According to the Wall Street Journal, despite expanding into new markets, the luxury-retail business has been relying on price increases to drive sales. Now, even the very wealthy are nearing the limits of what they are willing to spend. Over the past five years, the price of a Chanel quilted handbag has increased 70% to $4,900. Cartier’s Trinity gold bracelet now sells for $16,300, 48% more than in 2009.
In this article, we will try to find out how this new trend against paying an excessive price for luxury goods affects the stocks of luxury retailers, as well as what are the prospects of these companies according to top analysts and bloggers.
Like many other retailers, luxury-goods retailers, in general, underperformed the market this year. In fact, since the beginning of the year, the S&P Global Luxury Index has dropped 2.24% while the S&P 500 index has increased 7.03%. That is in contrast to the trend over the past five years, where the luxury retailers outperformed the market, and the S&P Global Luxury Index has achieved a compound average annual gain of 22.15%, compared to 15.10% of the S&P 500 index. The S&P Global Luxury Index is comprised of 80 of the largest publicly-traded companies engaged in the production or distribution of luxury goods or the provision of luxury services that meet specific investibility requirements.
Will this trend continue? Let’s find out what analysts and bloggers think by analyzing their latest recommendations. Since we wanted to eliminate all biased opinions, we have taken into account only the latest recommendations from analysts who have at least four-star rating and bloggers who have at least three-star rating, according to TipRanks, a website that ranks experts (analysts and bloggers) according to their performance.
We have summarized the latest recommendations of top experts, according to TipRanks, on five major luxury retailers.
The average percentage of “Buy” recommendations of 40.0% shows that top analysts are still bearish on the luxury retail sector. In general, analysts give much more “Buy” recommendations (averaging around 86.5%). As such, these results represent rather gloomy forecasts for the sector among the top analysts.
The table below presents the number of recommendations of top bloggers for the five major luxury retailers.
The fairly high average “Buy” recommendation of 77.8% demonstrates that top bloggers are rather bullish on the luxury retail sector.
Michael Kors: Successful 2013. Successful 2014?
The luxury retailer of branded women’s apparel and accessories and men’s apparel, Michael Kors Holdings Limited (KORS) was very successful in 2013. The stock had gained 59.1% in 2013, but is currently down 0.1% this year.
Barclays retail analyst Joan Payson recently lowered her price target on Kors shares to $82 from $85 and reiterated her “underweight” rating; saying: “When you think about the growth over the past two years, it’s been fairly unprecedented. We really don’t have much to compare it with within the space that could indicate whether there has been a bubble or not.” Payson has a success rate of 70% and an average return on +24.6%.
On the other hand, on July 22, Motley Fool blogger Brian Nichols recommended the stock; saying: “fears of margin pressure have made shares of Michael Kors very cheap, and a great long-term opportunity as the company plans for global expansion.” Nichols has a 61% success rate and +8.2% average return.
Ralph Lauren: Disappointing 2013. Disappointing 2014?
The luxury retailer Ralph Lauren (RL) has underperformed the market in the last few years; while its stock gain 8.6% in 2012 and 17.8% in 2013, this year the stock is down 9.93%. While most top analysts recommend the stock (6 buys and 1 hold), two top bloggers gave a Sell recommendation on the stock (with no buy recommendations). One of them, TheStreet.com’s blogger Kevin Cook explained: “I doubt that RL branded fashion has lost much appeal among its affluent devotees. But maybe some competition from Michael Kors has nibbled away at the franchise. I won’t speculate further on the business of RL, suffice to say I have been a KORS investor for over a year now for their global growth opportunities.”
In conclusion, top analysts are still bearish on the luxury retail sector, while top bloggers are rather bullish on the sector. Companies like Ralph Lauren (RL) and Coach, Inc. (COH) received completely opposite ratings from top analyst and top bloggers. While Ralph Lauren had 85.7% “Buy” ratings from top analysts, it did not have any “Buy” ratings from top bloggers. On the other hand, Coach, Inc. (COH) had not one “Buy” ratings from top analysts, but had 75.0% “Buy” ratings from top bloggers.
Analysts and bloggers can’t seem to agree on the luxury retail market. Who do you tend to agree more with?