The rising number of millionaires, brand loyalty among customers, and the rising perception among consumers that luxury goods contribute to greater social acceptance are the key market drivers enhancing luxury retail market growth.
Given the industry’s tailwinds, investors could consider buying fundamentally sound luxury retail stocks, Burlington Stores, Inc. (BURL), Abercrombie & Fitch Co. (ANF), and The Gap, Inc. (GPS), poised for portfolio growth.
The global luxury fashion market is being driven by several key factors, including the increasing number of wealthy consumers and their rising income levels, a growing desire for exclusivity and uniqueness, the strength of branding and brand equity, the expanding influence of social media and digital platforms, and the rapid pace of globalization. Looking forward, IMARC Group expects the market to grow at a CAGR of 3.1% by 2032.
Additionally, millennials are one of the fastest-growing consumer groups for luxury fashion items. Having been raised during the era of mobile technology, both millennials and Gen Z are tech-savvy and very familiar with an omnichannel shopping experience. As per reports by Statista, the number of users in the fashion market is expected to be 2.8 billion by 2029.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Fashion & Luxury industry stocks, starting with the third choice.
Stock #3: Burlington Stores, Inc. (BURL)
BURL operates as a retailer of branded merchandise in the United States. The company provides fashion-focused merchandise, including women's ready-to-wear apparel, menswear, youth apparel, footwear, accessories, toys, gifts, and coats, as well as baby, home, and beauty products.
BURL’s trailing-12-month gross profit margin and ROCE of 42.84% and 42.06% are 16.4% and 254.3% higher than the industry averages of 36.80% and 11.87%, respectively. Also, the stock’s trailing-12-month asset turnover ratio of 1.35x is 35.8% higher than the industry average of 1x.
BURL’s revenue grew at a CAGR of 11.6% over the past three years. Likewise, its levered FCF grew at a CAGR of 24.9% over the past five years.
In the first quarter that ended May 4, 2024, BURL’s total revenue increased 10.5% year-over-year to $2.36 billion. Its adjusted net income of $86.81 million indicates a growth of 57.8% year-over-year. The company’s adjusted earnings per share grew 60.7% year-over-year to $1.35. In addition, as of May 4, 2024, the company’s total assets stood at $7.70 billion, compared to $7 million as of April 29, 2023.
Street expects BURL’s revenue and EPS for the second quarter (ending July 2024) to increase 10.4% and 54% year-over-year to $2.40 billion and $0.92, respectively. It surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 24.4% to close the last trading session at $233.64.
BURL’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
BURL has an A grade for Growth and a B for Momentum and Quality. The stock is ranked #22 out of 59 stocks in the A-rated Fashion & Luxury industry.
To see the other ratings of BURL for Sentiment, Value, and Stability, click here.
Stock #2: Abercrombie & Fitch Co. (ANF)
ANF operates as an omnichannel retailer in the United States, Europe, the Middle East, Asia, the Asia-Pacific, Canada, and internationally.
ANF’s trailing-12-month gross profit margin of 64.07% is 74.1% higher than the 36.80% industry average. Likewise, the stock’s trailing-12-month EBIT margin of 13.09% is 67% higher than the 7.84% industry average. Its trailing-12-month EBITDA margin of 16.29% is 43.8% higher than the 11.33% industry average.
ANF’s revenue grew at a CAGR of 9.3% over the past three years. Likewise, its levered FCF grew at a CAGR of 14% over the past three years.
ANF’s net sales for the first quarter ended May 4, 2024, increased 22% year-over-year to $1.02 billion. Its gross profit rose 32.9% over the prior-year quarter to $677.46 million. The company’s net income attributable to ANF came in at $113.85 million, up 587% year-over-year. Also, its net income per share came in at $2.14, representing a considerable increase year-over-year.
Analysts expect ANF’s revenue for the second quarter (ending July 2024) to grow 14.5% year-over-year to $1.07 billion. For the same quarter, the company’s EPS is expected to grow 98.2% from the prior year’s period to $2.18. The company has surpassed the revenue and EPS estimates in each of the trailing four quarters.
Shares of ANF have surged 223.9% over the past nine months to close the last trading session at $179.75.
ANF’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
ANF has an A grade for Quality and a B for Quality. ANF is ranked #18 in the same industry. You can check ANF’s ratings for Value, Momentum, Stability, and Sentiment here.
Stock #1: The Gap, Inc. (GPS)
GPS operates as an apparel retail company. It offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.
On May 7, 2024, GPS declared a quarterly dividend of $0.60 per share, payable on or after July 31, 2024. Over the last three years, GPS’ dividend payouts have grown at a 35.3% CAGR. While GPS’ four-year average dividend yield is 3.48%, the company’s annual dividend of $0.60 translates to a yield of 2.51% at the current price level.
GPS’ trailing-12-month gross profit margin of 48.18% is 30.9% higher than the industry average of 36.80%. Also, the stock’s trailing-12-month levered FCF margin and ROCE of 8.11% and 22.72% are favorably compared to the industry averages of 5.56% and 11.87%, respectively.
GPS’ EBITDA grew at a CAGR of 1.9% over the past three years. Likewise, its levered FCF grew at a CAGR of 6.5% over the past three years.
For the first quarter that ended May 4, 2024, GPS’ net sales increased 3.4% year-over-year to $3.39 billion. Its gross profit grew 15.1% year-over-year to $1.40 billion. Additionally, its net income came in at $158 million, compared to a net loss of $18 million in the previous-year quarter.
Also, the company’s EPS came in at $0.41, compared to a loss per share of $0.05 in the prior year’s quarter.
The consensus revenue of $3.63 billion for the second quarter ending July 2024 represents a 2.4% increase year-over-year. Its EPS is expected to grow 19.5% year-over-year to $0.41 for the same period. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, GPS’ stock has gained 17.9% to close the last trading session at $23.88.
GPS’ POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
GPS has an A grade for Growth and a B for Value and Quality. Within the same industry, it is ranked #8.
To see GPS’ additional ratings for Stability, Momentum, and Sentiment, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BURL shares were trading at $236.22 per share on Friday afternoon, up $2.58 (+1.10%). Year-to-date, BURL has gained 21.46%, versus a 17.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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