In this article, we will look at the Top 11 Luxury Clothing Stocks to Invest in Now. In this article, we will look at where Ermenegildo Zegna N.V. (ZGN) stands against other top luxury clothing stocks to invest in now.
Overall View of Trends in the Luxury Sector
The luxury segment in retail has been a prominent driver of growth in the industry. It is primarily considered a status symbol, driving discretionary spending among customers with high purchasing power.
According to a report by Mordor Intelligence, the luxury retail sector has a market size of $110.13 billion as of 2024, and is expected to grow to $151.32 billion by 2029, at a compound annual growth rate of 6.56%. While the Asia-Pacific region is the fastest-growing market in the luxury retail domain, the largest market remains concentrated in Europe.
According to McKinsey’s The State of Fashion 2024 report, the global apparel industry is expected to experience top-line growth of 2%- 4% in 2024, with variations possible in countries and regions. Quite like in previous years, the luxury segment is anticipated to generate the most significant economic profit.
However, companies in the sector may experience a tough economic environment. Growth is anticipated to slow down to 3%- 5% in 2024 compared to 5%- 7% in 2023 as the post-pandemic shopping rush slows down. However, these growth trends are likely to be contrasting in Europe and the US. While growth is set to slow in China and Europe, it is expected to pick up speed in the US after a relatively weak 2023.
Distribution of luxury apparel and improved supply chains are some of the industry’s significant growth drivers. For example, Saudi Arabia’s General Authority for Competition approved the joint venture between G Distribution B.V. and Al Rubaiyat Co. for Industry & Trade Holding in December 2021 to sell and distribute Gucci products in the country. Digital media and digital marketing are also increasing the popularity of luxury clothing among millennials, which is, in turn, driving market growth.
A Slow First Half of 2024 for Luxury Retailers
Several luxury retailers experienced substantial profit drops in the first half of 2024. The overall market is experiencing widespread struggles, primarily because luxury brands have traditionally relied heavily on Chinese consumers. With the slowing Chinese economy and a cautious consumer base, this heavy reliance is proving unprofitable, as people are reducing their spending on luxury goods. The economic slowdown in China is attributed to factors such as lower land sales, an aging population, and decreased exports.
Despite the challenges, some brands made significant strides, such as the Italian high-fashion women’s clothing and accessory brand Miu Miu, which saw nearly 60% growth last year and 90% growth in the first quarter of this year. This helped its parent company, Prada Group, increase its sales as well.
The luxury market has historically bounced back from downturns, and many in the industry hope the current challenges are temporary. Luxury brands are comparatively less affected by economic conditions as most of their purchases are made by a very small group of elite consumers.
Our Methodology
For this article, we made a list of nearly 20 luxury stocks with positive analyst upside potential and used that as our primary metric to rank the list. We chose the top 11 stocks with the highest average analyst price target as of September 12, 2024. We manually calculated analyst upsides for stocks not listed on American exchanges. We have also considered the hedge fund sentiment around each stock as a secondary metric, and sourced data from Insider Monkey’s database of over 900 elite hedge funds as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Top 11 Luxury Clothing Stocks to Invest in Now
Ermenegildo Zegna N.V. (NYSE:ZGN)
Analyst Upside Potential as of September 12, 2024: 28.46%
No. of Hedge Funds as of Q2 2024: 9
Ermenegildo Zegna N.V. (NYSE:ZGN) is a luxury brand that manufactures and designs menswear, leather goods, footwear, and other accessories under its Zegna and Thom Browne brands. It also offers luxury wear for women and children under the Thom Browne brand. However, it is famous for symbolizing iconic Italian luxury menswear. The company also acquired a long-term license for Tom Ford Fashion by the Estée Lauder Companies in 2023. Ermenegildo Zegna N.V. (NYSE:ZGN) operates a vast network of luxury flagship boutiques and concessions and has dressed famous world leaders and celebrities in its quest to solidify its image of Italian luxury. The company is continuing its partnership with Real Madrid, acting as their official luxury travel-wear partner for the 2023-2024 season and dressing one of the largest football teams in the world with its unique style.
The company opened up 24 new stores in Q1 2024, taking its total outlets to 277 globally. Its revenue stood at €463.2 million ($507.3 million), experiencing an 8% year-over-year increase. Revenues from the ZEGNA brand surpassed the growth of the overall segment, growing to €324.9 million ($355.86 million) in Q1 2024 from €319.3 million ($349.73 million) in Q1 2023. Overall, the Americas led the company’s revenues, with a rise in Direct-to-Consumer (DTC) sales being the primary driver.
The company’s revenue grew by a CAGR of 23.14% in the past three years. After delivering double-digital revenue growth in the Thom Browne and Zegna segments, the company has plans in place for continued growth. It is focused on streamlining its wholesale distribution and plans to fill out its management team at Tom Ford Fashion. Its operation plans and market presence give the company a significant edge in increasing its profitability in the long run.
Ermenegildo Zegna N.V. (NYSE:ZGN) ‘s median price target of $11.0 indicates an upside of 28.46% from current levels. The stock sports a Moderate Buy rating among analysts. 9 hedge funds hold Ermenegildo Zegna N.V. (NYSE:ZGN) as of Q2 2024.
Overall, ZGN ranks fourth among the top 11 luxury clothing stocks to invest in now. While we acknowledge the potential of luxury clothing companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ZGN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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