RL: 3 Luxury Stocks Capitalizing on High-Income Consumer Trends

Luxury stocks are thriving as high-income consumers continue to drive demand for premium goods and services. Brands catering to this segment are reporting strong revenue growth, especially in categories like apparel, jewelry, and travel.

Below, I have highlighted three luxury stocks: Ralph Lauren Corporation (RL - Get Rating), PVH Corp. (PVH - Get Rating), and Nordstrom, Inc. (JWN - Get Rating), which have strong fundamentals and long-term appeal.

Despite economic uncertainties, the spending power of affluent individuals remains robust, bolstered by resilient income growth and pent-up demand for luxury experiences. As per a Bain & Company forecast, the global luxury spending for 2024 is projected to reach nearly €1.5 trillion ($1.6 trillion). Moreover, 70% of U.S. consumers make a luxury goods purchase each year, driven by the trends on social media. This propels the luxury retail sector.

According to Statista, the global luxury goods market is anticipated to reach $92.98 billion by 2029, exhibiting a CAGR of 9.7%. Meanwhile, Western markets like the United States and Europe benefit from the enduring appeal of established brands bolstered by a resurgence in tourism.

Luxury retail clienteling has three primary cornerstones, that is namely, relationships, personalization, and data. Many brands are adopting digital tools to enhance customer experiences, such as personalized shopping and online exclusives. Additionally, collaborations and limited-edition releases are helping companies maintain desirability among high-income buyers.

Considering these factors, let’s take a look at the fundamentals of the top three Fashion & Luxury stocks, beginning with the third choice.

Stock #3: Ralph Lauren Corporation (RL - Get Rating)

RL is engaged in the design, marketing, and distribution of luxury lifestyle products internationally, including apparel, footwear & accessories, home, fragrances, eyewear, fine jewelry, and hospitality. The company operates through three segments: North America; Europe; and Asia.

2024 STOCK MARKET OUTLOOK

On December 13, demonstrating its commitment to returning value to shareholders, the company declared a quarterly dividend of $0.83 per share, payable on January 10, 2025, to shareholders of record at the close of business on December 27, 2024.

RL pays an annual dividend of $3.30, which translates to a yield of 1.45% at the current share price. Its four-year average dividend yield is 1.86%. Moreover, the company’s dividend payouts have increased at an impressive CAGR of 31.8% over the past three years.

In terms of the trailing-12-month net income margin, RL’s 10.15% is 143.1% higher than the 4.17% industry average. Similarly, its 11.78% trailing-12-month levered FCF margin is 164.3% higher than the industry average of 4.46%. Also, its trailing-12-month ROCE of 28.42% compares to the industry average of 11.03%.

For the fiscal 2025 second quarter that ended on September 28, RL’s net revenues increased 5.7% year-over-year to $1.73 billion, while its Asia segment’s net revenue improved 9.1% from the prior year’s value to $380.20 million. Its gross profit rose 8% year-over-year to $1.16 billion. Moreover, the company’s net income amounted to $147.90 million, or $2.31 per share, reflecting increases of 0.7% and 5.5% year-over-year, respectively.

According to the full-year outlook, RL forecasts fiscal year 2025 constant currency revenue to be in the range of 3% to 4%.

The consensus revenue estimate of $2.01 billion for the fiscal third quarter (ending December 2024) represents a 3.9% increase year-over-year. The consensus EPS estimate of $4.50 for the same quarter indicates a 7.8% improvement year-over-year. The company has an excellent surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

RL shares have surged 64.4% over the past year and 27.3% over the past three months to close the last trading session at $227.45.

RL’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to 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 and a B for Sentiment. Among the 60 stocks in the Fashion & Luxury industry, it is ranked #13. Click here to see the additional RL ratings (Growth, Value, Momentum, and Stability).

Stock #2: PVH Corp. (PVH - Get Rating)

PVH is an international apparel company. The company operates through five segments: Tommy Hilfiger North America; Tommy Hilfiger International; Calvin Klein North America; Calvin Klein International; and Heritage Brands Wholesale. It designs and markets men’s, women’s, and children’s branded apparel, footwear and accessories, underwear, and sleepwear.

