Sellers of affordable luxe set for share price gains

The distinctive logo of Polo Ralph Lauren is shown on an awning at the The Polo Ralph Lauren boutique on Rodeo Drive in Beverly Hills, California August 5, 2008. Many U.S. shoppers of middling means are giving investors an opportunity to reap rewards in mid-tier luxury providers.

NEW YORK (Reuters) - Many U.S. shoppers of middling means are once again indulging in pleasures like leather handbags and Alaskan cruises, giving investors an opportunity to reap rewards in mid-tier luxury providers.

A good deal of the upside in stocks like Polo Ralph Lauren, Nordstrom Inc and Coach Inc has already been reaped, but shares in those companies and other retailers, clothiers and cruise operators that cater to "affordable luxury" consumers are well positioned to see sales -- and share prices -- rise some more, Wall Street analysts said.

Consulting firm Bain & Co has forecast that U.S. luxury spending will rise by about 12 percent this year, led by leather bags, shoes and jewelry. Globally, luxury spending is expect to reach pre-recession levels in 2011.

The world's ultrawealthy were quick to go shopping again after the 2008 financial crisis, and shares in pure luxury companies such as Hermes (HRMS.PA) and LVMH (LVMH.PA) rebounded quickly, leaving little upside to attract investors now, Swinand said.

But the return to fancier shopping is trickling one rung down to people who still covet top brands.

"The middle of the market for goods that are a splurge is actually going to do very well," said Morningstar analyst Paul Swinand.

This week, leather goods maker Coach reported another quarter of better-than-expected sales, while Royal Caribbean Cruises Ltd raised its profit forecast, saying passengers were willing to pay more for its cruises next year.

Coach was among the first retailers to react to consumers' distress during the recession and introduce less expensive products, such as its Poppy line of handbags, without slashing prices on its highest end goods.

Wall Street Strategies analyst Brian Sozzi, who sees another 15 percent upside in Coach shares in the short term even though the stock is trading near a three-year high, said retailers with products across the price spectrum are in the best position.

A growing presence abroad, in markets with an emerging class of "aspirational" shoppers like China, will make Coach and Polo Ralph Lauren among the winners, Sozzi said.

"International sales are going to be a key ingredient going forward," Sozzi said. He has a $100 price target on Ralph Lauren, whose shares closed at $96.88 on Friday, up more than 3 percent for the day and nearly 20 percent this year.

The S&P Retail Index is up 13.5 percent this year.

(Graphic on key stocks: r.reuters.com/ryk92q)

WIDENING ARRAY OF PRICES

Upscale department store chain Nordstrom has won kudos from Wall Street for introducing high-end products at a wide variety of prices and technology that helps it track shoppers' habits, helping it keep its market share gains.

"Nordstrom is already winning that game," said Walter Stackow, an analyst with Manning Napier, which owns Nordstrom shares. "They've epitomized affordable luxury."

Nordstrom shares have fallen 17 percent since a huge rally peaked in April, but Stackow said the company's approach allows it to reach a broad range of customers without hurting its image, and the shares could rise another 20 percent next year.

Napier said shares of Macy's Inc (M.N) could rise some more. The department store operator's sales gains have outpaced most competitors' this year and drawn affluent shoppers with exclusive merchandise in deals with top names such as Kenneth Cole and Madonna. Macy's shares are up 40.5 percent this year.

In contrast, some chains such as Saks Inc and Neiman Marcus were slower to react and may struggle to win back market share.

"The high end departments stores were all late to it," said WSL Strategic Retail Chief Executive Wendy Liebmann.

Saks shares have risen sharply in recent weeks, though analysts attribute that to buyout rumors that emerged after Valle raised his stake to 19 percent.

JEWELRY SPARKLES

Affordable luxury's gains have also spread to jewelry. While lower end jewelry is still vulnerable to the vagaries of the economy, some mid-tier jewelers have done very well.

Signet Jewelers Ltd has reported several quarters of strong sales gains at its tonier Jared chain, where the average item sells for twice as much as at another of its chains, Kay Jewelers. Signet shares have risen 30.8 percent this year and hit a 52-week high on Thursday.

People are not only spending more at stores, they are going on vacations too, after a couple of years of "staycations."

"The consumer is traveling more," Wyndham Worldwide Chief Financial Officer Tom Conforti told Reuters in an interview this week.

They are also gearing up to buy larger homes again, Steve Hilton, CEO of Meritage Homes, said on a call with investors this week.

(Reporting by Phil Wahba; additional reporting by Helen Chernikoff; Editing by Gary Hill)