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 PVH Corp. (PVH) 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
PVH Corp. (NYSE:PVH)
Analyst Upside Potential as of September 12, 2024: 38.39%
No. of Hedge Funds as of Q2 2024: 32
PVH Corp (NYSE:PVH) is a luxury fashion company that operates brands like Calvin Klein and Tommy Hilfiger. It specializes in designing and marketing casual apparel, sportswear, performance apparel, intimate apparel, accessories, handbags, footwear, and other related products. All of the company’s operations run through its operating divisions, which include Tommy Hilfiger North American, Tommy Hilfiger International, Calvin Klein International, Calvin Klein North America, and Heritage Brands Wholesale. PVH Corp (NYSE:PVH) sells its Tommy Hilfiger and Calvin Klein items through a number of distribution channels, including retail, wholesale, and licensing.
Due to the execution of its PVH+ Plan, the company is on track to deliver financial results according to expectations. It is leveraging its omnichannel execution to deliver its top-line guidance and has exceeded its EPS guidance, primarily because of the favorable settlement of a tax matter. The PVH+ Plan also focuses on enhancing shareholder value. The company repurchased $200 million worth of shares in Q1 and plans on further buybacks totaling $400 million for the year.
Revenue for the Tommy Hilfiger and Calvin Klein brands combined increased 1% last year, with modest wholesale sales growth. Under the PVH+ initiative, PVH Corp (NYSE:PVH) is continuously undertaking initiatives to boost sales, such as the recent transition of Tommy Hilfiger North America e-commerce distribution from outsourced to in-house. This transition has allowed the company to leverage open capacity, increasing service levels to its e-commerce consumers and delivering efficiencies.
PVH Corp (NYSE:PVH) has growth plans set in place for both Tommy and Calvin this fall. It is increasing consumer engagement with stronger campaigns featuring locally and globally relevant mega talents, such as collaborations with supermodel Kendal Jenner, actor Greta Lee, and K-pop talent Mingyu. Fall 2024 is also set to be the first product season where the company entirely influences product execution for both brands globally, offering strong transitional and innovative products and leaning into key growth categories. All these plans will be supported by continued enhancements in the company’s data and demand-driven supply chain. Such improvements are expected to increase stock freshness, lower AUC, and improve product quality.
Investors are bullish on PVH Corp (NYSE:PVH) due to its long-term growth objectives and profitability. It supports a consensus Buy rating from analysts, with Barclays maintaining a Buy rating on the stock. PVH Corp (NYSE:PVH) is currently trading at a forward P/E of 7.98 at a 49.08% discount to its sector. Its median price target of $93.95 implies an upside of 38.39% from current levels. It takes the second spot on our list of the top luxury clothing stocks to invest in now.
FPA Queens Road Small Cap Value Fund stated the following regarding PVH Corp. (NYSE:PVH) in its first quarter 2024 investor letter:
“PVH Corp. (NYSE:PVH) is an apparel company that owns the Tommy Hilfiger and Calvin Klein brands globally. Most of PVH’s earnings come from Europe, where the Tommy and Calvin brands are considered “almost luxury” and PVH has generally recorded high single-digit organic growth with demonstrated pricing power during the preceding decade. CEO Stefan Larsson has done an excellent job revitalizing the company and improving margins at PVH’s moribund U.S. operations. Over the past year, PVH and our other apparel companies have performed well as the worst fears for consumer spending didn’t play out. PVH has become a top five holding for us and our apparel holdings (PVH, GIII, LEVI and DECK) now make up almost 10% of the portfolio. On April 2, post quarter end, PVH announced fiscal 23Q4 results where they missed on earnings guidance for the coming year. The stock is down ~20% from its high but now trades at less than ten times forward earnings. We have held our position.”
Overall, PVH ranks second 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 PVH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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