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At one end where we remain impressed by the company’s robust quarterly results and efforts to capture growth opportunities, at other end we remain cautious on the stock due to the prevailing weak macroeconomic conditions in Europe, intense competition and volatile raw material prices.
The third quarter 2013 adjusted earnings of $2.40 per share at Ralph Lauren exhibited an improvement of 34.8% from the comparable year-ago quarter as well as the Zacks Consensus Estimate of $2.21. The year-over-year increase was primarily driven by a rise in sales, improved margins and a lower tax rate.
Looking at the earnings surprise history, the company has beaten the Zacks Consensus Estimates in the past several quarters. The average positive surprise in the trailing 4 quarters comes to 11.4%.
Bolstered by better-than-expected improvement in operating margin, the company now expects it to grow between 75 basis points (bps) and 100 bps, up from its earlier guidance range of 25–75 bps.
Apart from strong third-quarter results, Ralph Lauren’s growth story looks compelling. We believe that the company’s sustained focus on expanding higher growth businesses, such as accessories category, along with strategically expanding its global operations, bodes well for future growth.
On the flip side, the company operates in a competitive environment and strives to maintain its market share, actively competing with numerous manufacturers and distributors of premium lifestyle products. The company primarily competes on the basis of fashion, quality and service. Failure to offer high-quality differentiated products at a competitive price may hamper Ralph Lauren’s market share, and in turn it’s top and bottom lines performance.
Other Stocks Worth Considering
Currently, Ralph Lauren has a Zacks Rank #2 (Buy). Other stocks worth considering in the apparel retail industry are Guess’ Inc. ( GES - Analyst Report ) , Michael Kors Holdings Limited ( KORS - Snapshot Report ) and Skechers USA Inc. ( SKX - Analyst Report ) . All these companies hold a Zacks Rank #1 (Strong Buy).
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