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Luxottica Group SpA (ADR) (LUX), L Brands Inc (LTD), The Gap Inc. (GPS): Three Apparel Companies You Should Buy

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The apparel and accessories industry is heavily dependent upon consumer spending, which accounts for more than two-thirds of U.S. economic activity. Despite weakened spending early in the year, U.S. consumer spending rose 0.5% in June and is expected to continue increasing. This should be beneficial to three well-known apparel and accessories companies that are best suited for the long run.

Luxottica Group SpA (ADR) (NYSE:LUX)

Frames for solid growth

Luxottica Group SpA (ADR) (NYSE:LUX) reported strong sales in the second quarter of fiscal year 2013. Its net profit rose to $281.8 million from $257.9 million in 2012. For the first time in Luxottica’s history, sales exceeded $2.7 billion. Sales in Mediterranean countries were up 11% compared to the previous year, while continental Europe’s results grew almost 15%. It posted double-digit growth of 22.3% in emerging markets.

Luxottica Group SpA (ADR) (NYSE:LUX)’s brands enjoy good visibility with strong brand recognition and growth in the Oakley, Sunglass Hut, and Armani collections. Ray-Ban and Oakley reported excellent performance. During the second quarter, Sunglass Hut reported an increase of 7.3% in same-store sales. On July 4, the group opened a Sunglass Hut flagship store in New York’s Times Square, which aims to be their first store to generate eight-figure sales. Also, a licensing agreement to make sunglasses for Giorgio Armani will increase Luxottica’s earnings. Revenue from the Armani license could rise to about $266 million in the coming years.

Since 2004, the company has been aggressively acquiring businesses in new markets around the globe to meet the demand for its top-selling products. Last year, it made four acquisitions including Grupo Tecnol in Brazil and retail chains in Spain, Portugal, and Italy. Exposure in emerging markets is a strong tailwind for Luxottica Group SpA (ADR) (NYSE:LUX); not just in terms of the number of consumers, but also in the potential for the growing middle class to move up to premium brands.

The secret behind growth
The Victoria’s Secret brand is the key driver behind L Brands Inc (NYSE:LTD). Over the last three years, Victoria’s Secret’s direct sales increased at an average annual rate of 5%. Victoria’s Secret has a wide presence in the U.S. market with over 1,000 stores. To enhance the brand’s overall store productivity, L Brands Inc (NYSE:LTD) has been closing under-performing stores. As a result, revenue per square foot has jumped from $581 to $817 over the last three years. By the end of 2013, the company plans to close another 18 Victoria’s Secret stores.

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