Despite the increased volatility in broader markets, consumer spending, including the appetite for luxury goods, continues to grow. For instance, the S&P 500 Apparel Accessories & Luxury Goods Sub Industry Index is up more than 10% so far in 2021. As a result, investors now wonder how luxury goods stocks might fare in 2022.
Regular InvestorPlace.com readers might know that the demand for high-end products is the primary growth driver for most luxury goods stocks. For instance, the European luxury sector fell 15% from August to October after China “announced plans to redistribute wealth,” ending an impressive rally in luxury goods stocks.
Then, European luxury goods stocks took a further beating on the news about China’s surging factory inflation in October — implying squeezed margins and fueling uncertainty about the growth prospects of the second-largest economy worldwide. As a result, Goldman Sachs (NYSE:GS) reduced its forecast for global luxury industry sales growth in 2022.
Meanwhile, Morgan Stanley (NYSE:MS) estimates digital demand to add revenue of $50 billion to the luxury goods space by 2030. “The Metaverse will likely take many years to develop; however, NFTs and social gaming (e.g., online games and concerts attended by people’s avatars) present two nearer-term opportunities for luxury brands,” the firm said.
So, with that in mind, here are three luxury goods stocks that could be good to add to long-term portfolios.
Now, let’s dive in and take a closer look at each one.
Luxury Goods Stocks: Capri (CPRI)
52-Week Range: $37.95 – $69.26
U.K.-based Capri is the parent company of several brands, including Michael Kors, Versace and Jimmy Choo. So it is a prominent player in the upscale accessories and apparel space.
Capri released second quarter of fiscal year 2022 results in early November. Revenue increased 17% year-over-year (YOY) to $1.3 billion. Also, adjusted net income came in at $235 million, or $1.53 per diluted share. This is up from $137 million, or 90 cents per diluted share, during the same period last year.
On the results, CEO John D. Idol remarked, “We are pleased with our second quarter results with revenue, gross margin, operating margin and earnings per share all exceeding our expectations.”
Management’s strategic initiatives have helped compensate for headwinds generated by supply chain constraints and rising logistics expenses. While Michael Kors, Versace and Jimmy Choo all delivered double-digit top-line growth. Overall, Versace stood out with sales surging 45% YOY.
Moreover, the company anticipates generating $5.4 billion in revenue during FY22. Capri also raised guidance for its diluted EPS outlook to an estimate of $5.30.
Additionally, CPRI stock surged almost 20% after the company reported Q3 earnings. Now, shares currently trade at $67 territory, up more than 60% year-to-date (YTD). Despite the increase in its price tag, CPRI stock is trading at only 11.3 times forward earnings and 1.9 times trailing sales. Also, the 12-month median target for CPRI stock is right at $80 per share.
Harley-Davidson (HOG)
52-Week Range: $31.20 – $52.06
Dividend Yield: 1.56%
Milwaukee, Wisconsin-based Harley-Davidson is a legendary company well-known for its motorcycles, as well as parts, accessories, riding gear and apparel.
Harley-Davidson released its Q3 results in late October. Revenue increased 17% YOY to $1.37 billion, beating analyst expectations of $1.14 billion. Net income soared 36% to $163 million, or $1.05 per GAAP diluted share. This is up from $120 million, or 78 cents per GAAP diluted share, in the prior-year period. Cash and equivalents ended the quarter at $2.06 billion.
On these metrics, CEO Jochen Zeitz remarked, “Harley-Davidson delivered a solid third quarter and we have seen many of our Hardwire strategic initiatives perform well, providing encouraging initial proof points of our five-year strategy.”
Harley-Davidson has launched a strategic five-year plan to reinvigorate its brand by focusing resources on the most profitable bikes. As a result, U.S. deliveries surged 10% despite supply chain constraints, offsetting the fall in overseas sales. Additionally, Wall Street was pleased with surpassing the prior-year quarter’s performance.
Now, HOG stock hovers around $37, up about 1.5% this year. Shares are trading at 8.8 times forward earnings and 1.1 times trailing sales. Also, the 12-month median target for HOG stock sits at $48 per share.
Luxury Goods Stocks: LVMH Moet Hennessy Louis Vuitton (LVMUY)
52-Week Range: $118.48 – $168.06
Dividend Yield: 1.01%
Paris, France-based LVMH is a global producer and distributor of luxury goods, including leather goods, wine and spirits, perfumes and cosmetics, jewelry and watches, among other luxury businesses.
LVMH announced strong Q3 results in mid-October. The company saw revenue rapidly recover from the lows of the novel coronavirus pandemic. In fact, LVMH reported a 46% increase in revenue through the first three quarters, with total revenue up 11% above 2019 levels. Moreover, Q3 revenue soared 20% YOY to $15.5 billion.
Moreover, management is diversifying operations so that brands can appeal to a broader range of consumers. At the start of the year, LVMH bolstered the jewelry business by acquiring the prominent jewelry brand Tiffany. In October, the company also added the French perfume and cosmetics company Officine Universelle Buly to its portfolio.
Right now, LVMH stock trades at the $160 territory, up 28.7% so far in 2021. Shares are trading at 29 times forward earnings and 6.5 times trailing sales.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on the technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
