The increased demand from affluent consumers is driving growth in apparel retail market growth. Given the industry’s tailwinds, investors could consider buying fundamentally sound apparel retail stocks, Ralph Lauren Corporation (RL), Ross Stores, Inc. (ROST), and The TJX Companies, Inc. (TJX).
Consumer demand for sustainable and eco-friendly products, particularly in apparel, is rising. People are becoming more aware of the environmental and social impacts of the clothing industry, leading them to actively seek garments made from sustainable, ethical materials like organic cotton, recycled fabrics, and other innovative alternatives.
Therefore, the global apparel market is projected to grow at a CAGR of 4.1% from 2024 to 2030.
Additionally, millennials are one of the market's fastest-growing consumers of luxury fashion goods. Since millennials and Gen Z are tech-savvy and have grown up in the era of mobile technologies, they are highly exposed to the omnichannel 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: Ralph Lauren Corporation (RL)
RL designs, markets, and distributes lifestyle products in North America, Europe, Asia, and internationally. The company offers apparel, including a range of men's, women's, and children's clothing; footwear and accessories, as well as leather goods, and home products.
RL’s trailing-12-month gross profit margin and ROCE of 67.14% and 28.40% are 149.1% and 254.3% higher than the industry averages of 37.13% and 11.40%, respectively. Also, the stock’s trailing-12-month EBIT margin of 12.21% is 56% higher than the industry average of 7.83%.
In the second quarter that ended June 29, 2024, RL’s net revenues increased marginally year-over-year to $1.51 billion. Its net income of $168.60 million exhibited a growth of 27.6% year-over-year. The company’s net income per common share grew 33.2% year-over-year to $2.61. In addition, as of June 29, 2024, the company’s total assets stood at $6.64 billion, compared to $6.87 billion as of July 1, 2023.
Street expects RL’s revenue and EPS for the second quarter (ending September 2024) to increase 2.4% and 12.3% year-over-year to $1.67 billion and $2.36, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 53% to close the last trading session at $171.14.
RL’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.
RL has an A grade for Quality. The stock is ranked #17 out of 58 stocks in the B-rated Fashion & Luxury industry.
To see the other RL ratings for Sentiment, Value, Growth, Momentum, and Stability, click here.
Stock #2: Ross Stores, Inc. (ROST)
ROST is engaged in operating off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brand names in the United States. Its stores primarily offer branded and designer apparel, accessories, footwear, and home fashions.
ROST’s trailing-12-month EBIT margin and EBITDA margin of 12.06% and 14.15% are 54.1% and 23% higher than the industry averages of 7.83% and 11.50%, respectively. Also, the stock’s trailing-12-month asset turnover ratio of 1.47x is 49.1% higher than the industry average of 0.99x.
In the first quarter that ended May 4, 2024, ROST’s sales increased 8.2% year-over-year to $4.86 billion. Its net earnings of $487.99 million indicate a growth of 31.5% year-over-year. The company’s earnings per share grew 33.9% year-over-year to $1.46. In addition, as of May 4, 2024, the company’s total assets stood at $14.49 billion, compared to $13.62 million as of April 29, 2023.
Analysts expect ROST’s revenue for the year ending January 2025 to grow 4.6% year-over-year to $21.31 billion. The company’s EPS is expected to grow 10.5% from the prior year to $6.14 for the same year. It has surpassed the revenue and EPS estimates in each of the trailing four quarters.
Shares of ROST have surged 17.6% over the past nine months to close the last trading session at $154.21.
ROST’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.
ROST has an A grade for Sentiment and a B for Momentum and Quality. ROST is ranked #16 in the same industry. You can check ROST’s ratings for Value, Stability, and Growth here.
Stock #1: The TJX Companies, Inc. (TJX)
TJX operates as an off-price apparel and home fashion retailer in the United States, Canada, Europe, and Australia. It operates through four segments: Marmaxx; HomeGoods; TJX Canada; and TJX International.
On June 7, 2024, TJX announced that it entered into a definitive agreement for a joint venture with Grupo Axo, S.A.P.I. de C.V., under which TJX would own 49% and Axo would own 51% of the joint venture. The joint venture would comprise Axo’s off-price physical store business in Mexico, which includes a total of over 200 stores. The transaction is expected to close later this year.
TJX’s trailing-12-month CAPEX/Sales of 3.39% is 12.2% higher than the industry average of 3.02%. Similarly, its trailing-12-month EBIT margin and net income margin of 10.96% and 8.56% are 40.1% and 86.2% higher than the industry averages of 7.83% and 4.60%, respectively.
TJX’s net sales for the fiscal second quarter that ended August 3, 2024, amounted to $13.47 billion. The company’s net income and earnings per share stood at $1.10 billion and $0.96, respectively.
The consensus revenue of $13.98 billion for the third quarter ending October 2024 represents a 5.4% increase year-over-year. Its EPS is expected to grow 6.7% year-over-year to $1.10 for the same quarter. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past six months, TJX’s stock has gained 21.1% to close the last trading session at $120.13.
TJX’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TJX has a B grade for Momentum and Quality. Within the same industry, it is ranked #15.
To see TJX’s additional ratings for Stability, Growth, 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.
TJX shares were trading at $120.04 per share on Tuesday afternoon, down $0.09 (-0.07%). Year-to-date, TJX has gained 29.33%, versus a 18.95% 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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