Fueled by strong consumer spending and a fresh post-pandemic chapter, the luxury industry is primed for swift advancement. The resurgence of Chinese consumers and the escalating prominence of online shopping are set to propel the industry's expansion further.
As a result, fundamentally sound luxury stocks Industria de Diseño Textil, S.A. (IDEXY), H & M Hennes & Mauritz AB (publ) (HNNMY), and Movado Group, Inc. (MOV), with robust profitability, could be solid additions to your portfolio. Let’s understand this in detail.
In July, retail sales, adjusted for seasonality but not inflation, surged 0.7% compared to the previous month, outpacing the prior month's revised 0.3% growth and surpassing economists' projected 0.4% increase. This marked the fourth consecutive month of rising retail sales.
Despite economic uncertainties, the luxury industry is poised for success, buoyed by robust consumer spending and a new post-pandemic phase. The sector's strong fundamentals, expanding, and elevated customer base are expected to contribute to its positive outlook in 2023 and beyond.
Furthermore, with the relaxation of restrictions and the resurgence of cross-border travel, the return of Chinese consumers, who constitute the largest spending group in the luxury goods industry worldwide, is anticipated to drive a 20% increase in demand for premium apparel, accessories, and other products in 2023.
Looking ahead, Chinese nationals are projected to contribute significantly to the expansion of personal luxury goods expenditure, with an estimated 60% share of total growth by 2030. This growth trajectory would be propelled by wealth accumulation, coupled with influential demographic, social, and technological dynamics.
The luxury industry is also capitalizing on an expanding online presence, a result of the accelerated digitalization caused by the pandemic. Online sales are poised to outpace mono-brand retail stores, with projections indicating a 33% share of personal luxury goods sales by 2030, driven by brands' web platforms and new digital opportunities.
A report from management consultancy Bain and Italian luxury association Altagamma forecasts a 5% to 12% year-on-year expansion for the global luxury market in 2023. The industry's value is predicted to elevate to €360 - €380 billion ($393.02 billion - $414.85 billion) this year, a notable surge from €345 billion ($376.64 billion) in 2022.
Bain's projections suggest that by 2030, the luxury market might soar to €530 - €570 billion ($578.61 billion - $622.28 billion), about 2.5 times its 2020 value. Meanwhile, as per Fortune Business Insights, the global luxury goods market would grow from $284 billion in 2023 to $392.40 billion by 2030, at a CAGR of 4.7%.
Against this backdrop, let’s now delve into the fundamentals of robust luxury stocks IDEXY, HNNMY, and MOV to understand what could make them worthwhile investments.
Industria de Diseño Textil, S.A. (IDEXY)
Based in A Coruña, Spain, IDEXY designs, crafts, manufactures, distributes, and retails men's, women's, and children's attire, stylish footwear and accessories, home decor, and textile wares. The company operates through three segments, Zara; Bershka; and Others.
On April 17, Zara, an IDEXY segment, partnered with Circ, a fashion technology firm that transforms textile waste into new fibers. The companies unveiled a pioneering women's capsule collection, a first-of-its-kind, created using recycled textiles sourced from polycotton textile waste.
The first-of-its-kind collection demonstrates Zara's focus on innovation and collaboration, two pillars crucial for advancing textile circularity. Circ's technology would enable efficient recycling of common polyester-cotton blends, positioning Zara as a leader in circular fashion and industry transformation.
IDEXY’s trailing-12-month gross profit margin of 54.96% is 55.2% higher than the 35.41% industry average. Its trailing-12-month EBITDA margin of 20.91% is 94.7% higher than the industry average of 10.74%. In addition, the stock’s trailing-12-month net income margin of 13.57% is 224.9% higher than the industry average of 4.18%.
For the first quarter that ended April 30, 2023, IDEXY’s net sales increased 12.9% year-over-year to €7.61 billion ($8.31 billion). Its EBITDA grew 14.5% from the year-ago value to €2.20 billion ($2.40 billion). Moreover, the company’s net income and EPS rose 53% and 53.7% year-over-year to €1.17 billion ($1.28 billion) and €0.375, respectively.
For the fiscal year ending January 2024, IDEXY’s revenue is expected to increase 13% year-over-year to $38.92 billion. The company’s EPS for the ongoing year is expected to come in at $0.92, up 31.9% from the prior year. Moreover, the company surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.
Shares of IDEXY have surged 39.3% over the past year to close the last trading session at $18.17.
IDEXY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
IDEXY has an A grade for Quality and a B for Growth and Stability. It is ranked #7 in the B-rated 66-stock Fashion & Luxury industry.
