We maintain a long-term Neutral recommendation on Polo Ralph Lauren Corp. (RL). Polo Ralph is one of the leading specialty retailers of premium lifestyle merchandise in the U.S. The company also commands a strong portfolio of globally recognized brands, such as Ralph Lauren Purple Label, Ralph Lauren Collection, Black Label, Blue Label, RRL, RLX and American Living. This provides a competitive edge to Polo Ralph Lauren and strengthens its well-established position in the market.
Moreover, the Company aims to strategically expand and elevate its international presence, particularly in Asia. Polo Ralph is in the initial stage of a broader Asian strategy, through which the company expects to transform itself over the long term. In a move to do so, Polo Ralph Lauren recently took direct control of operations in Asia from its licensee in order to effectively capitalize on opportunities in the emerging markets, such as China, South Korea and India. This provides a significant upside potential to the company.
Additionally, Polo Ralph Lauren had cash and short-term investments of $1,130.5 million at the end of fiscal 2011. Moreover, the company has a very low level of long-term debt-to-capitalization ratio of 8.1%. A solid cash position and an almost robust debt-free balance sheet provide Polo Ralph support in times of dividend payout, share repurchase and strategic acquisitions, which in turn, offers Polo Ralph Lauren financial flexibility to drive future growth.
On the flip side, Polo Ralph’s financial performance may be substantially affected due to its significant presence in international market, which exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits.
Moreover, Polo Ralph Lauren operates in a highly fragmented market and competes with a number of well-established players such as Liz Claiborne Inc. (LIZ) and Phillips-Van Heusen Corporation (PVH). The company primarily competes on the basis of fashion, quality and service. To retain its existing market share, the company may have to reduce sales prices, which could take a toll on margins.
The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no directional pressure on the stock over the near term.
LIZ CLAIBORNE (LIZ): Free Stock Analysis Report
PHILLIPS VAN HE (PVH): Free Stock Analysis Report
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