Wealth inequality creates fertile ground for the luxury market to thrive. Luxury goods, known for their superior quality and durability, are priced beyond the reach of the majority. This exclusivity allows luxury brands to target the wealthy, for whom the uniqueness and prestige of a product outweighs the cost.
Fundamentally strong stocks like Ferrari NV (RACE), H&M Hennes & Mauritz AB (public) (HNNMY), and Ralph Lauren Corporation (RL) are well positioned to benefit from this trend. As the current wealth gap creates greater demand for luxury goods among the wealthy, these luxury stocks are positioned for significant growth.
Over the past 60 years, wealth has shifted dramatically from the middle class to the wealthiest, exacerbating inequality, especially in the U.S. Despite claims of progress, historical and intergenerational transfers of wealth have also widened the racial wealth gap, impacting economic disparities.
President Joe Biden’s 2024 State of the Union address suggested the racial wealth gap is narrowing, but a recent study from Duke University highlights that the gap is actually widening, driven by deep-rooted racial and economic history.
In this climate of growing wealth inequality, luxury stocks are poised for strong growth. As the wealthy class grows, their demand for luxury goods will boost sales and profits, making luxury brands a strong investment option amid economic disparity.
That said, the global luxury market has shown remarkable resilience in 2023, overcoming geopolitical and economic challenges to reach a record high of over €1.5 trillion ($1.65 trillion), signalling a thriving future for luxury investment.
According to Fortune Business Insights, the global luxury goods market is expected to grow to $392.4 billion by 2030, at a CAGR of 4.7%. This growth reflects the growing influence of technology and the increasing wealth of luxury consumers.
Given these encouraging trends, let’s take a look at the fundamentals of the three luxury stocks, starting with No. 3.
Stock #3: Ferrari NV (RACE)
Headquartered in Maranello, Italy, RACE designs, engineers, manufactures and sells luxury sports cars worldwide, as well as providing automotive spare parts, engines, after-sales service, repair, maintenance and restoration services. The company licenses the Ferrari brand to a wide range of manufacturers and retailers of luxury and lifestyle goods.
RACE announced on July 24 that it is expanding its cryptocurrency payment system to a conglomerate of European dealers. The move follows the successful launch of the system in the United States less than a year ago. RACE also plans to expand cryptocurrency trading to other countries within its international dealer network by the end of 2024.
With cryptocurrency payments becoming increasingly popular these days, the new payment system is expected to create a more convenient customer experience and boost the company’s overall popularity and growth.
On June 21, RACE announced the opening of its new e-Building in the presence of Italian President Sergio Mattarella. Equipped with state-of-the-art technology, the e-Building will be the production center for internal combustion cars, hybrids and Ferrari’s first electric car, including high-voltage batteries, electric motors and axles.
Through this new development, RACE is enhancing the production flexibility needed to supply its growing customer base.
For the second quarter of fiscal 2024 ended June 30, 2024, RACE’s net revenues increased 16.1% year over year to €1.71 billion ($1.88 billion). Adjusted EBIT increased 16.9% year over year to €511 million ($561.71 million).
Additionally, the company’s adjusted EBITDA increased 13.6% year over year to €669 million ($735.39 million), while RACE’s adjusted net income and adjusted EPS increased 23.7% year over year to €413 million ($453.98 million) and €2.29, respectively, representing increases of 25.1% year over year.
RACE’s revenue and EPS are expected to grow 10.6% and 12.4% year over year to $1.81 billion and $2.17, respectively, for the third quarter ending September 2024. Additionally, the company has beaten consensus estimates for revenue and EPS for each of the past four quarters, which is great to see.
RACE shares have risen 29.1% over the past nine months and 43.8% over the past year, closing the last trading session at $454.13.
RACE’s POWR Ratings reflect this promising outlook: the stock has an overall rating of B, which equates to a Buy in our proprietary rating system. POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
RACE has a Quality and Sentiment rating of A and a Stability rating of B. The stock is ranked 16th out of 50 stocks in the Automotive & Vehicle Manufacturers industry.
To see additional Growth, Value and Momentum ratings for RACE, click here.
Stock #2: H & M Hennes & Mauritz AB (publ) (HNNMY)
Based in Stockholm, Sweden, HNNMY designs, manufactures and sells clothing and accessories, also operates Sellpy, a digital platform for second-hand fashion, Creator Studio, a global product design hub, and, through Looper Textile, extends the life of clothing through reuse and recycling solutions.
On July 9, HNNMY-owned contemporary market and lifestyle brand ARKET announced the opening of two flagship stores in Milan and Barcelona. Both stores will stock the brand’s full range of women’s and men’s ready-to-wear, accessories, children’s wear, body care and interior design, and will be ARKET’s first stores in Italy and Spain.