In addition to the POWR Ratings I’ve just highlighted, you can see IDEXY’s ratings for Momentum, Sentiment, and Value here.
H & M Hennes & Mauritz AB (publ) (HNNMY)
Headquartered in Stockholm, Sweden, HNNMY designs, manufactures, and markets clothing and accessories. Its branded stores span 40+ markets and encompass iconic labels such as H&M, H&M Home, COS, Monki, Weekday, Cheap Monday, and & Other Stories.
On July 17, HNNMY's brand H&M announced its upcoming entry into the Brazilian market, with plans to open both physical stores and an online presence by 2025. The expansion will commence in major southeastern cities, paving the way for a gradual nationwide rollout, marking H&M's continued growth in Latin America.
Moreover, on July 4, the company unveiled its first ARKET store in Barcelona. ARKET's thoughtfully curated offerings for women, men, and children, accompanied by home adornments and daily essentials, are expected to bolster IDEXY’s profitability through diversified revenue streams.
HNNMY’s trailing-12-month gross profit margin of 46.66% is 40.2% higher than the 35.41% industry average. Moreover, the stock’s trailing-12-month asset turnover ratio of 1.26x is 26.6% higher than the industry average of 1.00x. Also, its trailing-12-month cash from operations of $2.25 billion is 944.8% higher than the $214.88 million industry average.
During the second quarter that ended May 31, 2023, HNNMY’s net sales increased 5.7% year-over-year to SEK 57.62 billion ($5.32 billion). Its gross profit grew 1.6% from the year-ago value to SEK 30.34 billion ($2.80 billion).
Moreover, as of May 31, 2023, the company’s non-current assets stood at SEK 104.61 billion ($9.66 billion), compared to SEK 102.53 billion ($9.46 billion) as of November 30, 2022.
The consensus revenue estimate of $22.36 billion for the fiscal year ending November 2023 reflects a 3.4% year-over-year improvement. Likewise, the consensus revenue estimate for the next year is expected to grow 4% from the previous year to $23.26 billion. The stock has gained 39% year-to-date, closing the last trading session at $3.02.
HNNMY’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
HNNMY has an A grade for Quality and a B for Stability. It is ranked #11 out of 66 stocks within the Fashion & Luxury industry.
Click here to access additional HNNMY ratings (Growth, Value, Momentum, and Sentiment).
Movado Group, Inc. (MOV)
MOV orchestrates global watch design, sourcing, marketing, and distribution. Its prowess also extends to jewelry and accessories. The company's watch portfolio spans MOVADO, CONCORD, EBEL, OLIVIA BURTON, MVMT, and licensed brands such as COACH, TOMMY HILFIGER, HUGO BOSS, LACOSTE, and CALVIN KLEIN.
On August 9, MOV announced its role as the lead sponsor for Jazz at Lincoln Center. The collaboration should strengthen ties with the organization and cultivate a valuable association with Wynton Marsalis, Jazz at Lincoln Center's Managing and Artistic Director. These synergies could elevate MOV's brand visibility and recognition.
MOV’s trailing-12-month gross profit margin of 57.16% is 61.4% higher than the 35.41% industry average. Its trailing-12-month EBITDA margin of 15.71% is 46.3% higher than the industry average of 10.74%. Moreover, its trailing-12-month net income margin of 11.61% is 177.9% higher than the 4.18% industry average.
For the fiscal 2024 first quarter that ended April 30, 2023, MOV’s other income significantly increased from the year-ago value to $1.03 million. As of April 30, 2023, the company’s total assets stood at $741.50 million, compared to $739.98 million as of April 30, 2022. Also, the company ended the quarter with cash of $198.26 million and no debt.
The consensus revenue estimate of $791.30 million for the next fiscal year (ending January 2025) indicates a 7.2% year-over-year improvement. Likewise, the consensus EPS estimate of $3.83 for the same period reflects a 36.8% rise year-over-year. Also, the company topped the consensus EPS estimates in all four trailing quarters.
The stock has gained 3.9% over the past month, closing the last trading session at $27.74.
MOV’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
MOV has an A grade for Value and a B for Quality and Sentiment. It is ranked #9 out of 66 stocks within the same industry.
Click here to access additional MOV ratings for Growth, Momentum, and Stability.
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IDEXY shares were trading at $18.36 per share on Wednesday afternoon, up $0.19 (+1.02%). Year-to-date, IDEXY has gained 39.58%, versus a 16.54% 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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