With less than two weeks before Christmas, the traditional spirit of generous gift-giving, delightful feasts, and cozy fireside moments holds sway as the festive season sets in. Mirroring this lively period, the holiday shopping frenzy starts with a vigorous jolt.
The increasing prominence of online shopping and holiday discounts is projected to drive substantial growth within the luxury sector. As luxury stocks retain their appeal, let’s discuss the fundamentals of stocks The Gap, Inc. (GPS), Tapestry, Inc. (TPR), and The TJX Companies, Inc. (TJX) which could be solid portfolio additions now.
Holiday retail sales are anticipated to rebound to pre-pandemic levels, spurred by optimistic consumer spending forecasts for the upcoming festive season. According to the National Retail Federation, record-setting sales are expected during November and December. It is forecasted that the growth could range from 3% to 4% over 2022, with predicted revenues landing between $957.30 billion and $966.60 billion.
A study conducted by Bain & Company and Altagamma has indicated bullish growth trends within the global luxury industry, which are projected to expand by an impressive 8% to 10%, reaching an unprecedented $1.5 trillion by 2023. The luxury retail market is transforming, with sales in the U.S. forecast to exceed $75 billion by the end of 2023.
Factors contributing to the upward trend include a growing demographic of affluent consumers, increasing income levels, a growing preference for unique and exclusive items, strategic branding initiatives, the rising prominence of online shopping and social media, and accelerated globalization efforts. The global luxury fashion market is anticipated to grow at a CAGR of 3.1%, reaching $327.10 billion by 2032.
Additional factors like early holiday discounting strategies by premier fashion retailers, technological advancements, social media campaigns, and celebrity endorsements have been identified as contributing to the booming luxury fashion sector.
Given the industry tailwinds, it's time to examine the fundamentals of the three stocks to watch in the B-rated Fashion & Luxury industry, starting with the third in line.
Stock #3: The Gap, Inc. (GPS)
GPS offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its operating segments include Old Navy Global; Gap Global; Banana Republic Global; and Athleta Global.
On November 7, GPS’ board of directors authorized a fourth quarter dividend of $0.15 per share, payable to shareholders on or after January 31, 2024.
Its annualized dividend rate of $0.60 per share translates to a dividend yield of 2.83% on the current share price. Its four-year average yield is 4.18%. GPS’ dividend payments have grown at a 35.3% CAGR over the past three years.
On October 10, Banana Republic, a GPS brand, launched an exclusive capsule collection in partnership with fashion designer Peter Do. As two American brands who believe there is significance in the approach to dressing, Banana Republic and Peter Do create a collection grounded in versatile, high-quality pieces celebrating impeccable tailoring and craftsmanship, which are at the core of both brands' design codes.
GPS’ trailing-12-month cash from operations of $1.55 billion is 530% higher than the industry average of $246.19 million. Its trailing-12-month gross profit and levered FCF margins of 45.85% and 10.74% are 29.3% and 109.1% higher than the industry averages of 35.47% and 5.14%, respectively.
Over the past three and five years, its levered free cash flow grew at CAGRs of 14.5% and 56.2%, respectively, while its total assets grew at a 6.2% CAGR over the past five years.
In the fiscal third quarter that ended October 28, 2023, GPS’ net sales stood at $3.77 billion, while gross profit increased 3.1% year-over-year to $1.56 billion. For the same quarter, non-GAAP net income and non-GAAP earnings per share stood at $221 million and $0.59, respectively.
For the nine months that ended October 28, 2023, free cash flow stood at $544 million, compared to a free cash flow of negative $689 million in the prior-year period.
Street expects GPS’ revenue and EPS for the fiscal fourth quarter ending January 2024 to be $4.23 billion and $0.24, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 117.7% over the past six months to close the last trading session at $21.23. Over the past nine months, it has gained 104.7%.
GPS’ POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth and a B for Sentiment and Quality. Within the B-rated Fashion & Luxury industry, it is ranked #18 out of 62 stocks.
To see GPS’ additional POWR Ratings for Value, Momentum, and Stability, click here.
Stock #2: Tapestry, Inc. (TPR)
TPR provides luxury accessories and branded lifestyle products in the U.S., Japan, Greater China, and internationally. The company operates in three segments: Coach; Kate Spade; and Stuart Weitzman.
