Ralph Lauren Corp. (RL - Free Report) stock has consistently been a lucrative investment pick, thanks to its robust surprise trend, which is driven by its ability to catch up with the growing digital business as well as expanding international presence. Further, a booming luxury space due to a favorable consumer environment, strong economy and a steady labor market aided the stock.
Notably, Ralph Lauren has comfortably outpaced the industry’s growth in the past year. This Zacks Rank #2 (Buy) stock has rallied 23.9% compared with the industry’s growth of 15.3%. Moreover, the company’s impressive long-term earnings growth rate of 10.3% and a VGM Score of B profess that there is more upside potential left.
Let’s find out other reasons that are aiding the Ralph Lauren stock.
Digital Growth — Key to Success
Expansion of digital platforms is a key aspect of Ralph Lauren’s global growth strategy. With more and more customers turning to online portals, in fiscal 2018, the company developed a winning digital ecosystem, including directly-operated platforms, wholesale digital, pure plays and social commerce. The overall digital business improved 10% globally in the fiscal second quarter, attributed to its directly-operated North America digital business returning to growth, with a 9% increase.
The improvement in North America was driven by strong brand building, better consumer experience, and higher quality of sales, enabled by its new platform launched last year. Its directly-operated e-commerce platform in Europe, which was launched in the first quarter, is also gaining traction. Additionally, the company launched a directly-operated digital commerce site in China and its own first Polo mobile app in North America, in the second quarter of fiscal 2019.
Moreover, the company’s digital wholesale business has been witnessing marked improvements, which is driving market share gains in this channel at key retailers and categories.
International Expansion — China & Europe in Focus
Ralph Lauren remains keen on bolstering international presence by continually expanding in underpenetrated markets, with highly productive small-format stores. In the past two years, the company elevated the brand in Asia, particularly China, and built strong business foundation by enhancing the quality of sales and profitability.
In second-quarter fiscal 2019, the company opened 36 stores and concessions globally. Of these, 25 were in Asia, including 10 in its fastest-growing market, China. Openings in China covered key cities —including Beijing, Taipei, Shanghai and Hong Kong.
Moreover, the company’s constant-currency revenues in Greater China grew more than 20% in the fiscal second quarter, with over 40% of growth in Mainland China. The company’s digital business in China reflected solid growth through Tmall, Tmall's Luxury Pavilion, JD.com and WeChat.
Additionally, store openings in the fiscal second quarter included two full-price stores in Europe — one in London and another in Manchester. The company sees immense potential to expand in Europe, where it currently has only 21 full-price stores. It plans to open five more stores in Europe in the second half of fiscal 2019, with more than 100 stores planned in the next five years.
Robust Q2 Performance, Strong FY19 View
Backed by the aforementioned initiatives, Ralph Lauren’s second-quarter fiscal 2019 marked the 15th straight quarter of positive earnings surprise. Major highlights of the fiscal second quarter were global digital growth of 10%, as North America’s digital commerce business returned to growth; and strong growth in international markets, led by 13% growth in Asia — the company’s key growth region. The improvement in Asia was backed by over 20% growth in Greater China alongside strength in Japan, South Korea and Australia.
Management remains confident of Ralph Lauren’s performance in the future, based on its efforts to be consumer-focused; elevate and energize its brands; and balance growth and productivity. It projects net revenues to be flat to slightly up on a constant-currency basis in fiscal 2019. For the fiscal year, operating margin is anticipated to increase 40-60 bps in constant currency, owing to gross margin expansion.
For the fiscal third quarter, management envisions net revenues to increase in low-single digit in constant currency. Operating margin is anticipated to grow around 20 basis points in constant currency.
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Crocs, Inc. (CROX - Free Report) has a long-term earnings growth rate of 15% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
lululemon athletica inc. (LULU - Free Report) has a long-term earnings growth rate of 19.2% and a Zacks Rank of 1.
Columbia Sportswear Company (COLM - Free Report) has a long-term earnings growth rate of 10.8% and a Zacks Rank #1.
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