On October 30, the company declared a quarterly dividend of $0.0375 per share, payable to its shareholders on December 18, 2024. PVH pays an annual dividend of $0.15 per share, which translates to a yield of 0.14% on the prevailing share price. The company’s dividend payouts have increased at an impressive CAGR of 58.7% over the past three years. Also, its four-year average dividend yield is 0.12%.

The stock’s trailing-12-month net income margin of 8.13% is 94.8% higher than the industry average of 4.17%. Similarly, its 6.34% trailing-12-month ROTA is 63.9% above the industry average of 3.87%. Also, its trailing-12-month EBIT margin of 9.85% compares favorably to the industry average of 8.06%.

PVH’s total revenue for the nine-month period (ended November 3, 2024) amounted to $5.94 billion. The company reported a non-GAAP net income of $483.60 million, indicating a 10.7% growth from the prior year period, and its non-GAAP net income per share came in at $8.48, up 21% year-over-year.

Looking ahead, PVH anticipates full-year earnings per share for fiscal year 2024 to fall between $11.20 and $11.45. The company also projects non-GAAP EPS to range from $11.55 to $11.80.

Street expects PVH’s revenue for the fiscal first quarter (ending April 2025) to increase marginally year-over-year to $1.96 billion. Moreover, its EPS estimate of $2.64 for the same period indicates a 7.8% year-over-year growth.

Over the past year, the stock has surged 14.6%, closing the last trading session at $108.52.

PVH’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It also has an A grade for Value and a B for Quality. Within the same industry, it is ranked #12. Click here to see PVH’s ratings for Growth, Momentum, Stability, and Sentiment.

Stock #1: Nordstrom, Inc. (JWN - Get Rating)

JWN is a fashion retailer offering apparel, shoes, beauty, accessories, and home goods for all ages and through various channels, Nordstrom and Nordstrom Rack stores, online platforms, and Last Chance clearance outlets.

On November 20, buoyed by strong financial performance, the company declared its quarterly dividend of $0.19 per share, payable on December 18, 2024. JWN pays an annual dividend of $0.76, which translates to a yield of 3.28% at the current share price. Its four-year average dividend yield is 2.49%.

JWN’s trailing-12-month ROCE of 30.54% is 176.7% higher than their respective industry average of 11.03%. Likewise, its trailing-12-month asset turnover ratio of 1.65x is 97.6% above the industry average of 0.98x.

During the third quarter that ended on November 2, 2024, JWN’s revenue increased 4.3% year-over-year to $3.46 billion. The company’s adjusted EBITDA came in at $231 million, reflecting an increase of 12.7% from the prior year quarter, with an adjusted EBIT margin of 2.9% (up 50 bps year-over-year). Its adjusted EPS amounted to $0.33, reflecting an increase of 32% year-over-year. Also, JWN’s free cash flow came in at $78 million versus a loss of $231 million last year.

For the full year 2024, JWN expects adjusted EBIT margin to fall between 3.6% and 4% and adjusted EPS to range from $1.75 to $2.05.

Analysts expect JWN’s revenue and EPS for the current year (ending January 2025) to be $14.87 billion and $1.95, respectively. For the fiscal year 2026, its revenue and EPS are expected to grow 2.1% and 3.6% from the prior year to $15.18 billion and $2.02, respectively.

The stock has gained 33.9% over the past year and 28.9% over the past nine months to close the last trading session at $23.18.

It’s no surprise that JWN has an overall rating of B, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Momentum and Quality. Out of 60 stocks in the Fashion & Luxury industry, JWN is ranked #4.

Beyond what is stated above, we’ve also rated JWN for Growth, Stability, and Sentiment. Get all JWN ratings here.

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RL shares were trading at $232.92 per share on Monday afternoon, up $5.47 (+2.40%). Year-to-date, RL has gained 63.64%, versus a 29.03% rise in the benchmark S&P 500 index during the same period.