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Time to Buy Ralph Lauren

April 28, 2014 | About:
rusticnomad

rusticnomad

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Ralph Lauren (RL) recently released its financial results that turned out to be above consensus estimates owing to solid North American demand. Moreover, Ralph Lauren is far cheaper than peers PVH (PVH) and Kate Spade (KATE), making it a value investment. Ralph Lauren is already performing very well with its new and unique different strategies.

Strong expansion plans

The expansion in sales was led by the Polo and Club Monaco brands, which reported robust wholesale demand coupled with vigorous growth in international sales.

Ralph Lauren realized double digit growth in Asia with strong response from China in Q3. Ralph Lauren forecasts China to be a strong business opportunity for its growth and expansion. It plans to open a dual-gender flagship store at Lee Garden in Hong Kong spread across 20,000 square feet. Ralph Lauren is dedicated on spreading its brand image in China through various PODs (points of distribution), and expects its flagship store to be a major driver in the Chinese market.

Ralph Lauren also realized high single digit growth in Europe. It aims at increasing shipments to Southern Europe this spring and summer season to drive growth.

Ralph Lauren also witnessed strong growth in the e-commerce channel in Q3, achieving concrete growth in the teen segment globally. Till date, its international e-commerce revenue growth has crossed the 50% mark, with Japan and Europe being the significant contributors. Ralph Lauren is consolidating its e-commerce business further and is planning an investment of $75 million in ralphlauren.com , thereby expanding its operations. Ralph Lauren is dedicated on making browsing and buying merchandise through mobile and other electronic devices easier to enhance the customer experience.

Products are selling well

Ralph Lauren also enjoyed tremendous growth success in its accessories line, especially Ricky handbags. The company spread awareness regarding Ricky handbags with investments in production, merchandising, and visual presentation. This drive resulted in remarkable sales growth for Ricky in the third quarter. Ralph Lauren’s long – term growth prospects were further bolstered by joining hands with specialty store partners globally.

Ralph Lauren’s position is far better than its peers with several positive characteristics such as consistent revenue growth, a strong financial position, a manageable debt level, and cheap valuation against peers.

Although, Ralph Lauren might not be the fastest-growing company of the three, but its cheap valuation and superior profitability make it a firm pick. Ralph Lauren offers stable growth at decent earnings multiple that makes it a valued choice for an investor. In addition, Ralph Lauren also offers superior profit margin along with a healthy dividend yield in comparison to peers.

More aggressive investors should probably consider an investment in either PVH or Kate Spade. However, Morgan Stanley recently downgraded PVH on fears that the company could struggle in a highly-promotional environment. The consistent and aggressive business growth of Ralph Lauren is no doubt a threat to PVH’s prospects.

Kate Spade, on the other hand, is very expensive and it might take longer to deliver consistent gains to investors. Kate Spade aims to quadruple its sales to $4 billion in the future. However, it faces tough competition from already established peers such as Ralph Lauren, Michael Kors, Coach, etc. So, it might not be a good investment option given its sky high valuation and not so impressive profit margin.

Conclusion

Ralph Lauren’s significant investments in e-commerce coupled with a robust international growth and its movement in a right direction along with a cheaper valuation when compared to peers makes it a good buy at a reasonable price.


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