The increase in affluent consumers with rising purchasing power, growing social media influence on consumer behavior, and technological advances allowing retailers to offer personalized shopping experiences are driving the growth of the global fashion and luxury retail market.
Given the industry’s tailwinds, investors could consider buying fundamentally sound retail stocks, The Gap, Inc. (GPS), Hugo Boss AG (BOSSY), and J.Jill, Inc. (JILL), with attractive valuations.
The increasing number of wealthy consumers alongside their escalating income, rising desire for exclusive and distinctive products, the significance of branding and brand value, expanding impact of social media and digital channels, and swift online shopping are among the primary drivers propelling the expansion of the luxury fashion industry.
IMARC Group expects the global luxury fashion market to reach $327.10 billion by 2032, exhibiting a CAGR of 3.2% during 2024-2032. As per the report by Statista, the number of users in the luxury fashion market is expected to amount to 586.60 million by 2029.
Although millennials continue to hold a significant market share, Gen Z is gaining prominence. With a disposable income of $360 billion, the preferences of Gen Z are becoming increasingly important for luxury retailers. Also, given the rise of social media, Gen Z and millennials have easier access to the top brands, and thus over 70% follow at least one.
By 2025, millennials and Gen Z combined are expected to represent 70% of global luxury goods sales, thus propelling the luxury retail industry.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Fashion & Luxury industry stocks, beginning with the third choice.
Stock #3: The Gap, Inc. (GPS)
GAP operates as an apparel retail company. It offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.
On May 7, 2024, GPS declared a quarterly dividend of $0.60 per share, payable on or after July 31, 2024. Over the last three years, GPS’s dividend payouts have grown at a 35.3% CAGR. While GPS’ four-year average dividend yield is 3.59%, the company’s annual dividend of $0.60 translates to a yield of 2.79% at the current price level.
In terms of forward EV/EBITDA, GPS is trading at 9.04x, 7.3% lower than the industry average of 9.75x. Its forward Price/Sales multiple of 0.54 is 38.8% lower than the industry average of 0.88. Likewise, the stock’s forward EV/Sales of 0.78x is 36.6% lower than the industry average of 1.23x.
GPS’ trailing-12-month gross profit margin of 47.32% is 28.6% higher than the industry average of 36.78%. Also, the stock’s trailing-12-month levered FCF margin and ROCE of 9% and 20.80% are favorably compared to the industry averages of 5.43% and 11.42%, respectively.
For the fourth quarter that ended February 3, 2024, GPS’ net sales increased 1.4% year-over-year to $4.30 billion. Its gross profit grew 17.6% year-over-year to $1.67 billion. Additionally, its non-GAAP net income came in at $536 million, compared to a net loss of $145 million in the previous-year quarter.
Also, the company’s non-GAAP EPS came in at $1.43, compared to a loss per share of $0.40 in the prior year’s quarter.
Analysts expect GPS’ revenue for the first quarter (ended April 2024) to increase marginally year-over-year to $3.29 billion. Street expects its EPS to increase significantly year-over-year to $0.15 for the same quarter. Moreover, the company surpassed consensus EPS estimates in each of the trailing four quarters, which is promising.
GPS’ stock has soared 109.5% over the past nine months to close the last trading session at $21.49.
GPS’ POWR Ratings reflect this 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.
The stock has an A grade for Growth and a B for Momentum, Value, and Quality. It is ranked #6 in the 60-stock A-rated Fashion & Luxury industry.
Beyond what is stated above, we’ve also rated GPS for Stability and Sentiment. Get all GPS ratings here.
Stock #2: Hugo Boss AG (BOSSY)
Headquartered in Metzingen, Germany, BOSSY offers clothes, shoes, and accessories for men and women worldwide. The company also provides licensed products comprising fragrances, eyewear, watches, children’s fashion, and dog-related accessories. It markets and sells its products under the BOSS and HUGO brand names.
In terms of forward EV/EBITDA, BOSSY is trading at 5.49x, 43.7% lower than the industry average of 9.75x. Its forward Price/Sales multiple of 0.78 is 11.6% lower than the industry average of 0.88. Likewise, the stock’s forward EV/Sales of 1.03x is 16.4% lower than the industry average of 1.23x.
