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Luxury Retailers are Outperforming in a Strong Economy

David Borun
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Luxury Retailers are Outperforming in a Strong Economy

With the U.S. economy humming along, unemployment at historic lows, and Consumer Confidence at an 18-year high, Americans are spending a chunk of their discretionary income on luxury goods, boosting the earnings of Movado, Burberry Group and Tiffany & Co.

Swiss Quality Timepieces

With a wide range of watches, jewelry and accessories at multiple price points, The Movado Group (MOV) sells its own brands – Movado, ESQ and Ebel - and also manufactures goods under licensing deals with other fashion brands like Coach, Hugo Boss and Lacoste. Its Swiss-made timepieces are sold both from its own branded retail stores and high-end department stores.

After big earnings beats in the last two quarters, Movado shares have been on the rise, gaining 60% year to date. Analyst estimates are rising as well, resulting in a Zacks Rank #1 (Strong Buy).

Consensus estimates for 2018 are for earnings of $2.41/share on revenues of $625M, increases of 20% and 10%, respectively over 2017.

That Famous Blue Box

One of the most recognizable pieces of packaging in the world is the Tiffany &Co (TIF) light blue box. Operating worldwide with its own opulent boutiques as well as on the internet, Tiffany continues to command premium prices for its jewelry and accessories in a business that has in many other cases become highly commoditized. With a reputation for excellent quality and a luxurious shopping experience, Tiffany is the brand of choice for high-end jewelry customers.

Thanks to a strong Q1 earnings report in May, Tiffany shares rallied nearly 25% in a single day. The company reported revenue growth in the Americas, Asia and Europe and improved gross and operating margins. They also announced the opening of 4 new retail stores, bringing the worldwide total to 314.

Eleven analyst upward revisions in the past 30 days have the Zacks Consensus Estimate at $4.69/share for 2018 and earn Tiffany and Company a Zacks Rank #1 (Strong Buy).

The World’s Best Known Plaid

The Burberry Group Plc (BURBY) designs and manufactures luxury clothing and accessories that are sold throughout the world through an extensive network of distribution channels, including its own brick and mortar retail locations as well an online. Its iconic (and trademarked) checked plaid pattern is instantly recognizable to discerning customers.

After a difficult year in 2015, Burberry is back on track and the shares have nearly doubled in the past two years.

As a favorite of everyone from aspirational teens to the 5th avenue crowd, Burberry Group recently announced a four part plan for capital allocation. Reinvest for organic growth, a progressive dividend policy (Burberry currently yields 1.75%), make strategic investments and return excess cash to shareholders.

Burberry is a Zacks Rank #1 (Strong Buy).

While the retail sector has performed well lately, the best growth is happening at the high end, and with the global economy as strong as ever and millions of people worldwide entering the middle class – especially in India and Asia, that trend is showing no signs of slowing.

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