As the U.K. is dolling up for the royal wedding tomorrow, we may well regale in stocks of luxury goods that are being well-liked by investors. The luxury goods market is continuing its joy ride this year and expected to reach $182 billion.
Understandably, after a robust 2017 and a splendid first quarter, U.S. luxury goods’ stocks seem poised for a great year thanks to optimism surrounding steady economic growth, lower tax rates, strong wage growth and a robust earnings season.
Strong revenues registered by a number of luxury brands along with an increasing number of millennials spending more on luxury goods bode well too. This willingness to spend more can be traced back to high U.S. consumer confidence and consumer spending. Given this scenario, it makes good sense to indulge in luxury goods stocks.
Luxury Goods Market on Steady Growth Track
The U.S. luxury goods market witnessed a great 2017, with luxury spending growing 5% globally, according to management consulting firm Bain & Co. The S&P Global Luxury Index rose 27.9% last year. Interestingly, the personal luxury goods market grew globally in 2017, driven by robust local consumption and tourist purchases. Local consumption of personal luxury goods rose 4%, while tourist consumption grew 6%.
The strength in U.S. luxury goods stocks continued through the first quarter of 2018, corroborated by a robust earnings season. Nordstrom, Inc. (JWN) reported first-quarter adjusted earnings of 51 cents per share and revenues of $3.56 billion, surpassing the Zacks Consensus Estimate of 42 cents and $3.47 billion, respectively. Revenues also increased almost 6% from $3.35 billion in the year-ago period.
Other luxury companies expected to report earnings also seem confident of putting up a stellar show. In fiscal fourth-quarter 2017, PVH Corp (NYSE:PVH) had projected its revenues to rise 7% in fiscal 2018, while constant-currency revenues were projected to grow 4% from fiscal 2017. Shares of PVH Corp have surged 55.6% in the past year, while Michael Kors Holdings Ltd (NYSE:KORS), Nordstorm, Inc. (NYSE:JWN) and Ralph Lauren Corp (NYSE:RL) have rallied 83.2%, 25.2% and 59.2%.
Moreover, according to Bain & Co, the global luxury goods market is expected to grow at a compound annual rate of 4-5% over the next three years, while the personal luxury goods market is expected to reach €295-€305 billion by 2020.
Favorable Economic Scenario
The U.S. economy is stepping up, giving the luxury goods market a solid boost. Higher wages, a low jobless rate and upbeat consumer confidence, all indicate a bullish economy.
Moreover, U.S. consumer confidence touched 128.7 in April, surpassing expectations of 126 and recovering from its fall in March. Also, U.S. consumer spending is once again increasing as evident from a retail sales rise in April. According to JP Morgan, consumer spending is running at an annualized rate of 2.4% in the second quarter, double the pace in the first. This positive sentiment is definitely going to reflect on increased purchase of personal luxury goods.
Our Choices
Luxury goods stocks have been doing well for some time now. Moreover, with positives such as a recovering economy, lower tax rates and business-friendly policies, high consumer confidence, and robust consumer spending, luxury brands are poised for growth in 2018.
While binging on luxury goods stocks looks like a smart option now, picking winning stocks may be difficult. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
PVH Corp (NYSE:PVH) designs and markets branded dress shirts, neckwear, sportswear, footwear and other related products.
The company has expected earnings growth of 15.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 60 days. The stock carries a Zacks Rank #2 (Buy).
Ralph Lauren Corp (NYSE:RL) is engaged in designing, marketing and distributing men’s, women’s and children’s apparel, accessories, fragrances and home furnishings.
Ralph Lauren Corporation has a Zacks Rank #2. The company has expected earnings growth of 4.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 60 days.
Michael Kors Holdings Ltd (NYSE:KORS) is a global accessories, footwear and apparel company. It offers two primary collections: the Michael Kors luxury collection and the MICHAEL Michael Kors accessible luxury collection.
Michael Kors Holdings Limited has a Zacks Rank #2. The company has expected earnings growth of 5.9% for the ongoing year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 60 days.
Nordstorm, Inc. (NYSE:JWN) is a leading fashion specialty retailer offering compelling clothing, shoes and accessories for men, women and children.
Nordstrom has a Zacks Rank #2. The company has expected earnings growth of 15.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.3% over the last 90 days.
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