Some people love to purchase luxury brands to pamper themselves, from luxury apparel and handbags to scarfs and shoes. Many of the companies that make them enjoy consistent patronage and can make for solid growth stocks you can buy and own for the long term.
Such businesses have solid reputations that endow them with strong brand recognition and customer loyalty. Grouped under consumer discretionary, stocks which sell luxury goods should be on your radar when it comes to looking for businesses with great long-term prospects.
Here are three such businesses that could be great for growing your investment portfolio over the long term.
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Tapestry
Tapestry (TPR -0.47%) is a fashion company that owns three major brands: Coach New York, Kate Spade New York, and Stuart Weitzman. The company operates 1,429 stores globally of which 939 belong to Coach, 397 to Kate Spade, and the remainder to Stuart Weitzman.
These brands have a long history, and the company has seen steady increases in sales and net income over the years as demand for its products remains strong. Sales went from $5.7 billion in fiscal 2021 (ended July 3) to $6.7 billion by fiscal 2023. Net income has risen in tandem, going from $834.2 million to $936 million over the same period. The business also generated an average positive free cash flow of $919.3 million over these three years, an important point which will be mentioned again later.
For the first nine months of fiscal 2024, Tapestry saw both sales and operating income inch up just 0.8% and 0.7% year over year, respectively, to $5.1 billion and $905.1 million. Net income fell by 7.8% to $656.7 million because of higher-interest expenses arising from the company's acquisition of Capri Holdings, which was announced in August last year. Capri is a global fashion luxury group with iconic brands such as Versace, Jimmy Choo, and Michael Kors, and management at Tapestry believes that this purchase can help to increase the number of brands under its portfolio to target a wider range of consumers.
The company has stated that the total addressable market for luxury goods, such as handbags, footwear, and accessories, is worth more than $200 billion, creating significant opportunities for Tapestry to increase its top and bottom lines by penetrating new customer segments.
The acquisition is also complementary in that Tapestry and Capri are strong in Asia and Europe, thereby expanding the former's geographic coverage. Although Tapestry's total debt has ballooned from $1.6 billion as of July last year to $7.7 billion currently, investors should not fret as the company has a great track record of free-cash-flow generation, which can help to progressively pay down this debt.
The Federal Trade Commission (FTC) attempted to block this acquisition by filing a lawsuit back in April, but Tapestry is confident of closing this transaction before the end of the calendar year.
Ralph Lauren
Ralph Lauren (RL -0.97%) is a recognized leader in luxury fashion with products spanning five categories: apparel, footwear and accessories, home, fragrances, and hospitality. The company has enjoyed a steady increase in both its top and bottom lines over the years.
Fiscal 2022 (ended April 2) logged revenue of $6.2 billion; by 2024, revenue had increased to $6.6 billion. Net income increased from $600 million to $646.3 million over the same period, and the business generated an average positive free cash flow close to $550 million from fiscal 2022 to 2024.
The positive momentum has carried over into the first quarter of fiscal 2025. Revenue edged up 1% year over year to $1.5 billion, while operating income shot up 25.3% year over year to $208.5 million.
Net income came in 27.6% higher than the prior year at $168.6 million, but investors should note that both years included restructuring charges. Excluding these charges, Ralph Lauren would still have reported a 4.9% year-over-year increase in net income to $176 million. Free cash flow for the quarter continued to be healthy at $244 million.
The company featured highlights for its "Next Great Chapter: Accelerate" priorities, which were unveiled back in September 2022. This strategic plan involved a series of pillars to help the company achieve a mid-to-high single-digit compound annual growth rate (CAGR) for its revenue.
Ralph Lauren highlighted the acquisition of 1.3 million new consumers for its direct-to-consumer business along with more than 60 million social media followers, which represented a low-teens, year-over-year increase for the quarter.
The business also expanded its physical presence with the opening of eight newly owned and partnered stores, including the newly renovated World of Ralph Lauren store on Chicago's Michigan Avenue. Last December, Ralph Lauren signed an agreement with Haworth Lifestyle Design to expand and grow its Home business. Haworth is a leader in the design and manufacture of luxury furniture and can help to expand Ralph Lauren's range of Italian-made, luxury-furniture offerings.
With these initiatives in place, investors can look forward to continued growth in the company's top and bottom lines for the foreseeable future.
Ferrari
Ferrari (RACE 0.10%) is one of the world's leading luxury sports car brands, focusing on the design, production, sale, and marketing of its vehicles. The brand is closely associated with the Formula One race. Its cars are produced in Italy and sold to more than 60 markets worldwide. Ferrari is one of the most coveted luxury car brands, and its sales have been supported by the rising number of millionaires in the world.
The company saw its revenue grow from 4.3 billion euros ($4.7 billion) in 2021 to 5.9 billion euros in 2023. Net income rose in tandem, going from 830.8 million euros to 1.25 billion euros over the same period. Free cash flow rose 55% to 847.7 million between 2021 and 2023. Ferrari's deliberate low-volume strategy to maintain its reputation of exclusivity saw shipments grow from 11,155 in 2021 to 13,663 in 2023.
The company has continued its winning streak into the first half of 2024. Revenue rose 13.6% year over year to 3.3 billion euros, while net income climbed 21.2% to 765 million euros. Free cash flow inched up 5% to 357 million euros. In keeping with its focus on exclusivity, a total of 7,044 units were shipped in the first half of this year, just 1% higher than the 6,959 shipped in the prior year.
There could be more to come from Ferrari as management plans to introduce 15 new models from 2023 to 2026 as announced at its Capital Markets Day back in June 2022. This shrewd move should boost demand for its sports cars as the wealthy clamor for Ferrari's expanded portfolio.
Swiss bank UBS also sampled 56 nations and noted that the number of millionaires is poised to increase in 52 of these countries until 2028. This trend bodes well for the company as it means that there will be a larger pool of wealthy people who can afford its luxury sports cars.
