MARKET UPDATE 07.10.22
Sunday Stock Lesson: Why Should You Invest in Luxury Goods Stocks?
With retail having a rocky history of profitability to bankruptcy, you may be wondering what makes luxury retailers different from the household brands we find in our everyday wear. Holding strong brand names and houses, luxury groups possess a competitive advantage in generating customer loyalty. Having customers who are willing to pay any price for the products of the brands they adore allows luxury brands to gain pricing dominance. This pricing power allows companies to guard profits against inflation, an aspect negatively affecting alternative retail investments.
Pricing power in par with brand name dominance often also results in above-average operating margins and returns on capital. For example, British powerhouse Burberry exceeded UK’s FTSE 100 Index average operating margin by 1% and average return on capital by 5.1% during the years of 2017 - 2021. With a greater ROI (return on investment) due to brand name dominance and pricing powers, luxury goods stocks prove to be a worthy investment to hold for years to come.
Stocks to Watch:
CAPRI HOLDINGS LTD (NASDAQ: CPRI)
Share Price: $42.74
Market Cap: 6.10 B
Backstory: Capri Holdings Limited is a luxury fashion holding group, founded by designer Michael Kors. Based in the British Virgin Islands with New York and London offices, the brand has established its global presence with brand names recognized across the world. The group owns and operates some of the top apparel and accessories brands, including Versace, Michael Kors and Jimmy Choo.
Current News: With a recent change in strategy, the company witnessed a 24.6% revenue increase in Q4 financial results for the full year fiscal ended April 2, 2022. With financial growth and strength across all three fashion houses, the company expects this growth to continue into 2023. Company Chairman and CEO John D. Idol states, “... we are confident in our ability to resume double digit revenue increases as we move beyond the impact of current macro headwinds. The power of Versace, Jimmy Choo and Michael Kors as well as the proven resilience of the luxury market reinforce our optimism for the future and our ability to achieve $7 billion in revenue and a 20% operating margin over time” (Capri Holdings Ltd).
TAPESTRY INC (NASDAQ: TPR)
Share Price: $31.65
Market Cap: 7.97 B
Backstory: Based in New York City, Tapestry Inc. is an American based luxury fashion holding company. With a multinational presence, Tapestry is the parent company of fashion giants Coach New York, Kate Spade New York, and Stuart Wietzman. The company has been a strong performer over the past few years, overcoming global conditions.
Current News: Despite challenges with retail footprint faced in more recent years, Tapestry is continuing to offset losses through the expansion of its online presence. With this, the company experienced a nearly 100% EBITDA growth from fiscal year 2020 to fiscal year 2021, with the trend expected to continue into 2022. Recent revenue growth shows increased demand for Tapestry’s products, and the recognizability of the brands it houses.