On November 27, TPR announced the closing of its $4.5 billion senior unsecured notes and its €1.5 billion ($1.62 billion) Euro-denominated senior unsecured notes offerings. Together with TPR’s existing $1.4 billion of delayed draw term loans, excess cash, and anticipated future cash flow, the company has fully funded its planned $7.5 billion in debt financing.
The company’s Board of Directors declared a quarterly cash dividend of $0.35 per common share payable to the shareholders on December 26, 2023. In the fiscal year, TPR expects to return approximately $325 million to shareholders through dividend payments.
Its annualized dividend rate of $1.40 per share translates to a dividend yield of 4.05% on the current share price. Its four-year average yield is 3.08%. TPR’s dividend payments have grown at a 56.8% CAGR over the past three years.
TPR’s trailing-12-month cash from operations of $1.22 billion is 395.9% higher than the industry average of $246.19 million. Its trailing-12-month EBIT and net income margins of 17.86% and 14.03% are 138.1% and 213.3% higher than the industry averages of 7.50% and 4.48%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 11.8% and 2.2%, respectively, while its levered free cash flow grew at 26.4% and 5.5% CAGRs over the same periods.
In the fiscal first quarter that ended September 30, 2023, TPR’s net sales increased marginally year-over-year to $1.51 billion, while gross profit increased 4.1% year-over-year to $1.10 billion.
For the same quarter, net income stood at $195 million, while net income per share stood at $0.84, up 6.3% from the prior-year quarter, respectively. As of September 30, 2023, TPR’s total current assets came at $2.41 billion, compared to $2.36 billion as of July 1, 2023.
Street expects TPR’s revenue and EPS for the fiscal second quarter ending December 2023 to increase 1.3% and 7.2% year-over-year to $2.05 billion and $1.46, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 21.1% over the past month to close the last trading session at $34.53. Over the past three months, it has gained 13%.
TPR’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
TPR has an A grade for Quality and a B for Growth and Value. Within the same industry, it is ranked #10.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Sentiment. Get all ratings of TPR here.
Stock #1: The TJX Companies, Inc. (TJX)
TJX operates as an off-price apparel and home fashion retailer in the U.S., Canada, Europe, and Australia. It operates through four segments: Marmaxx; HomeGoods; TJX Canada; and TJX International.
On November 28, TJX declared a quarterly dividend on its common stock of $0.33 per share, payable to shareholders on March 07, 2024.
Its annualized dividend rate of $1.33 per share translates to a dividend yield of 1.45% on the current share price. Its four-year average yield is 1.29%. TJX’s dividend payments have grown at CAGRs of 77.8% and 11.8% over the past three and five years, respectively.
The company expects to repurchase approximately $2.25 to $2.5 billion of TJX stock during the fiscal year ending February 3, 2024.
TJX’s trailing-12-month cash from operations of $6.28 billion is significantly higher than the industry average of $246.19 million. Its trailing-12-month EBIT and net income margins of 10.16% and 7.85% are 35.4% and 75.3% higher than the industry averages of 7.50% and 4.48%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 16.1% and 6.2%, respectively, while its tangible book value grew at 7.2% and 5.5% CAGRs over the same periods.
During the third quarter ended October 28, 2023, TJX returned $1 billion to shareholders, repurchasing and retiring 7.20 million shares of its common stock at $650 million and paying $380 million in shareholder dividends.
In the fiscal third quarter that ended October 28, 2023, TJX’s net sales and income before income taxes increased 9% and 16.9% year-over-year to $13.27 billion and $1.59 billion, respectively.
For the same quarter, net income and earnings per share stood at $1.19 billion and $1.03, up 12% and 13.2% from the prior-year quarter, respectively. For the nine months that ended October 28, 2023, cash and cash equivalents at the end of the period increased 27.5% from the year-ago period to $4.29 billion.
Street expects TJX’s revenue and EPS for the fiscal fourth quarter ending January 2024 to increase 11.2% and 24.4% year-over-year to $16.15 billion and $1.11, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 25% over the past nine months to close the last trading session at $91.89. Over the past year, it has gained 16.1%.
TJX’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
TJX has a B grade for Momentum, Sentiment, and Quality. It is ranked #7 within the same industry.
Click here for the additional POWR Ratings for TJX (Growth, Value, and Stability).
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 unchanged in premarket trading Thursday. Year-to-date, TJX has gained 17.24%, versus a 24.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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