The Federal Reserve’s interest rate hikes since last year have resulted in a significant drop in inflation. With inflation showing signs of easing and as consumer spending remains strong, the demand for luxury goods will likely remain robust.
To that end, it could be wise to invest in fundamentally strong luxury stocks, The TJX Companies, Inc. (TJX), Weyco Group, Inc. (WEYS), and J.Jill, Inc. (JILL).
Let’s discuss the state of the luxury industry before diving deeper into the fundamentals of these stocks.
Surprisingly, the luxury industry prospered during the pandemic, even when many Americans experienced unemployment and financial hardship. At a time when other sectors struggled to maintain their margins, the luxury goods industry managed to expand its profit margins.
Despite the uncertain macroeconomic conditions, luxury goods sales have been strong due to a rise in aspirations, increased consumer spending, and the reopening of the Chinese economy. Consumer spending rose 0.8% in April, as wage gains and a tight labor market well supported it.
The U.S. economy added 339,000 jobs in May, depicting a strong jobs market. With inflation on a downtrend, a tight labor market, and the Chinese economy’s recovery, the luxury industry could continue to perform well. The U.S. luxury goods industry’s sales are expected to increase 6.7% year-over-year to reach $116.60 billion in 2023.
Let’s take a closer look at their fundamentals.
The TJX Companies, Inc. (TJX)
TJX operates as an off-price retailer of apparel, home fashions, and various merchandise. It operates through four segments: Marmaxx; HomeGoods; TJX Canada; and TJX International.
In terms of the trailing-12-month net income margin, TJX’s 7.56% is 76.7% higher than the 4.28% industry average. Likewise, its 11.59% trailing-12-month EBITDA margin is 6.6% higher than the industry average of 10.88%. Furthermore, its 6.26% trailing-12-month levered FCF margin is 87.4% higher than the industry average of 3.34%.
For the first quarter ended April 29, 2023, TJX’s net sales increased 3.3% year-over-year to $11.78 billion. Its net income increased 51.8% year-over-year to $891 million. Its EPS came in at $0.79, representing an increase of 55.1% year-over-year.
Analysts expect TJX’s EPS and revenue for the quarter ending July 31, 2023, to increase 9.9% and 4.7% year-over-year to $0.76 and $12.40 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 27.1% to close the last trading session at $78.86.
TJX’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 out of 66 stocks in the B-rated Fashion & Luxury industry. It has a B grade for Sentiment and Quality. To see the other ratings of TJX for Growth, Value, Momentum, and Stability, click here.
Weyco Group, Inc. (WEYS)
WEYS is a footwear company that designs and distributes shoes for men, women, and children. It offers a variety of mid-priced leather dress shoes, casual footwear, outdoor boots, and sandals under different brands. It operates in two segments, North American Wholesale Operations; and North American Retail Operations.
In terms of the trailing-12-month gross profit margin, WEYS’ 42.74% is 21.6% higher than the 35.15% industry average. Likewise, its 13.14% trailing-12-month EBITDA margin is 20.8% higher than the industry average of 10.88%. Furthermore, its 1.25x trailing-12-month asset turnover ratio is 24.5% higher than the industry average of 1.01x.
WEYS’ net sales for the first quarter ended March 31, 2023, increased 6.1% year-over-year to $86.29 million. Its gross earnings rose 27.6% over the prior-year quarter to $37.16 million. The company’s net earnings increased 83.7% year-over-year to $7.45 million. Additionally, its EPS came in at $0.78, representing an increase of 85.7% year-over-year.
The stock has gained 29.6% year-to-date to close the last trading session at $27.42.
WEYS’ POWR Ratings reflect this positive outlook. WEYS has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the same industry, it is ranked #2 out of 66 stocks. It has a B grade for Growth, Value, and Sentiment. Click here, to see the additional POWR Ratings of WEYS for Momentum, Stability, and Quality.
J.Jill, Inc. (JILL)
JILL operates as an omnichannel retailer for women’s apparel. It offers casual wear, athletic wear, loungewear, footwear, and accessories like scarves and jewellery. The company distributes its products through retail stores, an online platform, and catalogues.
In terms of the trailing-12-month EBIT margin, JILL’s 13.03% is 76.9% higher than the 7.36% industry average. Likewise, its 17.21% trailing-12-month EBITDA margin is 58.2% higher than the industry average of 10.88%. Furthermore, the stock’s 9.03% trailing-12-month levered FCF margin is 170.1% higher than the industry average of 3.34%.
For the fiscal fourth quarter ended January 28, 2023, JILL’s net sales increased 1.7% year-over-year to $147.65 million. Its gross profit rose 2.6% over the prior-year quarter to $95.09 million. The company’s adjusted income from operations increased 7.7% year-over-year to $7.81 million. Also, its adjusted EBITDA came in at $15.05 million.
In addition, its adjusted net income and adjusted EPS came in at $1.53 million and $0.11, respectively.
Street expects JILL’s EPS and revenue for the quarter ending October 31, 2023, to increase 6.5% and 0.6% year-over-year to $0.82 and $151.10 million, respectively. Over the past nine months, the stock has gained 38.5% to close the last trading session at $22.50.
JILL’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and Quality. It is ranked #4 in the Fashion & Luxury industry. For additional ratings of JILL for Growth, Value, Momentum, and Stability, click here.
What To Do Next?
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TJX shares were trading at $79.16 per share on Tuesday afternoon, up $0.30 (+0.38%). Year-to-date, TJX has gained 0.24%, versus a 12.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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