The fashion and luxury retail sector’s growth prospects look promising owing to the growing demand for unique and exclusive products, rise in consumer spending, and growth in affluence.
Given this backdrop, investors could consider adding quality retail stocks such as H & M Hennes & Mauritz AB (publ) (HNNMY), Vera Bradley, Inc. (VRA), and Weyco Group, Inc. (WEYS) to their portfolio. Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the retail industry’s prospects.
The U.S. retail market displayed resilience in April, with overall retail sales remaining unchanged from March on a seasonally adjusted basis. However, retail sales showed a 3% unadjusted year-over-year growth. Meanwhile, sales at clothing and accessories stores posted a 1.6% gain in April.
Growing disposable incomes, globalization, rising demand for personalized and exclusive products, the rise in aspirational values, the popularity of online shopping, and the overwhelming effect of social media on fashion trends are driving the growth of the fashion retail industry. The global luxury apparel market is expected to grow at a CAGR of 3.5% to reach revenues of $84.05 billion by 2025.
Moreover, as lifestyles keep evolving, consumers are seeking high-quality, comfortable, and exclusive footwear. The global footwear market is expected to grow at a CAGR of 4.5% to reach $549.97 billion by 2031.
In light of these encouraging trends, let's examine the fundamentals of the three Fashion & Luxury stock picks, starting with the third in line.
Stock #3: H & M Hennes & Mauritz AB (publ) (HNNMY)
Headquartered in Stockholm, Sweden, HNNMY provides clothing, accessories, footwear, cosmetics, home textiles, and homeware for women, men, and children worldwide.
HNNMY’s trailing-12-month asset turnover ratio of 1.33x is 33.9% higher than the industry average of 0.99x. Likewise, its trailing-12-month Return on Common Equity and Return on Total Capital of 19.17% and 8.13% are 67% and 30.5% higher than the industry averages of 11.48% and 6.23%, respectively.
HNNMY’s net sales for the fiscal first quarter that ended February 29, 2024, stood at SEK53.67 billion ($5.02 billion). Its gross profit rose 6.8% year-over-year to SEK27.66 billion ($2.59 billion).
Moreover, its profit for the period attributable to shareholders of HNNMY stood at SEK1.21 billion ($113.02 million), up 123.5% from the year-ago quarter. Also, its earnings per share increased 127.3% over the prior-year quarter to SEK0.75.
Analysts expect HNNMY’s revenue for the quarter ending May 31, 2024, to increase marginally year-over-year to $5.49 billion. Over the past three months, the stock has gained 27.9%, closing the last trading session at $3.44.
HNNMY’s solid fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Stability. It is ranked #5 out of 60 stocks in the A-rated Fashion & Luxury industry. Click here for the additional POWR Ratings of HNNMY (Growth, Value, Momentum, and Sentiment).
Stock #2: Vera Bradley, Inc. (VRA)
VRA designs, manufactures, and sells women's handbags, luggage, travel items, fashion and home accessories, and gifts. It operates through three segments: Vera Bradley Direct, Vera Bradley Indirect, and Pura Vida.
VRA’s trailing-12-month asset turnover ratio of 1.20x is 20.8% higher than the industry average of 0.99x. Its trailing-12-month gross profit margin of 54.46% is 47.7% higher than the industry average of 36.87%. Similarly, its trailing-12-month levered FCF margin of 14.03% is 161.1% higher than the industry average of 5.37%.
For the fiscal fourth quarter that ended February 3, 2024, VRA’s net revenues stood at $133.27 million. Its gross profit increased 16% year-over-year to $69.64 million. For the same quarter, its non-GAAP net income attributable to VRA stood at $3.49 million, compared to a non-GAAP net loss attributable to VRA of $999 thousand in the prior year quarter.
VRA’s non-GAAP net income per share available to VRA common shareholders stood at $0.11, compared to a net loss per share available to VRA common shareholders of $0.03 in the prior year quarter.
Street expects VRA’s EPS and revenue for the quarter ending October 31, 2024, to increase 7.9% and 4.2% year-over-year to $0.21 and $119.80 million, respectively. The company surpassed the consensus EPS estimates in three of the trailing four quarters. VRA’s stock has gained 54.9% over the past year, closing the last trading session at $7.76.
VRA’s POWR Ratings reflect its robust prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
VRA has a B grade for Growth, Value, Sentiment, and Quality. Within the same industry, it is ranked #4. Get VRA’s Momentum and Stability ratings, here.
Stock #1: Weyco Group, Inc. (WEYS)
WEYS designs and distributes footwear for men, women, and children. It operates in two segments: North American Wholesale Operations, and North American Retail Operations.
WEYS’ trailing-12-month Return on Total Assets of 9.69% is 131.8% higher than the industry average of 4.18%. Its trailing-12-month EBITDA margin and net income margin of 13.65% and 9.69% are 22.9% and 107.6% higher than the industry averages of 11.10% and 4.67%, respectively.
WEYS’ gross earnings and earnings from operations for the fiscal first quarter that ended March 31, 2024, stood at $32.01 million and $8.25 million, respectively. The company’s cash and cash equivalents at end of year rose 247.2% from the year-ago value to $78.35 million. WEYS’ net earnings stood at $6.65 million or $0.69 per share, respectively.
The stock has gained 16.7% over the past nine months to close the last trading session at $30.26.
WEYS’ POWR Ratings reflect this positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
WEYS has an A grade for Value and a B for Sentiment and Quality. It is ranked #2 in the Fashion & Luxury industry. Click here to see WEYS’ ratings for Growth, Momentum, and Stability.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
HNNMY shares were unchanged in premarket trading Tuesday. Year-to-date, HNNMY has gained 0.95%, versus a 11.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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