Profit from "Sex and the City" Spending

By Jonathan Yates - July 17, 2012 | Tickers: COH, LULU, KORS, RL, SKS | 0 Comments

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Carrie Bradshaw, protagonist of the HBO hit series "Sex and the City," just never seemed to be that good with money.  When she wanted to buy her apartment, she went to borrow the down payment from her ex-boyfriend and future husband, "Mr. Big."  Another boyfriend, Aidan Shaw, had to evict her.  Like Warren Sapp, the football commentator and former NFL-star whose recent bankruptcy petition listed 240 pairs of Air Jordan sneakers as "assets," much of Carrie's net worth appeared to be in her high end shoe collection of Jimmy Choos and Manolo Blahniks.

That is certainly no reason not to profit from the spending patterns of others like that, no matter how ill-advised. 

Warren Miller, the wealthy businessman in the novel "Wildlife," observed that you get rich from other people's mistakes.  Buying high end items rather than investing is a personal choice that can be a costly error.  Companies with high end products such as Ralph Lauren (NYSE: RL), Coach (NYSE: COH), The New York Times, Saks (NYSE: SKS), LuLulemon Athletica (NASDAQ: LULU) and Michael Kors (NYSE: KORS) offer the opportunity to profit from the spending on luxury items by others that will only increase as the global economy grows, particularly in emerging markets.

High end spending has held up well over the course of The Great Recession and its recovery, particularly in Asia where Western goods are coveted as status symbols.  Over the past year, Ralph Lauren is up 5.14%.  Now trading around $141 a share, the mean analyst target price for the purveyor of the Polo line is $177.25.  On a quarterly basis, earnings-per-share growth is up by more than 33% with sales growth rising by 13.74%.

Conspicuous consumption does not get more flagrant than Lululemon Athletica, which sells high end yoga gear for the Carries, Samanthas, Mirandas and Charlottes of the world.  Although down in recent trading, Lululemon is up 20.34% for 2012.  The mean analyst target price over the next year for Lululemon Athletica is $76.81, projecting almost a 50% rise skyward like the Virabhadra warrior pose from the present range of $56. 

Michael Kors, a high end handbag company with other items, recently went public.  Year to date, the stock is up 44.59%.  Sales and earnings-per-share growth are booming enough to make Carrier Bradshaw choke on her Cosmopolitan.  Quarterly sales growth is up by 58.33% for Michael Kors.  Earnings-per-share growth for the same period is increasing by 210.15%.  Now trading around $39.40, the mean analyst target price for Micheal Kors over the next year is $53.00.

Another handbag and personal product company, Coach, has been falling in recent market action.  But a dividend yield of 2.10% and a payout ratio of just 26.24% is very alluring, particularly when combined with Coach's profit margin of 21.34% and return-on-equity of 53.78% with practically no debt.  Over the next year of trading, the mean analyst target price for Coach is $80.58.  It is now around $53.18.  Bullish signs for Coach are also the high level of institutional ownership, at over 90%, and the low short float of only 2.72%.  Investors might want to wait as the trend is definitely not the friend for the shareholders of Coach as it is trading well below its 20-day, 50-day and 200-day moving averages.

Saks is the legendary department store that looks like it might be benefiting from a classic "short squeeze" soon.  There is a high short float of 27.56% for Saks (a short float of 5% is considered to be troubling).  But the stock has been moving higher: it is up 6.31% for the last four weeks and 13.59% for the last six months.  Carlos Slim, the world's richest man, holds more than 25 million shares of Saks.

Carlos Slim also has a major position in The New York Times, which publishes, among others papers, The New York Times, generally the most expensive paper at the newstand.  At $6 for a Sunday issue when similar information is free on the Internet, The New York Times is indeed a luxury item.  But Slim likes the company enough to not only increase his stock holdings, but to have lent it money in the past, for which he was paid back early.  While The New York Times may be "The paper of record," the stock has certainly not written one of distinction for its performance, however.  Over the last 52 weeks, The New York Times is down more than 11%.  But it is recovering in recent market action with increases of 16.72% for the last month and 18.57% for the last quarter.  The trend is the friend of the shareholders of The New York Times, however, as it is trading above its 20-day, 50-day and 200-day moving averages.

These companies all survived The Great Recession so each is, most likely, here to stay.  Much of growth in luxury spending in the future will be in emerging market countries, particularly in Asia.  The economies of China and India are still expanding, although not as much as before.  Coach has designated China as its highest priority for market growth over the next three years.   Michael Kors just opened its first store in Beijing, the fifth in China, overall.  This month, the world's first handbag museum will open in Garosu-gil, the upscale shopping district in Seoul, South Korea.  Luxury spending is alive and well; and will only increase in the years ahead, leading to profits for those prudently investing in the companies, rather than spending all of their disposable money on the products.

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