In this article, we will look at the Top 11 Luxury Clothing Stocks to Invest in Now. In this article, we will look at where Tapestry, Inc. (TPR) stands against other top luxury clothing stocks to invest in now.
Overall View of Trends in the Luxury Sector
The luxury segment in retail has been a prominent driver of growth in the industry. It is primarily considered a status symbol, driving discretionary spending among customers with high purchasing power.
According to a report by Mordor Intelligence, the luxury retail sector has a market size of $110.13 billion as of 2024, and is expected to grow to $151.32 billion by 2029, at a compound annual growth rate of 6.56%. While the Asia-Pacific region is the fastest-growing market in the luxury retail domain, the largest market remains concentrated in Europe.
According to McKinsey’s The State of Fashion 2024 report, the global apparel industry is expected to experience top-line growth of 2%- 4% in 2024, with variations possible in countries and regions. Quite like in previous years, the luxury segment is anticipated to generate the most significant economic profit.
However, companies in the sector may experience a tough economic environment. Growth is anticipated to slow down to 3%- 5% in 2024 compared to 5%- 7% in 2023 as the post-pandemic shopping rush slows down. However, these growth trends are likely to be contrasting in Europe and the US. While growth is set to slow in China and Europe, it is expected to pick up speed in the US after a relatively weak 2023.
Distribution of luxury apparel and improved supply chains are some of the industry’s significant growth drivers. For example, Saudi Arabia’s General Authority for Competition approved the joint venture between G Distribution B.V. and Al Rubaiyat Co. for Industry & Trade Holding in December 2021 to sell and distribute Gucci products in the country. Digital media and digital marketing are also increasing the popularity of luxury clothing among millennials, which is, in turn, driving market growth.
A Slow First Half of 2024 for Luxury Retailers
Several luxury retailers experienced substantial profit drops in the first half of 2024. The overall market is experiencing widespread struggles, primarily because luxury brands have traditionally relied heavily on Chinese consumers. With the slowing Chinese economy and a cautious consumer base, this heavy reliance is proving unprofitable, as people are reducing their spending on luxury goods. The economic slowdown in China is attributed to factors such as lower land sales, an aging population, and decreased exports.
Despite the challenges, some brands made significant strides, such as the Italian high-fashion women’s clothing and accessory brand Miu Miu, which saw nearly 60% growth last year and 90% growth in the first quarter of this year. This helped its parent company, Prada Group, increase its sales as well.
The luxury market has historically bounced back from downturns, and many in the industry hope the current challenges are temporary. Luxury brands are comparatively less affected by economic conditions as most of their purchases are made by a very small group of elite consumers.
Our Methodology
For this article, we made a list of nearly 20 luxury stocks with positive analyst upside potential and used that as our primary metric to rank the list. We chose the top 11 stocks with the highest average analyst price target as of September 12, 2024. We manually calculated analyst upsides for stocks not listed on American exchanges. We have also considered the hedge fund sentiment around each stock as a secondary metric, and sourced data from Insider Monkey’s database of over 900 elite hedge funds as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Top 11 Luxury Clothing Stocks to Invest in Now
Tapestry, Inc. (NYSE:TPR)
Analyst Upside Potential as of September 12, 2024: 19.05%
No. of Hedge Funds as of Q2 2024: 32
Tapestry, Inc. (NYSE:TPR) operates an iconic global house of brands, including Coach, Kate Spade New York, and Stuart Weitzman. These brands specialize in manufacturing and distributing accessories and lifestyle collections, including handbags, jewelry, apparel, footwear, home decor, and more. Women’s accessories include leather accessories such as micro and mini handbags, wristlets, cosmetic cases, money pieces, and pouches. In addition, men’s items include small leather goods, watches, bag collections, apparel, and footwear. The high-end products are sold through the company’s direct-to-consumer, licensing, and wholesale businesses. Direct-to-consumer business includes outlet and retail stores, brand e-commerce sites, and concession shop-in-shops.
Tapestry, Inc. (NYSE:TPR) delivered a 1% total revenue growth on a constant currency basis in Q4 fiscal 2024, highlighting the positive effects of the company’s globally diversified business model. These positive results were led by a 6% international growth, with gains achieved in key regions. This includes a 14% growth in Europe, 5% in Japan, and 9% in Other Asia, collectively representing around 20% of the company’s sales and posing additional growth opportunities.
The company is focused on building and maintaining lasting customer relationships by cultivating emotional connections via its brands. This strategy has brought in more than 6.5 million new customers in North America alone, more than 50% of whom are millennials and Gen Z. These trends remain consistent with Tapestry’s efforts to expand its consumer base by including younger customers for its brands.
Tapestry Inc. (NYSE:TPR) has also improved lapsed customer reactivation in North America, showcasing its ability to maintain its existing customer base while striving for new customer engagement. The company also offers efficient omnichannel experiences to its customers, increasing brick-and-mortar sales for the year on a constant currency basis. With increased productivity being the primary driver of this growth, Tapestry Inc. (NYSE:TPR) boasts a highly profitable growth trajectory.
The stock has a consensus Buy rating from analysts, and its median price target of $42.56 implies an upside of 19.05% from current levels. It is currently trading at a forward P/E of 9.36, a 40.7% discount to its sector.
Overall, TPR ranks seventh among the top 11 luxury clothing stocks to invest in now. While we acknowledge the potential of luxury clothing companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TPR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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