4 Reasons Why Ralph Lauren (RL) is a Good Investment Pick Now
Ralph Lauren Corporation RL has been gaining from brand strength, solid demand, and expansion across all channels. A solid online show and strong AUR growth bode well. Shares of this Zacks Rank #2 (Buy) company have gained 25.1% in the past three months compared with the industry's growth of 18.1%.
Let’s take a look at the factors that make the stock an attractive pick.
Solid Online Show
Ralph Lauren has been making significant progress in expanding digital and omni-channel capabilities through investments in mobile, omni-channel and fulfillment. In second-quarter fiscal 2023, digital business continued to be a key growth driver, with accelerated digital sales across all regions. The global digital ecosystem continued to witness robust growth, recording year-over-year mid-teen revenue growth. This includes mid-single-digit growth within the owned Ralph Lauren and digital sites on top of more than 30% growth last year.
The company introduced additional digital sites in key markets, including Korea and Australia, in the fiscal second quarter. Revenues for the company’s owned digital sites rose year over year in the mid-single digits, driven by strong full-price selling, stemming from a positive mix of products, investments in AI-powered targeting and consumer acquisition. Also, its online search grew year over year in the low-double digits and exceeded 50 million social media followers on a global basis.
Region-wise, digital sales were up 15% in Europe and 22% in Asia. It is focused on further digital investments to continue creating content for all platforms, enhancing digital capabilities to improve the user experience, and leveraging AI and data to serve its consumers efficiently.
Ralph Lauren continues to scale and expand its connected retail capabilities, including virtual selling appointments, “buy online, pick up in store,” and endless aisle product availability. The company launched its first-ever full catalog Ralph Lauren mobile app during the holiday season, efficiently leveraging its connected retail capabilities to deliver the most personalized and content-rich platform.
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AUR Growth
Continued momentum in average unit retail (AUR) remains a key growth driver. The metric increased 18% for second-quarter fiscal 2023, marking the 22nd straight AUR growth. The company has been navigating through the ongoing inflationary environment, driven by a favorable product mix and strong pricing power. It expects to deliver above its annual long-term target of low to mid-single-digit AUR growth through fiscal 2023, which will help mitigate mid to high-single-digit cost inflation.
The company’s strategy of product elevation, acquisition of full-priced consumers, and favorable channel and geographic mix, as well as ramping up its targeting and personalization efforts, is likely to support long-term AUR growth. This is likely to continue aiding gross margin growth. For fiscal 2023, the gross margin (at cc) is envisioned to expand 30-50 bps on a 52-week comparable basis, driven by solid AUR growth and a positive product mix. This is expected to more than offset higher freight and product cost inflation.
Next Great Chapter Plan
The company announced the next phase of its Next Great Chapter: Accelerate plan, which aims at creating a simplified global organizational structure and rolling out improved technological capabilities. As part of the initial phase of the plan, it completed the transition of Chaps to a licensed business, concluding its portfolio realignment announced last year. The move will likely enable it to focus on core brands, as part of the Next Great Chapter elevation strategy.
For fiscal 2023, RL anticipated revenue growth in the high-single digits or 8% (cc) year over year on a 52-week comparable basis. For the third quarter of fiscal 2023, the company expects year-over-year revenue growth of low to mid-single digits at cc.
Impressive Results
Driven by these factors, RL has been witnessing a robust surprise trend, which continued in second-quarter fiscal 2023. The company reported the ninth straight earnings beat and the seventh consecutive revenue surprise in the fiscal second quarter. Net revenues grew 5% year over year to $1,579.9 million. On a constant-currency (cc) basis, revenues were up 13% from the prior-year quarter. The metric gained from solid growth across all regions.
For fiscal 2023, management anticipates year-over-year revenue growth at cc in the high-single digits on a 52-week comparable basis. For the third quarter of fiscal 2023, the company expects year-over-year revenue growth of low to mid-single digits at cc.
Bottom Line
Although freight and currency woes are concerning, we believe that Ralph Lauren is well-placed for long-term growth on the back of brand strength, robust demand, solid online show and strong AUR growth. A Value Score of B and a long-term earnings growth rate of 4.3% raise optimism in the stock.
Other Stocks to Consider
Some other top-ranked stocks from the Zacks Consumer Discretionary sector are World Wrestling Entertainment WWE, PVH Corp PVH and Oxford Industries OXM.
World Wrestling Entertainment currently sports a Zacks Rank #1 (Strong Buy). WWE delivered a four-quarter average earnings surprise of 25.19%. The company’s shares have plunged to 68.1% in the past year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for World Wrestling Entertainment’s 2023 sales and EPS indicates increases of 4.9% and 10.7%, respectively, from the year-ago period’s reported levels.
PVH Corp currently carries a Zacks Rank #2. PVH has a trailing four-quarter earnings surprise of 22.9%, on average. PVH has a long-term earnings growth rate of 10.2%.
The Zacks Consensus Estimate for PVH Corp’s current financial-year sales and EPS indicates declines of 3.1% and 18.6%, respectively, from the year-ago period’s reported levels.
Oxford Industries currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 18.9%, on average.
The Zacks Consensus Estimate for Oxford Industries’ current financial-year sales and earnings suggests increases of 23.1% and 34.2% from the year-ago period’s reported numbers, respectively.
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