Although they aren't always considered as defensive as major consumer-staple stocks, such as Coca-Cola or Philip Morris, the stocks that cater to the high-end markets have proven to be resilient during tough economic times, while also excelling in a bustling economy. I've long felt that either either Tiffany (NYSE: TIF) or Coach (NYSE: COH) would be great buyout candidates.
And although it's a less favorite bet of mine, Fossil (NASDAQ: FOSL) is still a solid company that's been expanding its portfolio nicely. What's best is that all three of these stocks have dwarfed the performance of the S&P 500 over the last five years.
Tiffany is a leading international retailer, designer, manufacturer, and distributor of fine jewelry. At a $10 billion market cap, I also conform to the thesis that the company could be a takeout target. Tiffany would make a great addition to one of the major luxury retailers, such as LVHM.
The little blue box is Tiffany's stable, and jewelry is its bread-n-butter, accounting for 90% of 2012 sales. Tiffany internally produces about 60% of its merchandise sold. Tiffany is also looking to strengthen its international exposure, where in fiscal 2013, the company generated 50% of revenue from the Americas and 21% from Asia, 17% Japan and 11% Europe.
Fiscal 1Q 2014 started off strong, with worldwide same-store sales growth of 8% year-over-year -- most notably there was 9% same-store sale growth in Asia and 21% in Japan.
Some of its key international growth opportunities lie in Russia, Brazil and India. Meanwhile, the company is also looking to focus on smaller stores, which will highlight its higher-margin products and improve its sales per square foot.
Of the 16 stores it plans to open in fiscal 2014, three will be in the U.S., while one in Canada, Mexico and Brazil each, seven in Asia and three in Europe.
Coach designs, makes and markets fine accessories for women and men, including handbags and travel accessories. I'd be remiss if I didn't mention the fact that there have been a couple of "hot" companies coming to market, including Michael Kors and Kate Spade. Yet, Coach is looking to keep its market share with new retail store openings. One of its latest initiatives in the retail market is the plan to open its first store-in-a-store in Macy'slater this year.
Coach hopes to increase its global retail square footage by 10% in fiscal 2013, with a concentration on the U.S. and China. Internationally, the company plans to add 30 outlet stores in China, putting its total to over 120 locations. While in Japan, the company will also add 10 stores.
However, the key, underrated, growth opportunities lie in the "murse." Okay, maybe Coach isn't betting the house on man purses, but it is definitely betting that its men's business will show strong growth over the interim.
The sale of men's bags and accessories more than doubled in fiscal 2012, and the company sees this number rising another 50% in 2013. The retailer has over 85 men's retail stores-in-a-store, 30 men's standalone factory stores and five standalone men's retail stores.
Fossil is known for its watches, but it also offers various accessories, including jewelry, sunglasses, small leather goods, belts, and handbags. In 2012, watches accounted for some 75% of sales.
Its key watches include its proprietary Fossil, Relic and Skagen brands, and licensed Adidas, Armani Exchange, DKNY, Diesel, Marc by Marc Jacobs, and Michael Kors lines. Fossil's most notable initiative of late was the 2012 acquisition of Skagen. The acquisition added nearly $100 million to sales in 2012.
Fossil, like its accessory peers, is looking to break further into the international markets. Fossil acquired the Latin American distribution business of Florida-based Bentrani Watches in January, allowing the company to ship its products in 16 Latin American countries, including Chile, Argentina and Colombia.
Sales are expected to be up 11.5% in 2013, with the help of new products and the expansion of its retail locations. Its new products include Skagen jewelry and Fossil Swiss watches, while the company is expected to open 70 to 75 stores this year.
The three discretionary stocks listed above tend to hold up nicely regardless of the economic backdrop. I think all three will continue their upward momentum on the back of a rebounding economy. Both Tiffany and Coach also offer investors a well-covered dividend yield at 1.7% and 2.3%, respectively.