Could anyone predict that luxury retail would emerge from the 2008-09 recession at an accelerated pace?
According to BrandZ, the world’s largest brand equity database, the value of the world’s top luxury brands increased by an average of 6% during the course of the last year. BrandZ measures the perceived consumer value associated a given brand, in addition to visible factors such as market capitalization. The single-digit 6% increase in brand value for 2012 follows an impressive 15% rise during 2011, led by growth in emerging markets.
Luxury goods makers appear well-positioned on a fundamental basis. Monetary policies throughout the world by the Federal Reserve, European Central Bank, and now the Bank of Japan have resulted in excess liquidity in the market, favoring high-net worth investors who own assets such as stocks and real estate. The wealth of these individuals has grown substantially as equity markets and home prices recover to their pre-crisis highs.
Furthermore, luxury brands will experience additional growth as the middle class in BRIC nations, notably China and India, continues to expand over the next decade. Population and income trends predict that these countries could eventually have more middle class citizens than the entire populace of the United States.
Here are three notable luxury goods makers with solid fundamentals if you believe in the long-term growth story. Two of the companies are preparing to report quarterly earnings, while one company already provided a fantastic report.
Coach, Inc. (NYSE:COH) markets fine accessories and gifts for women and men under its namesake brand. The American company is experiencing growth in China and within its men’s product line.
On April 23, Coach reported better-than-expected Q3 results. Earnings per share came in at $0.84 on $1.19 billion in revenue vs. $0.81 and $1.18 billion consensus. The positive report came as a surprise, as investors anticipated an in-line quarter given increased competition within the U.S. from the likes of Michael Kors Holdings Ltd (NYSE:KORS) and other luxury brands.
Coach, Inc. (NYSE:COH) announced that its board of directors increased its dividend by 13%, bringing the annual payout to $1.35 per share from a previous $1.20. On a fundamental basis, management expects its men’s business will grow over 50% this year to over $600 million in revenue. For comparison purposes, total revenue exceeded $5 billion during fiscal 2012.
In addition to the men’s collection, Coach, Inc. (NYSE:COH) raised its full-year China sales guidance to $425 million from a previous $400 million. Asian investment firm CLSA views Coach’s international growth story positively and upgraded the stock to a “buy” rating with a $71 price target. Management stated its plans to increase China square footage by 35% during fiscal 2013, while North America square footage should increase 10%.
I continue to view Coach, Inc. (NYSE:COH) positively and believe that shares offer growth at an attractive price.
Wednesday, May 29 before market open; EPS $0.39 / Revenue $544.7 million
Michael Kors Holdings Ltd (NYSE:KORS) continues to gain preference among women and men for its fashionable leather goods, coats, watches and footwear on a worldwide basis. Following a highly successful IPO in December 2011, Kors completed a secondary offering at $61.50 per share in February 2013, more than three times higher than the $20 IPO price in less than two years time.
Investor appetite for Michael Kors Holdings Ltd (NYSE:KORS) can be justified as the company has experienced positive comparable store sales in every quarter for the last six and a half years. Revenue has grown a massive 69% in the last 12 months, while earnings have expanded 229% based on industry-leading profitability. Kors enjoys a 28% operating profit compared to an average 15% for the luxury goods industry, while its long-term net profit margin of 17% is substantially higher than the 10% industry average.
With respect to upcoming Q4 results, investors are concerned that Michael Kors Holdings Ltd (NYSE:KORS)’s same-store sales may finally begin to decelerate as the brand may reach saturation in North America over coming quarters. However, competitor Coach, Inc. (NYSE:COH) reported a strong quarter on April 23 and raised its dividend, causing investor pessimism on Kors to diminish.