Sales of belts, purses, shoes and shades have been on fire over the past several years, as recession-scarred consumers turned to accessories as luxuries they could afford. Manufacturers such as Michael Kors (symbol KORS) and Ralph Lauren (RL) responded by adding to or beefing up their lines, creating heated competition in the high-end accessory market, a segment that Coach (COH) has long dominated.
Analysts see plenty of potential for all three stocks for years to come. Corinna Freedman, retail analyst with Wedbush Securities, is especially keen on Kors, which makes chic casual clothing for men and women, as well as watches, shoes and jewelry. Watches were particularly hot during the holiday season. But Kors's designer clothing, jeans, T-shirts and leather jackets are also helping fuel double-digit profit growth. And its handbags have an avid fan base among young "aspirational" buyers -- those not yet considered affluent but well-heeled enough to spend $375 for a purse.
Ralph Lauren has been a force in high-end fashion threads for more than 40 years. But Ralph Lauren Corp. recently launched a luxury accessory line that makes Coach products seem downright affordable -- including handbags that retail for up to $22,500. But the New York City-based fashion house also offers more-affordable clothing and accessories under its Polo and Chaps labels. UBS analyst Michael Binetti believes the combination of super-chic and more moderately priced fare will lead to big earnings gains in the fiscal year that ends in March 2014. Lauren shares have more than quintupled since February 2009 and are near their all-time high. At a recent $169, they sell for 18 times estimated earnings of $9.35 per share for the March 2014 year. Analysts expect earnings to grow at a 13-percent pace for the next several years.
Shares of Coach, which tumbled in January after the company reported tepid results for the Oct.-Dec. quarter, are a better value. To be sure, Coach has lost some market share. But Morningstar analyst Paul Swinand says that product quality makes Coach a powerful contender for consumer dollars. At a recent $50, or 12 times estimated earnings of $4.14 per share for the June 2014 fiscal year, he thinks investors are drastically underestimating the brand's popularity and the stock's ability to stage a comeback.
(Kathy Kristof is a contributing editor to Kiplinger's Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org. And for more on this and similar money topics, visit http://www.Kiplinger.com.)