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Why This Apparel Retailer Should Continue To Beat The Market

July 24, 2014 | About:
Suravi Thacker

Suravi Thacker

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“Reaching directly to the customers” is the philosophy followed to the T by specialty retailer Ralph Lauren (RL). Coming in direct contact with customers has a number of advantages primarily that you get to know customers better. Hence, Ralph Lauren is gradually increasing its retail business, which has better margins and is enhancing the company's top line as well. However, this requires huge costs and time for the company to structure its operations accordingly.

Nonetheless, Ralph Lauren seems to be on the right track, which was evident in its sparkling fourth quarter results, which were ahead of market expectations and brought happiness to its investors.

Efforts were impressive

Revenue jumped 14% to $1.87 billion, higher than the expectation of $1.83 billion. The increase was mainly because of new store openings and strong results from Europe and Americas. Its wholesale division registered growth of 24% and retailer division of 5%, over last year.

Also, it discontinued its American Living operations, which used to cater to the lower income group and was exclusively available at J.C. Penney (JCP) stores. Both Ralph Lauren and J.C. Penney mutually decided to end the 5 year agreement, which was initiated in 2008. Ralph Lauren decided to terminate the contract because it wanted to concentrate on its core brands, and expand its direct to consumer segment.

On the other hand, J.C. Penney agreed to the contract termination because the retailer is up for transformation of its business by creating a whole new identity. J.C. Penney plans for a total makeover, with new brands in its portfolio, a new pricing strategy, and all new renovated stores.

Moreover, the company opened new stores and added new colors and designs to its offerings, which lured customers to its stores, helping achieve higher sales than expected. Also, it expanded its e-commerce business and increased its advertising efforts, which helped in marketing its new products better.

Well stacked against peers

When compared to its peers, such as Kohl’s (KSS), Ralph Lauren has proved its worth. The stock price performance of the two players in the last 5 years shows that Ralph Lauren has been a commendable performer.

Ralph Lauren has been the leader in providing returns to its investors. Its stock price has appreciated the highest, 224.3%, when compared to Kohl’s.

Kohl’s has been a good performer with a 39.7% increase in its stock price. Kohl’s reported lackluster numbers in its first quarter results. Its revenue dropped 3% and earnings plunged 9% over last year. Also, its same store sales slipped 3.4%. Although it failed to outperform its peer Ralph Lauren, it is making efforts to stage a comeback. It plans to add new collections and improve its customer loyalty program to attract customers.

Bright future ahead

Ralph Lauren not only has a great past, but also seems to have a bright future ahead. It has been expanding its stores internationally and making its e-commerce operations stronger. This is particularly evident in Japan, where it opened new stores and started its e-commerce operations. Moreover, its drive for product innovation, coupled with increased marketing efforts, can prove to be fruitful.

Additionally, the company’s growing retail business looks to bring in more profits and higher margins going forward. These strengths along with the spring season on its way, makes this company increasingly attractive, throwing great opportunities to investors.


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