates in three of the four trailing quarters.
The stock has gained 15.9% over the past six months and 40.3% over the past year, closing the last trading session at $21.18.
IDEXY’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
IDEXY has an A grade for Quality and a B for Growth and Stability. It is ranked #7 out of 62 stocks within the Fashion & Luxury industry.
Click here to access additional IDEXY ratings for Value, Momentum, and Sentiment.
Stock #1: Weyco Group, Inc. (WEYS)
WEYS designs and distributes footwear for men, women, and children, operating in North American Wholesale and Retail segments. It wholesales products to around 10,000 footwear, department, and specialty stores, as well as e-commerce retailers across the United States and Canada.
Over the past three years, WEYS’ revenue and EBITDA rose at a CAGR of 15.2% and 83.3%, respectively. Its tangible book value and total assets grew at respective CAGRs of 9.5% and 4% over the same time frame. Furthermore, the company’s levered free cash flow rose at a CAGR of 53.4% during the period.
WEYS’ trailing-12-month EBITDA margin of 13.55% is 24.8% higher than the 10.86% industry average. Furthermore, its trailing-12-month net income margin of 9.47% is 105.5% higher than the 4.61% industry average. In addition, the stock’s trailing-12-month levered FCF margin of 18.66% compare with the industry average of 5.48%.
For nine months that ended September 30, 2023, WEYS’ gross earnings increased 4.1% year-over-year to $102.32 million. Its earnings from operations rose 16.7% from the year-ago value to $29.52 million. In addition, the company’s net earnings and EPS grew 12.1% and 12.9% from the prior year’s period to $21.65 million and $2.27, respectively.
WEYS’ shares have gained 5.1% over the past month and 31% over the past six months, closing the last trading session at $33.23.
WEYS’ strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
WEYS has an A grade for Value and a B for Sentiment and Quality. It has topped the 62-stock Fashion & Luxury industry.
Click here to access the additional WEYS ratings (Growth, Momentum, and Stability).
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IDEXY shares were trading at $20.95 per share on Tuesday morning, down $0.23 (-1.09%). Year-to-date, IDEXY has declined -4.29%, versus a 4.23% 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.
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