There are some high-end retail stocks for investors to avoid amid the luxury goods segment being tested in 2024. There are some struggling brands that investors should steer clear of due to their declining fundamentals and uncertain growth prospects.
The high-end retail stocks discussed in this article fall under the category of uncertainty. If investors own shares in these brands, it may be worth analyzing if one is getting an attractive risk-to-reward payoff and then making changes as desired.
So here are three high-end retail stocks for investors to sell this February.
Tapestry (TPR)
Tapestry (NYSE:TPR) owns brands like Coach, Kate Spade and Stuart Weitzman.
Despite achieving record earnings per share (EPS) in Fiscal Year 2023, with net income rising to $936 million from the previous year’s $856 million, the company faces challenges that investors must consider. For one, the slight dip in revenue to $6.66 billion from $6.68 billion in the previous year signals potential headwinds.
TPR stock is also navigating a risky strategy that some investors may be uncomfortable with, including the suspension of its share repurchase program due to the planned acquisition of Capri Holdings, aiming for a leverage target under 2.5x on a gross Debt/EBITDA basis within 24 months post-acquisition.
The upside for TPR is also muted, with Wall Street analysts believing it’s fairly valued and its current levels, and with a negative net cash position of -$8.19 per share, there are substantial financial risks as well, making it a relatively unattractive option compared with its peers. This then makes it one of those high-end retail stocks to sell.
Kering (PPRUY)
Kering (OTCMKTS:PPRUY), facing a 4% revenue decline in 2023 to €19.6 billion, anticipates pressure on 2024 results due to investments in its brands, particularly Gucci. The group’s focus is on revitalizing Gucci and expanding into beauty with Kering Beaute and Creed acquisition.
The company experienced a 9% drop in sales for the third quarter, with its flagship brand, Gucci, and other labels like Saint Laurent and Bottega Veneta also seeing declines. This decline was attributed to a slowing appetite for high-end clothes and accessories and efforts to take distribution in-house to cut on promotions and move its labels upmarket, which has yet to yield the expected benefits.
Kering aims for long-term growth but expects a decrease in operating income for 2024, especially in the first half.
Due to these headwinds, there have been a number of analyst downgrades for the stock recently, including by Piral Dadhania from RBC Capital, lowering it to €480 from €500.
Brilliant Earth Group (BRLT)
Brilliant Earth Group (NASDAQ:BRLT) operates within the luxury goods sector, focusing on ethically sourced fine jewelry.
BRLT stock faces some considerable problems that I feel it will struggle to overcome, including a slowdown in the bridal market, which has led to a lowered guidance.
For 2024, analysts have adjusted their expectations downwards, forecasting revenues of $483 million, which would represent a 9.3% improvement compared to the previous 12 months. Earnings per share (EPS) are expected to increase by 34% to $0.12. This adjustment reflects a more conservative outlook than previously anticipated, with revenue estimates dropping from $552 million to $483 million and EPS estimates from $0.20 to $0.12.
Oliver Chen from TD Cowen downgraded his rating from “Buy” to “Hold” in late January of this year, as well as slashing his price target to $3.4 from $3.5. What’s concerning to me is that its P/E ratio of 38 times earnings is still substantial despite its stock price lowering 39.92% over the past year.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
