5 Retail Stocks To Buy on Luxury Recovery

Luxury is poised to outpace the economic recovery. Here's a look at stocks to watch on a luxury
Author:
Publish date:

NEW YORK (

TheStreet

) -- Luxury goods are outpacing the economic recovery, at least according to one report.

Sales of worldwide luxury goods are predicted to grow 10% by the end of the year

, according to a recent report from Bain & Co., a global consulting firm. This compares with an 8% decline in 2009.

Much of this heightened demand will come from the U.S. and China, with the U.S. alone expected to see a 12% increase in luxury sales this year.

It shouldn't come as a surprise then that French luxury giant

LVMH

is once again profiting. The company provided a partial update into its business, with total sales for the first nine months of the year climbing 24%.

LVMH reported strength across the board, with wine and spirits up 17%, fashion and leather up 14%, perfumes and cosmetics up 10% and watches up 22%.

Given this upbeat news, now could be a good time to make a bet on the luxury sector.

Here's a look at what stocks are poised to benefit from an uptick in luxury good.

Tiffany

Tiffany

(TIF) - Get Report

, of course, is one of the first stocks that comes to mind when thinking about luxury. And it should be.

Since the beginning of the year, shares of Tiffany have run up 12.3%. But Goldman Sachs isn't convinced the high-end jeweler can sustain these premium levels, downgrading the stock last month to sell from neutral.

"We remain confident in Tiffany's long-term brand appeal and the corresponding global growth it drives. However, a murkier near-term outlook overshadows the compelling long term," Goldman analyst Adrienne Shapira, wrote in a note last month. "With near-term beats set to moderate based on choppier sales trends, less robust margin expansion and higher marketing spend, Tiffany's current premium valuation should be tough to sustain."

Tiffany is expected to report its most recent earnings on Nov. 24.

Coach

Handbag maker

Coach

(COH)

is capitalizing on China's luxury growth.

The company expects sales in the country to double by 2013, opened 13 new locations in China this year and increased its square footage by 50%. Revenue in stores opened at least a year in China doubled in its fourth quarter.

Coach said earlier in the month that it will form a new international retail division that will have three major hubs in Japan, mainland China and other Asian markets. This followed a previous announcement that the company will enter the UK, France, Spain, Ireland and Portugal.

While it is capitalizing on international luxury growth, domestically it is growing its factory store business. Last quarter Coach announced it will open more factory outlet stores than full-priced stores in 2011.

There's concern, of course, that these outlets will dilute the brand image.

Coach will report its first-quarter earnings on Oct. 26.

Saks

Saks

(SKS)

, which took some of the biggest hits after the Lehman Brothers collapse, has made a monumental recovery.

In September, the high-end department store saw a 6.5% jump in same-store sales, way ahead of analysts' forecast of a 3.8% uptick. Last year the company reported an 11.6% plunge in September sales.

Saks has been in the process of shuttering underperforming stores, which should also boost its profitability going forward.

Investors are taking notice. Italian businessman Diego Della Valle upped his stake in the high-end retailer earlier in the month, paying $29.4 million for 2.9 million shares.

Nordstrom

Nordstrom

(JWN) - Get Report

has been a standout amid the retail sector over the past year.

September marked the 13th consecutive month traffic increased at Nordstrom, as same-store sales grew 7.5%, besting Wall Street's prediction.

Nordstrom saw particular strength in jewelry, women's shoes and men's clothing.

"Although Nordstrom faces tougher comparisons in the second half, we believe that as management continues to focus the assortment to better reflect greater value, comparable sales will improve," Stifel Nicolaus analyst Richard Jaffe wrote in a note earlier in the month. "In addition, we believe the company's well-edited assortment, excellent customer service and ease of shopping through all channels, are differentiating factors helping the company to gain market share."

Polo Ralph Lauren

Polo Ralph Lauren

(RL) - Get Report

is another luxury player looking to take advantage of international growth, with expansion opportunities in Southeast Asia and Europe.

Business is strong, with 15% operating margin and $1 billion in cash on its balance sheet. The company is also trading at 19 times earnings for 2010.

Ralph Lauren offers a quarterly dividend of 10 cents per shares.

The company is scheduled to report its quarterly earnings on Nov. 1.

RELATED STORIES:

>>Luxury Goods Bounce Back

-- Written by Jeanine Poggi in New York.

>To contact the writer of this article, click here:

Jeanine Poggi

.

>To follow the writer on Twitter, go to

http://twitter.com/jpoggi

.

>To submit a news tip, send an email to:

tips@thestreet.com

.