A Valentine’s Day necklace, a diamond engagement ring, and a designer handbag are all luxury items with the power to evoke happiness when received as a gift and jealousy when seen on someone else. Recent earnings reports have the market buzzing about the luxury retailers that produce these coveted items. Let’s look closer at these companies to see what high-end stocks would look good in your portfolio and what is best left on the shelf.
![Coach, Inc. (NYSE:COH)](https://imonkey-blog.imgix.net/blog/wp-content/uploads/2013/07/coach_logo_jpg_1351852408-600x449.jpg?auto=fortmat&fit=clip&expires=1756080000&width=480&height=359)
Battle of the bags
In the world of American luxury goods, Coach, Inc. (NYSE:COH) and Michael Kors Holdings Ltd (NYSE:KORS) are competing head to head with Michael Kors Holdings Ltd (NYSE:KORS) taking business from its rival. Recently, Kors has been growing much faster than Coach, Inc. (NYSE:COH) with a quarterly revenue growth (year-over-year) of 70.4% and a quarterly earnings growth of 233.1%. This blows Coach, Inc. (NYSE:COH)’s recent revenue and earnings growth of 7.1% and 6.2% out of the water. Kors’ low price point makes it an affordable luxury and is allowing the younger company to take market share from Coach. With a trailing P/E ratio of 36.29, Kors is expected to have continued, large growth. Kors’ most recent earnings report showed a 57.16% increase in revenue to $597.2 million from the previous year’s quarter. It also reported earnings per share of $0.50 that crushed the analyst estimates of $0.39.
Both Michael Kors and Coach, Inc. (NYSE:COH) have a large growth opportunity overseas especially in China and Japan. In 2012, Coach had 205 international shop locations and 180 department stores operated by Coach Japan. Michael Kors Holdings Ltd (NYSE:KORS) only has 70 international stores which leaves plenty of room for the young company to continue rapid growth overseas.
With Michael Kors Holdings Ltd (NYSE:KORS)’ massive growth, it is easy to ignore other important performance measures. Coach, Inc. (NYSE:COH) has revenue of $5.01 billion yielding a net income of $1.06 billion. This dwarfs Kors’ revenue and net income of $1.96 billion and $340.11 million respectively. Currently, Coach has a profit and operating margin of 21.26% and 31.12% respectively. This outshines Kors by about 4% in each category showing that Coach’s pricing might be more effective.
Both Coach and Michael Kors Holdings Ltd (NYSE:KORS) are strong brands. Coach, Inc. (NYSE:COH) is older and more established, but Kors is quickly becoming a household name. With its impressive growth and potential for future earnings, I think Michael Kors is the stock to buy between these two.
Don’t get too excited for the blue box
Tiffany & Co. (NYSE:TIF) and its blue boxes received optimistic attention after releasing its financial results for the first quarter ending April 30, 2013. Shares of the luxury retailer increased 4.2% following reports showing a worldwide sales increase of 9% that led to a 3% increase in net earnings. This revenue increase, from $819.2 million to $895.5 million, easily beat the analyst estimate of $855.7 million.
These unexpected results have been attributed to a combination of promotional tactics surrounding Tiffany & Co. (NYSE:TIF)’s 175th anniversary and The Great Gatsby film. In spite of this positive news, though, Tiffany is still coming off two disappointing holiday seasons and is not overly optimistic. Tiffany did not change its profit outlook for the year. According to Tiffany & Co. (NYSE:TIF)’s head of investor relations, Mark Aaron, “[Tiffany] cautions you not to draw overly optimistic conclusions from the first quarter.”
I would take Aaron’s advice. With a current stock price of almost $80, a PEG ratio of 1.92, and quarterly earnings growth of only 0.7%, Tiffany currently appears to be overvalued. If Tiffany & Co. (NYSE:TIF) can continue to capitalize on The Great Gatsby and have positive growth during the second quarter, it could turn into a buy. With its history and customer loyalty, Tiffany & Co. (NYSE:TIF) is a strong brand that still has growth potential overseas. But for now, I’d leave Tiffany alone until its stock price comes down.
Conclusion
When it comes to luxury items, Coach, Inc. (NYSE:COH), Michael Kors Holdings Ltd (NYSE:KORS), and Tiffany & Co. (NYSE:TIF) are all recognizable brands that people will pay a premium to own. This is because these items aren’t just bags or jewelry, they’re status symbols. People want to be associated with these brands, and that gives these companies tremendous power. Opportunity lies in international expansion. The luxury item market has seen growth in sales over the past few months and it will be interesting to see if second quarter earnings reports are as favorable as the first quarter’s. So invest and you can find yourself living in luxury thanks to luxury.
The article The Height of Luxury: Which Luxury Brands Are on the Rise? originally appeared on Fool.com and is written by Ben Popkin.
Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Ben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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