Aided by increasing disposable incomes, the expanding accessibility of fashion products, the growing popularity of online shopping, the adoption of advanced technologies, and the rise of fashion trends on social media platforms, the luxury goods industry’s long-term prospects look promising.
Therefore, investors could consider buying fundamentally strong luxury stocks The Buckle, Inc. (BKE), Abercrombie & Fitch Co. (ANF), and Vera Bradley, Inc. (VRA).
Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the industry’s prospects.
The luxury industry is often considered recession-proof due to its stable demand trends and wealthy clientele. The sector is usually not considered a proxy for general economic health. The growing number of high-net-worth individuals around the world, increasing consumer spending, and rising disposable incomes in developing nations are contributing to the industry’s rapid growth.
Despite a slowdown in demand toward the end of 2023, the luxury goods industry’s demand looks well-poised for recovery as China, the world’s second-largest economy, takes measures to revive its economy. As per Bain, luxury purchases in China are expected to reach 24% to 26% of total luxury purchases worldwide by 2030. U.S. growth is also likely to pick up after a relatively weaker 2023.
Luxury brands have seen their sales grow thanks to an e-commerce boom and real-time social media trends, as a large number of millennials and Gen-Z spend their discretionary incomes on luxury handbags, shoes, and jewelry. According to McKinsey’s analysis of fashion forecasts, the global industry will post top-line growth of 2% to 4% in 2024.
The industry is also leveraging advanced technologies like artificial intelligence, machine learning, augmented reality and virtual reality (AR & VR), etc., to create immersive shopping experiences and offer greater personalization, trend predictions, and product recommendations. The global luxury goods market is projected to reach $392.40 billion by 2030, growing at a CAGR of 4.7%.
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: The Buckle, Inc. (BKE)
BKE operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States. It markets a selection of brand-name casual apparel, including denim, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear, as well as private label merchandise primarily comprising BKE, Buckle Black, Salvage, Red by BKE, Daytrip, Gimmicks, Gilded Intent, Reclaim, Departwest, Veece, etc.
In terms of the trailing-12-month net income margin, BKE’s 17.82% is 279.4% higher than the 4.70% industry average. Likewise, its 23.79% trailing-12-month EBITDA margin is 117.9% higher than the industry average of 10.91%. Furthermore, the stock’s 1.42x trailing-12-month asset turnover ratio is 43.8% higher than the industry average of 0.99x.
For the fiscal third quarter, which ended October 28, 2023, BKE’s sales came in at $303.46 million. Its gross profit amounted to $147.22 million. The company’s income from operations stood at $64.07 million. In addition, its net income came in at $51.76 million. Its EPS came in at $1.04. Also, its total current assets rose 0.6% year-over-year to $508.94 million.
Over the past nine months, the stock has gained 21.9% to close the last trading session at $38.41.
BKE’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #18 out of 62 stocks in the B-rated Fashion & Luxury industry. It has an A grade for Quality. Click here to see the additional ratings of BKE for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: Abercrombie & Fitch Co. (ANF)
ANF operates as a specialty retailer in the United States, Europe, the Middle East, Asia, the Asia-Pacific, Canada, and internationally. The company operates through two segments: Hollister and Abercrombie. It offers an assortment of apparel, personal care products, and accessories for men, women, and kids under the Hollister, Gilly Hicks, Social Tourist, Abercrombie & Fitch, and Abercrombie Kids brands.
In terms of the trailing-12-month levered FCF margin, ANF’s 12.04% is 112.8% higher than the 5.66% industry average. Likewise, its 8.90% trailing-12-month EBIT margin is 18.4% higher than the industry average of 7.51%. Furthermore, the stock’s 4.29% trailing-12-month Capex/Sales is 40.2% higher than the industry average of 3.06%.
ANF’s net sales for the third quarter ended October 28, 2023, increased 20% year-over-year $1.06 billion. Its adjusted operating income rose 548.4% over the prior-year quarter to $138.02 million. The company’s net income attributable to ANF came in at $96.21 million, compared to a net loss of $2.21 million in the prior-year quarter. Also, its non-GAAP EPS came in at $1.83, representing a considerable increase year-over-year.
Analysts expect ANF’s EPS and revenue for the quarter ended January 31, 2024, to increase 245.1% and 19% year-over-year to $2.80 and $1.43 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 397.7% to close the last trading session at $119.25.
ANF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
Within the same industry, it is ranked #17. It has an A grade for Growth and Quality. To see the other ratings of ANF for Value, Momentum, Stability, and Sentiment, 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. The company offers bag products, accessories, bracelets, rings, and necklaces under the Pura Vida brand name and travel products. It also provides home products, apparel/footwear, and stationery and merchandising products.
In terms of the trailing-12-month gross profit margin, VRA’s 50.93% is 43% higher than the 35.61% industry average. Likewise, its 14.45% trailing-12-month levered FCF margin is 155.4% higher than the industry average of 5.66%. Furthermore, the stock’s 1.15x trailing-12-month asset turnover ratio is 16.4% higher than the industry average of 0.99x.
For the fiscal third quarter, which ended October 28, 2023, VRA’s net revenues came in at $114.99 million. Its non-GAAP net income attributable to VRA came in at $6.10 million. The company’s non-GAAP operating income stood at $8 million. Also, its non-GAAP EPS available to VRA common shareholders came in at $0.19.
For fiscal 2024, VRA’s EPS is expected to increase 139.6% year-over-year to $0.58. Its revenue for fiscal 2025 is expected to increase 3.5% year-over-year to $490.32 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 43.5% to close the last trading session at $7.69.
VRA’s POWR Ratings reflect solid prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It is ranked #4 in the Fashion & Luxury industry. It has an A grade for Sentiment and a B for Growth, Value, and Quality. Click here to see the other ratings of VRA for Momentum and Stability.
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ANF shares rose $0.25 (+0.21%) in premarket trading Thursday. Year-to-date, ANF has gained 35.46%, versus a 5.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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