Ralph Lauren Corporation RL is climbing up the charts, driven by its robust strategic actions, expanding international footprint and an impressive earnings surprise history. Notably, the company delivered its 13th straight quarter of earnings beat in fourth-quarter fiscal 2018.
Shares of this Zacks Rank #3 (Hold) company have soared a whopping 79.5% in a year’s time, substantially outperforming the Textile – Apparel industry’s rally of 41.3%. Currently, the industry ranks within the top 28% (72 of 256) of all Zacks industries. Further, the stock boasts a Momentum Score of A and a long-term earnings growth rate of 8.6%, which raises optimism among investors.
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In addition, analysts are growing bullish on the stock as is apparent from the upward revisions in its earnings estimates. The Zacks Consensus Estimate of $6.28 for fiscal 2019 and $6.88 for fiscal 2020 went up a couple of cents and 8 cents, respectively, in the last seven days.
Let’s delve deeper now.
Growth Catalysts
Ralph Lauren remains on track to deliver goals under its Way Forward Plan. Divided into two parts, the plan focuses on the core business, strengthening the brands, reviving its operating structure, supply-chain functions, an excellent sourcing capability and a multi-channel global expansion strategy. The company is keen on improving assortments by discontinuing unproductive styles and also focuses on curtailing the number of Stock Keeping Units besides closing underperforming stores.
Further, Ralph Lauren is making efforts to reduce its supply chain lead times to improve sales quality and curb markdowns. The company is also concentrating on lowering inventories to keep it on par with demand. Moreover, management is progressing well 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 organizational structure.
The company has also been bolstering its international presence. It is continually broadening its base in the underpenetrated markets with new and highly productive small-format stores. Over the past two years, it has elevated the brand in Asia, particularly China, and built a strong business foundation by enhancing the quality of sales and profitability.
Notably, revenues in the Asia segment grew 17% during fourth-quarter fiscal 2018, driven by solid retail and wholesale sales. Also, comparable sales (comps) rose 4%, courtesy of increased average unit retail and a number of transactions.
Meanwhile, expansion of digital platforms remains a major component of Ralph Lauren’s global growth strategy. Notably, the company developed a winning digital ecosystem including directly-operated platforms, wholesale digital, pure plays and social commerce. Management expects digital growth acceleration during fiscal 2019 and beyond as it has almost completed the development of its directly-operated North America e-commerce business.
The company targets upgrade of technology platforms for the directly-operated European e-commerce business in first-quarter fiscal 2019. This transition will eventually improve online shopping experience with better search, navigation and checkout process. Additionally, the company’s digital wholesale business is also seeing robust improvements.
Bottom Line
Despite these solid strategic actions, Ralph Lauren is witnessing softness across its North America segment for a while now. Revenues at the North America unit dropped 14% on both reported and constant-currency basis during the fiscal fourth quarter due to lower wholesale sales. Nevertheless, we expect this hurdle to be easily offset by the aforesaid growth strategies.
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