These new stores will help HNNMY attract more customers and at the same time the exclusivity of the stores will also attract customers from other locations, boosting the company’s growth prospects.
On February 1, ARKET announced plans to open its first store in Poland. The new store, located in Warsaw, will stock ready-to-wear and accessories collections for women, men and children, as well as home decor essentials.
Such expansion will help HNNMY attract more customers and increase its popularity and presence, which is expected to increase the company’s revenue streams.
HNNMY’s net sales for the second quarter of fiscal 2024 (ended May 31) were SEK 59.61 billion ($5.68 billion), up 3.5% year-over-year. Gross profit increased 10.7% year-over-year to SEK 33.57 billion ($3.2 billion).
Additionally, HNNMY’s quarterly profit attributable to shareholders was SEK 5.01 billion ($477.02 million), up 51.9% from the same period last year, and the company’s earnings per share increased 54% from the same period last year to SEK 3.11.
Analysts expect HNNMY’s revenue to grow 7% year-over-year to $5.83 billion in the third quarter ending August 2024. Similarly, the company’s revenue for the next quarter (ending November 2024) is expected to grow 1.9% year-over-year to $6.14 billion.
HNNMY shares have risen 12.4% over the past six months, closing at $2.99 in the last trading session.
HNNMY’s strong fundamentals are reflected in its POWR Ratings, with an overall rating of A, which equates to a “Strong Buy” in our proprietary rating system.
HNNMY receives an A for Quality and a B for Growth and Stability. The stock is ranked #2 out of 59 stocks in the Fashion & Luxury industry.
To access additional HNNMY ratings (Momentum, Value, Sentiment), click here.
Stock #1: Ralph Lauren Corporation (RL)
For more than 50 years, RL has been a global leader in luxury lifestyle products including apparel, footwear, accessories, home, fragrance and hospitality, and its iconic brands, including Ralph Lauren and Polo Ralph Lauren, are among the world’s most recognized families of consumer brands.
The company reported steady momentum in customer acquisition and loyalty, adding 1.3 million new customers to its direct sales business in the first quarter of fiscal 2025. The company also reported overall growth in Net Promoter Score and saw social media followers increase by 60 million from last year, a high teens increase.
As the company continues to actively seek out new and loyal customers and maintains a popular social media presence, its popularity is expected to continue to grow and drive the company’s growth.
Additionally, RL opened eight company-owned and partner stores in the first quarter and also announced the newly renovated World of Ralph Lauren store on Michigan Avenue in Chicago, along with the opening of an iconic RL restaurant and the first Ralph’s Coffee shop in the Midwest.
With these new developments, the company remains firm in its mission to provide customers with a new Ralph Lauren experience, which will steadily increase the number of new customers and propel its popularity to new levels.
For the first quarter of fiscal year 2025, which ended June 29, 2024, RL’s net revenues increased 1% year over year to $1.51 billion. Adjusted gross profit increased 3.5% year over year to $1.07 billion. Additionally, the company’s adjusted operating profit increased 7.9% year over year to $215.9 million.
Additionally, RL’s adjusted net income and adjusted net income per common share increased 10.5% and 15.4%, respectively, year over year to $174.6 million and $2.70, respectively.
Looking ahead, RL expects second quarter constant currency revenue to increase approximately 3% to 4% year-over-year, reflecting low to mid single digit growth.
Operating margins are expected to expand 80 to 120 basis points excluding the impact of currency fluctuations, and gross margins are expected to expand 110 to 130 basis points, offsetting higher planned operating expenses from major marketing campaigns.
Meanwhile, analysts expect RL’s revenue to grow 2.5% year over year to $1.67 billion in the second quarter of fiscal 2025 (ending September 2024). EPS for the quarter is expected to increase 12.5% year over year to $2.36. The company has also beaten consensus estimates for revenue and EPS for each of the past four quarters.
RL shares have risen 32.6% over the past nine months and 27.3% over the past year, closing the last trading session at $164.27.
RL’s POWR Ratings reflect the company’s positive outlook: The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
RL has received an A grade for quality and is ranked 17th out of 59 companies in the Fashion & Luxury industry.
Get RL’s value, momentum, growth, stability and sentiment ratings here.
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RACE stock was trading at $458.10 per share on Friday morning, up $3.97 (+0.87%). Year-to-date, RACE has gained 35.36%, while the benchmark S&P 500 index has risen 16.93% over the same period.
About the Author: Aanchal Sugandh
Aanchal is an investment analyst and journalist driven by her passion for financial markets. She holds a Bachelor’s in Finance and is working towards the CFA program. She is adept at using her fundamental analysis skills to assess the long-term prospects of stocks. Her goal is to help investors build portfolios that generate sustainable returns. Learn more…