BOSSY’s trailing-12-month gross profit margin of 61.50% is 67.2% higher than the industry average of 36.78%. Its trailing-12-month EBIT margin of 9.65% is 25.7% higher than the 7.68% industry average. Also, the stock’s trailing-12-month net income margin of 6.16% is 29.9% higher than the 4.74% industry average.
During the first quarter that ended March 31, 2024, BOSSY’s sales grew 14% year-over-year to €1.01 billion ($1.10 billion). The company’s gross profit increased 4.9% from the year-ago value to €623 million ($676.44 million). Its operating result (EBIT) was €69 million ($74.92 million), up 6.2% from the previous year’s quarter.
Furthermore, the company’s net income came in at €41 million ($44.52 million) and €0.55 per share, indicating growth of 7.9% and 10% from the prior year’s quarter, respectively.
Analysts expect BOSSY’s revenue for the second quarter (ending June 2024) to increase 2.6% year-over-year to $1.15 billion. For the fiscal year 2024, the company’s revenue is expected to grow by 4.4% year-over-year to $4.80 billion.
Shares of BOSSY have gained 8% over the past month to close the last trading session at $11.
BOSSY’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
BOSSY has an A grade for Value and a B for Quality, Stability, and Growth. It is ranked #3 in the same industry.
In addition to the POWR Ratings highlighted above, one can access BOSSY’s ratings for Momentum and Sentiment here.
Stock #1: J.Jill, Inc. (JILL)
JILL is an omnichannel retailer of women’s apparel under the J.Jill brand. The company offers casual wear, athletic wear, loungewear, footwear, and accessories, including scarves and jewelry. The company markets its products through retail stores, websites, and catalogs.
On May 15, 2024, JILL announced that it had completed a series of debt principal payments and approved a new quarterly dividend program. The total debt repaid was $60.4 million, which reduced the original $175 million term loan issued in April 2023 to $108 million.
In addition, JILL declared an initial quarterly cash dividend of $0.07, payable on June 12, 2024. The company’s annual dividend of $0.28 translates to a yield of 0.88% at the current price level.
On April 29, 2024, JILL celebrated women’s totality and dynamic lifestyle by launching its latest campaign, One Wardrobe. No Limits.
This initiative represents a revamped shopping experience at JILL, both online and in stores, designed to honor the totality of women and provide both existing and new customers with a fabric-first approach that underscores JILL’s commitment to quality and versatility to complement her every endeavor.
In terms of forward EV/EBITDA, JILL is trading at 5.26x, 46.1% lower than the industry average of 9.75x. Its forward Price/Sales multiple of 0.56 is 37.2% lower than the industry average of 0.88. Likewise, the stock’s forward EV/Sales of 0.93x is 24.2% lower than the industry average of 1.23x.
JILL’s trailing-12-month gross profit margin of 70.68% is 92.2% higher than the industry average of 36.78%. Its trailing-12-month EBIT margin of 14.48% is 88.6% higher than the 7.68% industry average. Also, the stock’s trailing-12-month EBITDA margin of 18.27% is 65.1% higher than the 11.1% industry average.
JILL’s net sales increased 1.2% year-over-year to $149.45 million for the fourth quarter that ended February 3, 2024. Its gross profit grew 5.8% year-over-year to $100.61 million. The company’s adjusted income from operations increased 34.1% from the year-ago value to $10.47 million. Also, its adjusted EBITDA was $17.56 million, a 16.7% growth from the prior year’s quarter.
In addition, the company’s adjusted net income and adjusted net income per share came in at $3.35 million and $0.23, up 119% and 109.1% year-over-year, respectively.
Street expects JILL’s revenue for the fiscal first quarter (ended April 2024) to increase 7.1% year-over-year to $160 million. The company’s EPS is expected to rise 10.1% from the prior year’s quarter to $1.06. Also, the company has topped the consensus EPS estimates in all four trailing quarters, which is remarkable.
Over the past three months, the stock has gained 28% to close the last trading session at $31.84.
JILL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
JILL has an A grade for Growth and Quality and a B for Value, Momentum, and Sentiment. The stock is ranked first in the same industry.
Click here to access the additional JILL ratings (Stability).
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GPS shares were trading at $20.69 per share on Wednesday morning, down $0.80 (-3.72%). Year-to-date, GPS has gained 0.30%, versus a 12.07% 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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