Tiffany & Williams-Sonoma's Results Are Telling You to Buy 2 Stocks

Retail as a whole has struggled in the first quarter, but one segment that's getting off to a good start is luxury. Specifically, Williams-Sonoma (NYSE: WSM  ) and Tiffany & Co. (NYSE: TIF  ) both blew past expectations and while they operate in different sub-industries of retail they both sell luxury goods, which might bode well for Michael Kors (NYSE: KORS  ) and Restoration Hardware (NYSE: RH  ) .

Two different companies and one outcome
The worldwide jeweler Tiffany blew through earnings expectations, had nothing negative to say on its conference call, and issued very bullish full-year guidance. In a quarter where retail companies have been struggling to post flat comparable-sales growth, Tiffany's comps rose 11% as total revenue grew nearly 13%. Looking ahead, Tiffany expects sales growth in the high single-digits, and at 20 times forward earnings investors are willing to buy.

While Tiffany remains a well-known brand, there are many who've never been in a Williams-Sonoma store. In case you haven't, it's where you go to purchase $150 pillows and $3,000-$5,000 rugs, and $7,000 sectionals aren't uncommon. Hence, it's luxury home improvement, pottery, dining, and wine at its best.

In addition, Williams-Sonoma is growing quickly. Its revenue grew nearly 10% in the quarter while its operating margin increased 40 basis points to 7.6%, which implies little to no pricing pressure. Like that of Tiffany, Williams-Sonoma's full-year guidance was ahead of expectations , and investors are lining up to buy.

What did we learn from Tiffany & Williams-Sonoma?
The one, and perhaps only, connection we can make between the two noted companies is that consumers are shopping in the luxury space. Therefore, investors might want to take a long hard look at Restoration Hardware and Michael Kors, two luxury retailers that lead the entire retail sector on comparable-sales growth.

Restoration Hardware, like Williams-Sonoma, has a focus on luxury home improvement with products in the interiors, small spaces, outdoors, and baby & child categories at prices that make much of Williams-Sonoma look like a discount store. Despite these prices, the company's authentic, classic style has led to comparable-store sales growth of 27% and 28% in 2012 and 2013, respectively .

The company's profitable as well as its adjusted operating income increased 76% last year to $120.9 million, which means that it trades at a rather attractive 21 times this income. With that said, its shares were up nearly 6% following Williams-Sonoma's report, and with the company finally set to expand its store count for a source of growth beyond comparable sales, investors might find it to be a good investment opportunity.

Finally, Michael Kors is another luxury retailer, known for its handbags, which could likely see continued strength because high-end consumers are still buying goods. During the company's last quarter alone, its comparable sales increased 28% and its total revenue rose 57 %. Not to mention, during a rough retail quarter with increased pricing pressure, its gross profit increased 100 basis points to 61.2%. Hence, at 24 times forward earnings and given its growth, Michael Kors looks like a great place to put money to work for the long term.

Final thoughts
In retrospect, Williams-Sonoma and Tiffany trade at multiples similar to those of Michael Kors and Restoration Hardware, but the latter companies provided twice the growth. The market still responded well to both of the former companies' quarters, which implies that Michael Kors and Restoration Hardware should also be market outperformers.

Also, it's worth mentioning that both Michael Kors and Restoration Hardware have new growth initiatives in place for 2014 that could steal more share from competitors and lead to growth rates similar to those of last year. Michael Kors is now expanding internationally at a rapid rate and Restoration Hardware, which has operated a relatively small base of 70 stores for the last two years, has 25 new locations in sight for expansion. Hence, both look like solid long-term investment opportunities in a thriving industry.

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