Back to top

Ralph Lauren (RL) Looks Bullish: What's Behind the Rally?

Read MoreHide Full Article

Ralph Lauren Corporation (RL - Free Report) is witnessing spectacular growth lately, driven by robust actions, expansion of digital platforms and international growth. Further, its solid surprise trend and favorable outlook for fiscal 2019 has boosted investors’ confidence in the stock.

This led to an upsurge in the stock price, which also hovers close to its 52-week high. The stock has rallied 21.4% in the last three months, outperforming 12.4% growth recorded by the industry. Additionally, analysts are growing bullish on the stock, which is apparent from the positive estimate revisions in the last seven days.



The company’s first-quarter fiscal 2019 marked the 14th straight quarter of positive earnings surprise. Results gained from its key initiatives that focus on its core business, improving product assortments and delivering a better quality of sales. Major highlights of the fiscal first quarter were high-single-digit growth in average unit retail globally, a double-digit growth in Asia — the company’s key growth region, and a high-single-digit improvement in digital commerce. Further, the bottom line grew year over year and gross profit margin continued to expand, thanks to the company’s efforts to enhance the quality of sales through lower promotions, improved pricing and favorable product mix.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

Ralph Lauren Corporation Price, Consensus and EPS Surprise | Ralph Lauren Corporation Quote

Estimates Trend Up

Management remains confident of Ralph Lauren’s performance in the future, based on its efforts related to global brand reorganization and constant infrastructural investments. Further, favorable currency rates are likely to aid revenues in the fiscal second quarter.

The Zacks Consensus Estimate of $6.48 for fiscal 2019 and $7.08 for fiscal 2020 moved north by 6 cents and 4 cents, respectively, in the last seven days. Moreover, the consensus mark of $2.16 for second-quarter fiscal 2019 increased by 3 cents.

Strategies Supporting Ralph Lauren’s Growth

Ralph Lauren is on track to deliver its goals under the Way Forward Plan, which was announced in June 2016. The plan is all about refocusing on the core, strengthening the brands and returning the company to profitable growth in the long term. As part of its focus on core business, the company has been keen on improving assortments by discontinuing unproductive styles. The company is focused on curtailing its number of Stock Keeping Units (SKUs) alongside closing down underperforming stores. Further, Ralph Lauren is on track to reduce its supply chain lead times to improve the quality of sales and curtail markdowns. The company is also focused on lowering inventories to keep it on par with demand.

Additionally, Ralph Lauren is well on track with its restructuring plan, which is likely to generate savings of roughly $140 million by the end of fiscal 2019. These restructuring activities include rightsizing the portfolio and cost-structure alongside streamlining the structure of the organization. Further, within its global growth strategy, the company remains keen on bolstering international presence and expanding digital platforms.

Ralph Lauren is continually expanding in underpenetrated markets with new highly productive small-format stores. In the past two years, the company has elevated the brand in Asia, particularly China, and built strong business foundation by enhancing the quality of sales and profitability.

In first-quarter fiscal 2019, the company’s constant-currency revenues in China grew more than 25%, with over 40% of this growth coming from Mainland China. Its digital business in China reflected solid growth through Tmall, JD.com and WeChat. Moreover, the company has opened seven new distribution points in China in the fiscal first quarter and estimates opening more than 50 stores in fiscal 2019. It remains on track to generate nearly $500 million of revenues from China in the next five years. Overall, constant-currency revenues in Asia improved 16%, with comparable sales (comps) growth of 6%, instilling further confidence in the company’s strategy for Asia.

Moreover, the company developed a winning digital ecosystem, including directly-operated platforms, wholesale digital, pure plays and social commerce in fiscal 2018. The overall digital business improved 7% globally in the fiscal first quarter, with 24% growth coming from international and marginal improvement in North America. After completing the development of its directly-operated North America e-commerce business, the company upgraded the European e-commerce business to directly-operated platform in the fiscal first quarter. This transition is expected to enhance shopping experience at its website with enhanced search, navigation and checkout process. Additionally, the company’s digital wholesale business has also been witnessing marked improvements, which is driving market share gains in this channel at key retailers and categories.

Bottom Line

The above-mentioned factors clearly indicate that Ralph Lauren has significant growth potential in the days ahead. This is also evident from this Zacks Rank #2 (Buy) stock’s VGM Score of A and long-term earnings growth rate of 8.9%.

Looking for More Trending Picks? Look at These

Some other top-ranked stocks in the same industry are Crocs Inc. (CROX - Free Report) , Columbia Sportswear Company (COLM - Free Report) and Guess?, Inc. (GES - Free Report) . While Crocs sports a Zacks Rank #1 (Strong Buy), both Columbia Sportswear and Guess? carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs has long-term earnings growth rate of 15%. Further, the company’s earnings have outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 63.9%.

Columbia Sportswear has pulled off an average positive earnings surprise of 79.3% in the last four quarters. The company has long-term earnings growth rate of 10.8%.

Guess?, with an impressive earnings growth rate of 17.5%, has delivered an average positive earnings surprise of 29% in the trailing four quarters.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>



More from Zacks Analyst Blog

You May Like

Published in