Ralph Lauren Corporation (RL - Free Report) has been an investors’ favorite for long, courtesy of its consistent earnings record and robust outlook. The company’s first-quarter fiscal 2019 results marked a continuation of this trend, driven by gains from key initiatives that focus on core business, improving product assortments and delivering better quality of sales. Moreover, its progress on the Way Forward Plan, with stringent focus on digital and international growth, bode well.
Notably, this New York-based lifestyle company surged 50% in a year, outperforming the industry’s rally of 34.3%. Let’s take a look at factors that are likely to keep Ralph Lauren on the growth path.
Way Forward Plan Supports Growth
Ralph Lauren is progressing with its Way Forward Plan, which was announced in June 2016. The plan is all about refocusing on the core, strengthening brands and returning the company to growth in the long run. As part of its focus on the core business, it 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 underperforming stores. Further, Ralph Lauren is on track to reduce its supply chain lead times to improve the quality of sales and curtail markdowns. It is also focused on lowering inventories to keep it on par with demand.
E-commerce Presents Lucrative Opportunity
With more and more customers turning to online portals, Ralph Lauren has 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 improvements in North America.
After completing 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 Ralph Lauren’s website, with enhanced search, navigation and checkout.
As part of its key initiatives, Ralph Lauren remains keen on bolstering international presence by expanding in underpenetrated markets, with new small-format stores that are highly productive. In the past two years, the company has expanded 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. Moreover, the company opened seven distribution points in China in the fiscal first quarter. It estimates opening more than 50 stores in fiscal 2019. Further, the company remains on track to generate nearly $500 million revenues from China in the next five years.
Robust Q1 Performance, Strong FY19 View
Backed by the aforementioned initiatives, Ralph Lauren’s first-quarter fiscal 2019 marked the 14th straight quarter of positive earnings surprise. Major highlights of the fiscal first quarter were high-single-digit growth in average unit retail globally, double-digit growth in Asia — the company’s key growth region, and high-single-digit improvement in digital commerce.
Further, the bottom line grew year over year and gross profit margin continued to expand, due to the company’s efforts to enhance the quality of sales through lower promotions, improved pricing and favorable product mix.
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.
We believe that Ralph Lauren is well-positioned to witness persistent growth and is likely to continue its robust earnings trend for many quarters to come. Further, this Zacks Rank #2 (Buy) company’s long-term impressive earnings growth rate of 9.6% and a Growth Score of B support our view.
Looking for More Trending Picks?
Some other top-ranked stocks in the same industry are Columbia Sportswear (COLM - Free Report) , lululemon (LULU - Free Report) and G-III Apparel (GIII - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Columbia Sportswear 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%.
lululemon, with an impressive earnings growth rate of 19.2%, delivered an average positive earnings surprise of 19.2% in the trailing four quarters.
G-III Apparel has long-term earnings growth rate of 15%. Further, the company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 430.2%.
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