N.Y. -based Ralph Lauren Corporation (RL) – a designer, marketer and distributor of lifestyle products – remains on our Neutral list with a target price of $187.00.
We believe that Ralph Lauren’s initiatives to capitalize on opportunities in emerging markets as well as its focus on core business activities facilitate it to stay abreast with the soft economic environment.
Going forward, the company’s growth seems promising, given its sustained focus on expanding higher growth businesses such as the accessories category and the strategic augmentation of its global operations – both of which will boost its top and bottom lines. Moreover, Ralph Lauren leverages its globally renowned brands and premium positioning to bolster its well-established business in the specialty retailing sector.
We also remain impressed by the company’s bottom-line performance in fourth-quarter fiscal 2013. Driven by increased sales, improved margins and a lower tax rate, Ralph Lauren’s earnings for the quarter jumped 42.4% to $1.41 per share and surpassed the Zacks Consensus Estimate of $1.30.
Buoyed by better-than-expected earnings results, along with its strategic move of global expansion, management provided an impressive outlook for fiscal 2014.
However, we remain slightly anxious about the stock’s future performance due to the prevailing weak macroeconomic conditions in Europe, intense competition, and volatile raw material prices. Ralph Lauren is also vulnerable to risks of foreign operations, since the company does not own or operate any manufacturing facility and thereby purchases all its merchandise requirements from abroad.
Given the pros and cons, we prefer to be on the sidelines and maintain our Neutral recommendation.
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