Despite macroeconomic challenges, widespread holiday discounts and the growing prominence of online shopping are poised to drive further expansion in the luxury industry. Moreover, the recent inflation data revealing an ease in inflation from last year's highs may bode well for consumers.
In light of the promising industry landscape, this article sheds light on the fundamentals of three luxury stocks: Boot Barn Holdings, Inc. (BOOT), Steven Madden, Ltd. (SHOO), and Burberry Group plc (BURBY).
After assessing these stocks, I believe BURBY appears a strong investment candidate, while SHOO is worth keeping an eye on for a more opportune entry point. However, steering clear of BOOT for the time being could be wise.
While high inflation has posed challenges for consumer budgets throughout the year, there is a notable sense of optimism. The October inflation data indicates no change from the previous month.
When excluding the influence of volatile food and energy prices, the core Consumer Price Index (CPI) experienced a 0.2% and 4% rise, contrary to the projected figures of 0.3% and 4.1%, respectively, representing the slightest increase since September 2021.
On top of it, fears of economic uncertainty have led retailers to attract shoppers through more significant discounts this year. For instance, the price of apparel online witnessed a 9% reduction throughout October compared to the initial month, surpassing the 2% and 5% decreases observed in 2021 and 2022, respectively.
Moreover, on account of such deep holiday discounts, over the Thanksgiving weekend, the number of online shoppers increased by 3.1% to reach 134.2 million, compensating for a slight decline in the count of customers visiting physical brick-and-mortar stores.
In addition, these steep discounts lured U.S. shoppers to spend approximately $38 billion online. This indicates a robust start to the holiday shopping season, even amid swirling economic uncertainty.
In addition, a leading digital platform for luxury fashion has shared key findings from its recent survey conducted in October, highlighting that 75% of luxury consumers intend to maintain or increase their holiday spending compared to the previous holiday season.
Considering the aforementioned factors, the fashion and luxury sector stands to gain significantly from the present scenario. Projections indicate that the U.S. luxury apparel market is poised to achieve $3.55 billion in revenue by 2023, with an anticipated CAGR of 9.3%, reaching $5.54 billion by 2028.
In light of such encouraging trends and prospects, let’s dig deeper into the fundamentals of the featured Fashion & Luxury stocks, beginning with number three.
Stock #3: Boot Barn Holdings, Inc. (BOOT)
BOOT operates specialty retail stores in the United States. The company's specialty retail stores offer western and work-related footwear, apparel, and accessories for men, women, and kids. In addition, the company also provides gifts and home merchandise.
In terms of forward EV/Sales, BOOT’s 1.55x is 30.8% higher than the industry average of 1.19x. Likewise, the stock’s forward non-GAAP PEG multiple of 3.71 is 140.2% higher than the industry average of 1.55. Furthermore, its forward Price/Sales ratio of 1.33x is 52.2% higher than the 0.88x industry average.
BOOT’s trailing-12-month cash per share of $1.28 is 44.9% lower than the industry average of $2.32.
For the fiscal second quarter, which ended on September 30, 2023, BOOT’s net sales amounted to $374.46 million, while its income from operations declined 12.6% year-over-year to $38.58 million. Moreover, the company’s net income and EPS came in at $27.68 million and $0.90, down 13.6% and 16% from the prior-year quarter, respectively.
Street expects BOOT’s revenue for the fiscal third quarter (ending December 2023) to be $527.58 million, while its EPS for the same period is expected to decline 1.2% year-over-year to $1.71.
Over the past three months, BOOT’s shares have plunged 15.2% to close the last trading session at $74.43.
BOOT’s grim fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a D grade for Stability and Sentiment. In the 63-stock Fashion & Luxury industry, it is ranked #55. Click here to see BOOT’s ratings for Growth, Value, Momentum, and Quality.
Stock #2: Steven Madden, Ltd. (SHOO)
SHOO markets fashion-forward branded and private-label footwear, accessories, and apparel for women, men, and children in the United States and internationally. It operates through Wholesale Footwear; Wholesale Accessories/Apparel; Direct-to- Consumer; First Cost, and Licensing segments.
