Heidi Klum famously states on Lifetime’s Project Runway, “As you know in fashion, one day you’re in, and the next day you’re out.”
Taking a look at the volatile way fashion stocks have traded over the past few years, it’s important for investors to know which fashions are in, and which ones are out. With retail sales unexpectedly rebounding in April, unemployment numbers declining, and consumer sentiment rising, I believe that three fashionable stocks in particular – Luxottica Group SpA (ADR) (NYSE:LUX), Tiffany & Co. (NYSE:TIF) and Michael Kors Holdings Ltd (NYSE:KORS) will be lifted by these positive growth catalysts.
Break out the shades for summer
Although Luxottica Group SpA (ADR) (NYSE:LUX) is the world’s largest eyewear manufacturer, many American investors aren’t familiar with the Italian company, which produces Ray-Ban, Oakley, Persol, Oliver Peoples and Revo glasses. It also manufactures licensed eyewear for higher-end companies, including Coach, Polo Ralph Lauren, Chanel, Prada, Tony Burch, Tiffany and DKNY.
Luxottica Group SpA (ADR) (NYSE:LUX) has a market cap of $24 billion, operates ten production facilities worldwide, and employs over 65,000 people. Over 7,100 retail locations, including Sunglass Hut International,Pearle Vision, LensCrafters and Target, carry Luxottica brands. It even owns EyeMed Vision Care, the second largest vision benefits company in America. This vertically integrated business supports sales of its prescription eyewear. In other words, there’s a good chance that the glasses on your face were made by Luxottica.
Last quarter, Luxottica Group SpA (ADR) (NYSE:LUX)’s profit rose 21.8% while revenue climbed 4.2%. The company reported year-on-year sales growth across all geographic regions, highlighted by an impressive 17% jump in its emerging markets region, fueled by a 30% gain in Brazil. Despite ongoing troubles in Europe, Luxottica Group SpA (ADR) (NYSE:LUX) managed to generate high single-digit sales gains in France and Germany, exceeding the company’s own expectations.
Luxottica is a high momentum growth stock that has bounced back strongly from the depths of the recession. Its top and bottom line growth is also robust, rising 148% and 99%, respectively, over the past decade. In addition to its solid fundamentals, many analysts have speculated that Google Inc (NASDAQ:GOOG) will partner with Luxottica Group SpA (ADR) (NYSE:LUX) for its upcoming release of Google Glass, which could become a major source of fresh revenue.
A sparkling summer ahead for Tiffany
Meanwhile, jewelry retailer Tiffany & Co. (NYSE:TIF) turned heads recently after announcing surprisingly strong first quarter earnings. The company’s profit rose 2.5% as its revenue increased 9.3% from the prior year quarter, topping analyst estimates. Global same-store sales rose 4.0%, far ahead of the 1.5% that analysts had expected.
Tiffany & Co. (NYSE:TIF)’s strongest segment was its Asia-Pacific region, which reported a same-store sales increase of 9%. Total sales in the region rose 15% to $223 million. Sales in Japan unexpectedly increased 20%. The company attributed higher sales in Asia to products such as its key-shaped pendants and silver baubles.
Meanwhile, sales in North America, its largest market, rose 6% to $408 million. Same-store sales increased 3%, with a positive turnaround at its New York flagship store, which had been dogged by quarters of declining sales. Europe, its smallest market, reported an 8% sales gain to $93 million with same-store sales rising 6%.
Strong demand for Tiffany & Co. (NYSE:TIF)’s high-end jewelry, such as its engagement rings and yellow diamonds, helped offset some weakness in silver jewelry, which has been hurt by fewer purchases from middle-class customers, a stagnant product line, and cheaper alternatives from competitors Signet, Zale and Blue Nile. However, recent promotions related to the company’s 175th anniversary and the film The Great Gatsby (which features Tiffany-designed jewelry) contributed to a rise in store traffic in North America.
Mr. Kors will have a fabulous summer
Handbag and accessory retailer Michael Kors Holdings Ltd (NYSE:KORS) is often regarded as the hottest fashion growth stock in the market today, and for good reason. Ever since its public debut in December 2011, the Hong Kong-based company has made it a habit of posting triple-digit profit growth on top of double-digit sales gains. The company’s recently reported fourth quarter earnings continued this hot streak, with earnings more than doubling to $0.50 per share, while revenue soared 57% to $597.2 million. Global same-stores sales rose 36.7%.
Same-store sales in North America, its largest market, rose 35%. In addition to its own stores, the company is adding shop-in-shop boutiques to department stores, which helped boost its wholesale segment’s revenue by 57%. Same-store sales in Europe also grew 63%. Michael Kors Holdings Ltd (NYSE:KORS) is currently expanding into Asia as well, to catch up to its primary rival, Coach, Inc. (NYSE:COH). In addition to its popular handbags, Michael Kors Holdings Ltd (NYSE:KORS) also sells licensed watches (made by Fossil) and eyewear (made by Marchon).
Therefore, designer Michael Kors Holdings Ltd (NYSE:KORS), who rose to fame as a judge on Project Runway, looks to have a very profitable summer ahead. However, there are concerns that the stock, like any growth stock, is getting overheated. The stock has risen 60% over the past twelve months, and still trades with a trailing P/E of 38.5, at a steep premium to the industry average of 33. Yet CEO John Idol isn’t worried. “Our jet-set luxury accessories and ready to wear are resonating with consumers worldwide and we are excited by our prospects for future growth,” he recently stated.
In conclusion, I believe that all three of these fashion forward names will continue rising throughout the summer. Luxottica Group SpA (ADR) (NYSE:LUX) creates the eyewear, Tiffany & Co. (NYSE:TIF) sells the posh accessories while Michael Kors Holdings Ltd (NYSE:KORS) provides stylish in-demand handbags and watches. If consumer sentiment continues to improve and shoppers – especially female ones – open up their wallets more, this fashion triumvirate will post some big returns.
The article A Fashion Forward Trio for a Fabulous Summer originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Leo 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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