Most retailers are experiencing lackluster demand due to a tough economic environment and a harsh competitive landscape. On the other hand, well-run high-end companies like Tiffany (TIF +0.00%), Michael Kors (KORS +2.04%) and Restoration Hardware (RH 0.78%) are producing healthy growth rates for shareholders by delivering the right products to their affluent clienteles.
Tiffany shines in Asia
Tiffany has been in business since 1837, so this high-end jeweler and specialty retailer is hardly a novelty for American consumers. In Asia, on the other hand, the combination of a powerful aspirational brand and rising income levels is providing plenty of fuel for Tiffany.
Sales in the Americas increased by 4% to $417 million during the last quarter and same-store sales in the region were up by a moderate 1% during the quarter. But growth was much more exciting in the Asia-Pacific region with sales increasing 27% to $238 million during the quarter. Revenues excluding foreign exchange fluctuations were up by 29% and comparable-store sales increased by a whopping 22% in the region.
All in all, Tiffany reported sales growth of 7% to $911 million for the quarter ended on Oct. 31. Revenues excluding the effect of foreign exchange translation increased by a strong 11% during the period and same-store sales on a global basis were up by 7% versus the previous year.
Thanks to growing sales, higher profit margins and a lower effective tax rate during the quarter, earnings per share increased by a whopping 50% to $0.73 per diluted share. This was comfortably above the average estimate by Wall Street analysts in the area of $0.58 per share.
Management also raised guidance, for the fiscal year ending Jan. 31, 2014: the company is now expecting earnings per share of between $3.65 and $3.75 versus a previous outlook of between $3.50 and $3.60 per share.
The numbers were nothing short of impressive for a mature and well established brand like Tiffany. The stock doesn´t come cheap at a forward P/E near 21, but, if the company can sustain its growth rates in emerging markets, Tiffany can easily justify its valuation.
Michael Kors is in fashion
Michael Kors is one of the most spectacular growth stories in high-end fashion over the past few years. The company operates in the affordable luxury segment, selling handbags, shoes, watches, jewelry, and accessories through three different channels: retail stores, wholesale, and licensing agreements.
Kors is an aspirational brand, all kinds of celebrities have been portrayed in the media wearing the company's products, and this is probably the best kind of free advertising a company like Michael Kors can hope for.
Sales have been booming at a growth rate of 47.5% annually over the last five years, and earnings per share have grown at an even faster 51.1% per year over that period. Judging by results for the last quarter, there is no slowdown in sight for the company: Kors delivered a blowout earnings report for the third quarter of the year with revenues growing by 38.9% and earnings per share increasing by 44.9% to $0.71 per share.
Management also raised earnings and sales guidance, the company is now expecting total revenue for 2014 to be in the range of $845 million to $855 million based on an expected increase of between 15% and 20% in comparable store sales for the year
Michael Kors is priced for growth at a forward P/E near 23. Still, considering the explosive financial performance the company is delivering, valuation does not seem too excessive at all.
Multiple tailwinds for Restoration Hardware
Restoration hardware is benefiting from multiple tailwinds at the same time. The housing recovery is generating growing demand in the home furnishing business, high-end brands are doing materially better than the rest in the current economic environment and the company´s small size allows for above-average growth rates.
The company is truly firing on all cylinders: revenues increased at an amazing 30% during the quarter ended on Aug. 3 fueled by a big increase of 26% in comparable store sales and a 33% jump in direct revenues.
Restoration Hardware lost money on a GAAP basis due to items like one-time non-cash stock-based compensation charges and costs related to the company's follow-on offerings. However, adjusted net income grew by 62% to $19.8 million and adjusted diluted earnings per share increased 48% to $0.49.
Management raised guidance for the rest of fiscal 2013 due to this encouraging performance. The company is expecting sales growth between 31% and 32% versus a previous guidance of an increase between 23% and 27%. Earnings per share are now forecasted in the range of $1.65 to $1.70, materially higher than the $1.41-$1.47 range provided in the previous forecast.
Restoration Hardware trades at a forward P/E near 34.5, a demanding valuation, but nothing disproportionate considering the company´s growth potential.
Bottom line
The high end of the pricing spectrum can be a especially profitable niche for the companies that know how to serve their affluent customer base. Tiffany, Michael Kors and Restoration Hardware are generating substantial growth for shareholders by delivering the right merchandise to the right clients. Investors searching for companies with superior potential in the current environment may want to take a look at these three aspirational brands.
