Restoration Hardware and Three Additional Mass Luxury Retailers

Meryl is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Mass luxury sounds like an oxymoron, but I think it aptly describes the retail category for Restoration Hardware (NYSE: RH), Coach, Steve Madden, and similar companies. Another name for this group might be the low-end luxury market. Products appeal to individuals seeking high-quality, well-known designer names offering a touch of panache at high, barely affordable, prices.

True luxury-priced goods are beyond the pocketbook of most Americans. The 1% can afford them, but most of us cannot pay stratospheric prices for anything. Lots of people in the U.S. and overseas can and do occasionally splurge and pay a lot of money (for their budget) for items, such as a pair of Manolo Blahnik shoes, the footwear that earned notoriety as a Carrie Bradshaw accessory on TV’s Sex and the City

Most retailers suffered during the prolonged recession and economic downturn. As the economy improves people feel more confident about their jobs, their finances, and their future, and begin spending once gain on discretionary merchandise. Companies filling this niche market can look forward to juicy profits.

Restoration Hardware’s successful IPO on Friday, Nov. 1, is a harbinger of things to come. The IPO price was $24. The stock began trading on Friday well above that price at $32.05, and currently trades in the low 30’s. Restoration Hardware stores sell high-end household furniture and accessories. The company went private in 2008 during the financial crisis and deep recession. People were not buying expensive furniture and other items, and the company suffered.

The company has experienced ten consecutive quarters of double-digit revenue growth. Restoration Hardware is currently running on an IPO high. In a couple of weeks the price will settle into a trading range, and potential investors might consider buying at that time.

There are other interesting companies that probably will prosper along with an improving economy. Nordstrom (NYSE: JWN) department stores offer a long list of designer brands that consumers desire. The company invested in its e-commerce business, and the results are promising. The stock price has increased from its recession lows, and revenues and net income increased dramatically in fiscal years 2011 and 2012. The company's current P/E is 17.99, net margin 6.28, and diluted EPS 3.14. Nordstrom pays a .27 quarterly dividend.  Nordstrom's current yield is 1.90%.

Another retailer with a far-reaching base of affluent customers is Tiffany (NYSE: TIF). Tiffany products include jewelry, china, crystal, and sterling silver items. Its current P/E is 19.19, net margin is 12.06, and diluted EPS is 3.43. Revenues and net income increased the past two fiscal years. Tiffany’s .32 quarterly dividend generates a 1.96% current yield.

The following chart compares Nordstrom's and Tiffany's net income and revenue growth over the past five years. The chart illustrates the sharp volatility of corporate revenues and income, not uncommon in the retail sector. Comparison data is unavailable for Restoration Hardware, a private company from 2008 until last week's IPO.  

JWN Net Income Quarterly data by YCharts

Another mass luxury marketer is the British retailer Burberry (LSE: BRBY). The company produces clothing, fashion accessories and fragrances. Its current P/E is 21.13, net margin is 14.19, and diluted EPS is .59. Sales and net income rose during fiscal years 2011 and 2012. Burberry dividends pay in English pounds and currently yield 2.90%.

Retailers concentrating on the affluent market should be carefully monitored. If the economy shows signs of weakness these companies will be negatively affected.

Restoration Hardware is a possible investment following initial IPO hype. Nordstrom, Tiffany, and Burberry are additional investment possibilities. All four companies cater to the mass luxury market, a growing group of buyers as economies recover and surge in the U.S. and overseas.


mercyn has no positions in the stocks mentioned above. The Motley Fool owns shares of Tiffany & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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