These Luxury Retail Stocks Have Been Crushing the Market for the Past Decade

This luxury retail stock has been crushing the market for the past decade

The stock market and the overall US economy appear to be headed in the right direction. Although inflation remains above the Federal Reserve's 2% target, it has been cooling steadily (falling to 3% in June). Markets seem fine with how higher interest rates are affecting the economy and consumer demand. After all, the S&P 500 is up 17% year-to-date and the tech-heavy Nasdaq Composite is up 33%.

While big tech has dominated the headlines this year for a variety of reasons, from mass layoffs to advances in artificial intelligence (AI), the luxury retail sector has been quietly beating the market. Oh, and he's been doing it for over a decade.

Two European powerhouses, Hermes International (OTC: HESAY ​​) and LVMH Moet Hennessy (OTC: LVMHF ), have long led the way in luxury retail. While each has become synonymous with accessories and status symbol products, there is much more to their core business. Each company is a global brand that appeals to consumers of all ages around the world.

In this article, I will explore some of the catalysts that are fueling the boom in luxury goods sales. Although most people cannot afford the products of these companies, their shares are much more affordable and buying them could prove to be a savvy investment decision in the long run.

Fixed finance is always in style

By June, Hermes generated sales of 6.7 billion euros, a year-on-year increase of 25%. This revenue growth helped fuel impressive gross margin gains, which increased 120 basis points from the prior-year period to 72.2%. Operating margin peaked at 44.0% year-to-date and expanding margins fell right to the bottom as net profit rose 36% year-on-year to €2.2 billion.

If that wasn't impressive enough, Hermes generated €1.7 billion in adjusted free cash flow in the period, up 21% year-on-year, and paid out €1.4 billion in dividends.Similarly, LVMH Moet Hennessy delivered strong financial results during the first six months of 2023. It generated sales of €42.2 billion and slightly increased its gross margin to 69.4%. In addition, the company's net profit increased by 30% year-on-year to 8.5 billion euros, far exceeding the peak growth of 15%.

An important metric to note is that LVMH Moet Hennessy's operating free cash flow actually fell to €1.8 billion – less than half of what it was in the first six months of 2022. However, this momentum can be traced to a significant an increase in operating investment, in the form of real estate for its retail brands.

What drives luxury retail higher?

Almost half of Hermes' first-half revenue came from the Asia-Pacific region (excluding Japan). Commenting on this growth, management highlighted healthy trends in Greater China as well as Singapore, Thailand, Australia and South Korea.

 Furthermore, due to the extensive and strict zero COVID restrictions that China imposed on various regions as recently as last year, the results in 2023 signal that the region is recovering strongly and consumers are buying. LVMH Moet Hennessy also performed well in Asia (excluding Japan); nearly one-third of its sales to date have come from this region.

Another notable fact from LVMH Moet Hennessy is that 23% of its sales came from Europe. This is interesting because the European economy has been in a period of recession for several months, yet it seems that demand from luxury shoppers will not disappoint.

Should you invest?

The chart above illustrates the performance of Hermes and LVMH Moet Hennessy shares and compares them to the S&P 500 over the past decade.

There are several important insights when analyzing this chart. First and foremost, the broad market has done well over the past 10 years. An investment in the S&P 500 exchange-traded fund would be well on its way to tripling in value, underscoring how challenging it can be to beat the market.

That said, LVMH Moet Hennessy and Hermes have done it handily with returns around two to three times the S&P 500. This performance clearly shows how resilient luxury retail companies can be, even in times of economic uncertainty, as these two stocks are the biggest profits made during the global pandemic.

This dynamic tells us several things. First, as my fellow Motley Fool contributor Neil Rozenbaum points out, a large portion of luxury buyers are already wealthy. And despite slow economic growth on the European continent, wealthy people have the means to shop in a variety of economic conditions.

Perhaps more importantly, the more macroeconomic benefit could be that the luxury retail segment is more insulated from downturns than other areas of the consumer market, making it an attractive addition to a well-diversified portfolio. The combination of strong growth, expanding profitability and dividend income make this pair of world-class luxury retailers a compelling investment opportunity.

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The Warehouse Advisor returns from August 1, 2023Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy

Over the past decade, the luxury retail sector has seen unprecedented growth and success, with several stocks emerging as true market leaders. Not only have these companies weathered economic storms, they have also thrived, demonstrating their resilience and ability to meet the ever-changing demands of high-end consumers. In this article, we examine the top luxury retail stocks that have crushed the market over the past decade, highlighting their strategies for success and the key factors driving their growth.

Luxury Retail Stocks - Profitable Decades:

In an era of economic uncertainty, these luxury retail stocks stand out as lucrative investment opportunities, consistently outperforming the broader market. Companies such as [Company A], [Company B], and [Company C] have seen remarkable returns for their shareholders, providing compelling evidence of their potential for long-term growth.

Stellar performance amid shifting consumer trends:

One of the main reasons for the success of these luxury retail stocks is their ability to adapt to changing consumer preferences and behavior. As luxury shoppers' preferences have shifted toward sustainability, ethically sourced products, and personalized experiences, these companies have been quick to respond with innovative offerings.

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Omni-Channel Excellence:

In an age where the online and offline retail worlds are converging, these luxury retail giants have excelled at adopting omnichannel strategies. By seamlessly integrating their brick-and-mortar stores with e-commerce platforms, mobile apps and social media presence, they have created a consistent and compelling brand experience for their customers.

Iconic Branding and Marketing:

A strong brand image is a critical aspect of success in the luxury retail industry. These stocks have invested significantly in creating iconic brands that resonate with their target audience. Their strategic marketing campaigns effectively communicate their unique value propositions and elevate their position in the minds of luxury consumers. Omnichannel strategies, e-commerce platforms, mobile applications, social media presence, brand image, luxury consumers, strategic marketing campaigns, value propositions.

International expansion:

The global appeal of luxury goods has allowed these companies to successfully enter new markets and geographies. By taking advantage of the growing prosperity of emerging economies, they were able to fuel their expansion and drive further growth.Global appeal, luxury goods, new markets, geographies, emerging economies, expansion, growth.

Exclusive partnerships and collaborations:

Another key aspect of their success was establishing exclusive partnerships and collaborations. Working with notable designers, artists and influencers, these luxury retailers have created limited edition collections that create a sense of exclusivity and urgency for consumers.

Financial strength and resilience:

These luxury retail stocks have consistently shown robust financial results that have allowed them to invest in research, development and expansion. Even during the economic downturn, they have maintained their profitability and dividend payouts, making them attractive options for investors looking for stable returns.

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Over the past decade, luxury retail stocks have proven to be lucrative investments, outperforming the market and delighting their high-end consumers with exceptional products and experiences. Their adaptability to changing trends, omnichannel strategies, iconic branding, international expansion and exclusive partnerships have all played a key role in their success.

 As the luxury retail industry continues to evolve, these stocks are poised to maintain their market dominance and reward investors with long-term growth and stability. Long term growth, market dominance, luxury retail, investors, stability.