Ralph Lauren (RL), the world’s premier luxury lifestyle brand, is considerably lagging its industry peers of late. In the last 12 months, the stock has declined approximated 4.2% whereas most of its peers have managed high double-digit returns. However, considering its growth strategies, recent earnings-beat, bullish future outlook and general industry trends, Ralph Lauren has all the qualities a good investment should possess.
Solid Q3 earnings and improved guidance
Driven by a strong top-line performance along with leveraged selling, general and administrative (SG&A), Ralph Lauren earnings per diluted share surged 11% to $2.57 in the fiscal-third quarter. The company’s net revenues ...view middle of the document...
2% of the operating income. However, a major difference lies in the capital expenditures of the two segments. In 2013, the wholesale business required a capital expenditure of only $40 million to generate the highest level of income. In comparison, the retail business demanded the highest capital expenditure of more than $158 million last year. This makes the wholesale business more preferable, not to mention it provides some leverage, in case of slowdown.
Expanding international presence
With organic growth as its main focus, the company is trying to expand its brands by venturing into new markets, principally in Europe and Asia.
At present, Ralph Lauren derives around two-thirds of its total business from Americas. The region is doing well and steadily increasing sales on strong performances from the wholesale and retail businesses. However, management seeks to unleash the enormous potential for growth that lies in Asian and European markets by growing its market share and exploring other high-growth emerging markets.
A stabilized economic climate in Europe, which represents roughly 20% of total revenue, is bolstering confidence among the company’s key officers, who believe the region’s markets are close to returning to pre-recession strength. Although a low double-digit percentage of business comes from Asia, the region has promising high-growth prospects. The company has set the goal to derive comparable streams of revenue from the three regions: America, Europe and Asia.
Ralph Lauren’s is rapidly increasing its distribution points in Greater China, while it plans to unveil a 20,000 square foot flagship store in Hong Kong later this year. These expansion efforts are likely to garner positive feedback for the company in these relatively new markets. In addition, the company also is embarking on a multi-year plan to open Polo stores in Greater China.
Extending direct-to-customer reach
Among its key growth strategies, the company is also extending its direct-to-customer reach via Ralph Lauren stores and e-commerce. The company’s retail formats include both physical retail stores and e-commerce. Recently, it expanded the distribution center for its North American e-commerce segment, while setting up an e-commerce business in South Korea and achieving online transactions in about 10 European nations. One can only expect more such setups in future.
Over the years, the company has developed an operational structure supported by a disciplined management team. Ralph Lauren’s well-trained staff makes an unparalleled in-store customer experience. Of course, it wouldn’t have created a powerful brand name had it not been for its effective advertising and marketing efforts.
Ralph Lauren’s growth objectives also include innovating and expanding new and emerging merchandise categories, with the main focus on the accessories segment. Year-after-year, the company has shown an unusual ability to constantly deliver fresh...