On October 23, SHOO finalized the acquisition of Almost Famous, a privately held company specializing in the design and marketing of women's apparel. Almost Famous has established itself as a key player in the industry with a distribution network which extends to wholesale customers, including mass merchants, department stores, off-price retailers, and chain stores across the United States.
Edward Rosenfeld, the Chairman and CEO of SHOO, expressed contentment with the expansion of the company's apparel platform through the acquisition of Almost Famous. Rosenfeld noted that Almost Famous’ expertise in junior apparel and its strong presence in value-priced channels bring additional strengths to the table.
In terms of forward Price/Sales ratio, SHOO’s 1.46x is 66.5% higher than the industry average of 0.88x. Meanwhile, the stock’s forward EV/EBIT multiple of 12.25 is 9.8% lower than the industry average of 13.70.
SHOO’s trailing-12-month levered FCF margin of 11.45% is 121.2% higher than the 5.18% industry average. However, its 1.04% trailing-12-month CAPEX/Sales is 65.7% lower than the 3.04% industry average.
For the fiscal third quarter, which ended on September 30, 2023, SHOO’s net sales declined marginally year-over-year to $549.85 million. However, the company’s net income amounted to $65.11 million and $0.87, up 5.4% and 10.1% from the year-ago value, respectively.
Meanwhile, during the same period, its cash and cash equivalents came in at $191.80 million, declining 30.2% compared to $274.71 million as of December 31, 2022.
Analysts predict SHOO’s revenue and EPS for the fiscal fourth quarter (ending December 2023) to increase 8.9% and 28.3% year-over-year to $509.68 million and $0.56, respectively. However, the company’s revenue and EPS for the fiscal period ending December 2023 is projected to decline 6.7% and 14.3% year-over-year to $1.97 billion and $2.40, respectively.
The stock has surged 20.3% year-to-date to close the last trading session at $38.46.
SHOO’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.
It is ranked #32 out of 63 stocks in the same industry. It has a C grade for Growth, Value, Momentum, Stability, and Sentiment. Click here to see SHOO’s rating for Quality.
Stock #1: Burberry Group plc (BURBY)
Headquartered in London, the United Kingdom, BURBY manufactures, retails, and wholesales luxury goods under the Burberry brand. The company operates in two segments, Retail/Wholesale and Licensing.
On October 2, BURBY acquired a product development business from its longstanding Italian supplier, Pattern SpA. This strategic investment marks a significant enhancement to BURBY’s technical outerwear capabilities, providing the brand with greater oversight over product quality, cost, delivery, and sustainability.
Moreover, this development not only underscores BURBY’s commitment to weaving gabardine and crafting the iconic heritage trench coats but also showcases the brand's dedication to maintaining excellence across its diverse product portfolio.
In terms of forward EV/EBIT, BURBY’s 10.96x is 20% lower than the industry average of 13.70x. Moreover, the stock’s forward non-GAAP P/E multiple of 13.68 is 9.4% lower than the industry average of 15.10.
The stock’s trailing-12-month net income margin of 14.47% is 220.1% higher than the 4.52% industry average. Its trailing-12-month Return On Common Equity (ROCE) of 34.54% is 202.9% higher than the industry average of 11.40%. Furthermore, BURBY’s trailing-12-month EBIT margin of 19.68% is 165.7% higher than the 7.47% industry average.
For the six-month period, which ended on September 30, 2023, BURBY’s revenue increased 3.8% year-over-year to £1.39 billion ($1.75 billion), while its profit for the period and EPS stood at £159 million ($200.16 million) and 42.4p, respectively. Also, its gross profit rose 3.4% from the year-ago value to £975 million ($1.23 billion).
Street expects BURBY’s revenue for the fiscal period ending March 2024 to increase 3.7% year-over-year to $3.98 billion, while its EPS for the same period is expected to be $1.38.
The stock gained marginally intraday to close the last trading session at $18.94.
It’s no surprise that BURBY has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Stability. In the same industry, it is ranked #13.
In addition to the POWR Ratings we’ve stated above, we also have BURBY’s ratings for Growth, Value, Momentum, and Sentiment. Get all BURBY ratings here.
What To Do Next?
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BURBY shares were trading at $18.55 per share on Thursday afternoon, down $0.39 (-2.06%). Year-to-date, BURBY has declined -22.02%, versus a 21.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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