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4 Reasons Why You Should Invest in Ralph Lauren (RL) Stock

Zacks Equity Research
Autoliv (ALV) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Ralph Lauren Corporation RL is an appropriate investment option as estimates of this designer, marketer and distributor of premium lifestyle products have been revised upward in the past 30 days, reflecting analysts’ optimism in the stock. The Zacks Consensus Estimate for fiscal 2019 and 2020 earnings have moved 3.7% upward.

Furthermore, the Textile-Apparel industry’s rank of 26 (out of 256 Zacks industries) places it among the top 10% of all Zacks industries. This along with Ralph Lauren’s VGM Score of A and long-term earnings growth rate of 10.3% indicate that the stock has potential to witness further momentum in 2019.

That said, let’s delve into the factors that make Ralph Lauren a promising bet, more after its stellar quarterly outcome.

Next Great Chapter a Long-Term Growth Driver

Ralph Lauren is progressing well with its “Next Great Chapter” plan post the success of Way Forward plan. Announced in June 2018, the plan focuses on delivering sustainable long-term growth and value creation. The company expects to execute this growth plan through five strategic priorities, including winning over a new generation of customers; energizing core products and accelerating under developed categories; drive targeted expansion in its regions and channels; lead with digital; and operate with discipline to fuel growth. As part of the plan, the company targets delivering low to mid-single digit revenue compounded annual growth rate (CAGR) and mid-teen operating margin growth by fiscal 2023, on a constant-currency (cc) basis. Further, the company expects returning to constant-currency revenue growth by fiscal 2020. 

Focus on Restructuring Plan 

The company is on track with its restructuring plan, which is in sync with the strategic objective of operating the Next Great Chapter initiative. It anticipates incurring restructuring charges of $100-$150 million related to its restructuring plan, mainly linked to activities like rightsizing and consolidation of its global distribution network and corporate offices, and other severance actions. The company expects to realize most of these charges by the end of fiscal 2019. 

These charges will be in addition to the $100-million related to the Way Forward Plan, expected to be recognized in fiscal 2019. The restructuring plan is expected to deliver gross annualized expense savings of $60-$80 million. These savings will be incremental to the savings of roughly $140 million to be realized in association with the Way Forward Plan.

International Expansion Plans 

This Zacks Rank #2 (Buy) company is making efforts to bolster its international presence by continually expanding in underpenetrated markets. In third-quarter fiscal 2019, the company opened 39 stores and concessions globally, of which 24 were in Asia, including nine in China. Additionally, store openings in the fiscal third quarter included two full-price stores and two net new factory stores in Europe. Going forward, the company plans to open two more stores in Europe in the fourth quarter of fiscal 2019, with more than 100 stores planned in the next five years.

Impressive Surprise History & Upbeat View Bode Well

Ralph Lauren boasts a solid earnings trend that was retained in the third quarter of fiscal 2019. In the said period, the company reported 16th straight quarter of positive earnings surprise, while sales topped estimates for the fourth consecutive quarter. Results gained from solid execution of the company’s key initiatives, particularly during the holiday season. This aided higher average unit retail and continued to improve quality of sales. Moreover, double-digit sales growth in Asia and Europe as well as sequential gains in North America aided the top line. 

Encouraged by this, management raised view for fiscal 2019. The company now projects net revenues for fiscal 2019 to be up slightly at cc compared with the prior guidance of flat to slightly up. For the fiscal year, operating margin is now anticipated to increase 60 basis points (bps) at cc, up from the previous view of 40-60 bps increase. For the fiscal fourth quarter, management envisions net revenues to decline slightly at cc, owing to a planned cutback in off-price sales. Foreign currency is expected to mar revenue growth by about 300 bps. Operating margin is anticipated to expand around 70 bps at cc, including negative impact of about 60 bps from foreign currency.

Bottom Line

All said, we expect Ralph Lauren’s growth plans to help the company keep its stellar show on.

Looking for More? Check These Solid Picks

Columbia Sportswear Company COLM has long-term earnings growth rate of 10.9% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs CROX has long-term earnings growth rate of 15% and a Zacks Rank #1.

Under Armour UAA has long-term earnings growth rate of 22.7% and a Zacks Rank #2.

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Columbia Sportswear Company (COLM) : Free Stock Analysis Report
 
Crocs, Inc. (CROX) : Free Stock Analysis Report
 
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Under Armour, Inc. (UAA) : Free Stock Analysis Report
 
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