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Will Growth Plans Continue to Propel Ralph Lauren (RL) Stock?

·6 min read

The “Next Great Chapter” plan has been the key to Ralph Lauren Corporation’s RL growth since its announcement in June 2018. The company is on track to exceed its top and bottom-line targets under the plan.

Additionally, RL remains poised for growth in 2022, driven by the momentum across all regions. Ralph Lauren is also benefiting from its digital momentum and ongoing investments. It is making significant progress in expanding digital and omni-channel capabilities through investments in mobile, omni-channel and fulfillment.

In the past six months, the RL stock has outperformed the industry and the Consumer Discretionary sector. Although the company’s stock declined 10.4% in the past six months, it compared favorably with the industry and sector’s declines of 23.5% and 22.9%, respectively.

The Zacks Consensus Estimate for the Zacks Rank #1 (Strong Buy) company’s current financial year’s sales and earnings suggests growth of 40% and 380.6%, respectively, from the year-ago period’s reported numbers. The positive trend signifies bullish analyst sentiments.

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Growth Plan on Track

The “Next Great Chapter” plan aims at creating a simplified global organizational structure and rolling out improved technological capabilities. As part of the plan, Ralph Lauren completed the transition of Chaps to a licensed business, thus concluding its portfolio realignment announced last year. The move will likely enable it to focus on core brands.

Ralph Lauren envisions seeing low to mid-single-digit revenue compounded annual growth rate (CAGR) and mid-teen operating margin by fiscal 2023 in constant currency. It anticipates marketing spend to grow 5% of revenues by fiscal 2023, while capital expenditure is expected to represent 4-5% of revenues. The company plans to return 100% free cash flow to shareholders in the next five years, amounting to $2.5 billion on a cumulative basis through fiscal 2023 in the form of dividends and share repurchases.

Other Growth Drivers

Ralph Lauren reported the sixth straight earnings beat and the fourth consecutive revenue surprise in the fiscal third quarter. Earnings and revenues also improved year over year. The results gained from robust revenue growth across all regions, with North America rising 30%, Europe up 50% and Asia increasing 20% in constant currency. Net revenues grew 27% year over year and 28% on a constant-currency basis. The uptick was driven by double-digit growth across all regions, driven by a robust holiday season. Strong digital growth also aided the results. Adjusted earnings per share of $2.94 for third-quarter fiscal 2022 surged 76% year over year.

In third-quarter fiscal 2022, Ralph Lauren’s 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 revenue growth of more than 40%. This was driven by strength across owned and wholesale digital channels globally.

Revenues for the company’s owned digital e-commerce business rose more than 30% year over year. Digital sales benefited from full-priced holiday sales, owing to the right product mix, a pull-back on promotions and investments in Artificial Intelligence (AI)-powered capabilities and new full-price consumer acquisition.

The company’s digital investments continue to remain focused on creating content for all platforms, enhancing digital capabilities to improve the user experience and continuing to leverage AI and data to serve its consumers more 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.

Upbeat View

Management raised the fiscal 2022 view and outlined strong guidance for the fiscal fourth quarter. For fiscal 2022, Ralph Lauren expects constant-currency revenues to grow 39-41%, up from the earlier mentioned 34-36%.

The operating margin is anticipated to be 13% (on both reported and constant-currency basis) compared with 12-12.5% mentioned earlier. Notably, the company reported an operating margin of 4.8% and 10.3% in fiscal 2021 and 2020, respectively.

The gross margin is envisioned to expand 70-90 bps versus 50-70 bps growth stated earlier. Gross margin growth is likely to be driven by stronger average unit retail and a positive product mix, which is expected to more than offset higher freight and raw material costs.

For fourth-quarter fiscal 2022, revenues are anticipated to rise 17-18% year over year at constant currency. The operating margin is anticipated to be 4.2% in constant currency, as gross margin expansion is likely to offset increased investments. The company expects the tax rate to be 21-22% for both the fourth quarter and fiscal 2022.

Other Stocks to Bet on

We have highlighted some other top-ranked stocks from the same industry, namely Columbia Sportswear COLM, Crocs CROX and GIII Apparel Group GIII.

Columbia Sportswear currently sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 203.3%, on average. Shares of COLM have declined 16.9% in the past six months.

You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Columbia Sportswear's current financial-year sales suggests growth of 17.7% and that for earnings per share reflects growth of 8.1% from the year-ago period's reported figure. COLM has an expected long-term earnings growth rate of 9%.

Crocs, a Zacks Rank #1 stock, has a trailing four-quarter earnings surprise of 36%, on average. The CROX stock has declined 52.3% in the past six months.

The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings per share suggests growth of 48.6% and 22.1%, respectively, from the year-ago period's reported numbers. CROX has an expected long-term earnings growth rate of 15%.

GIII Apparel currently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 173.4%, on average. Shares of the company have declined 24.2% in the past six months.

The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales and earnings per share suggests growth of 34.2% and 416.7%, respectively, from the year-ago period’s reported figures.


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GIII Apparel Group, LTD. (GIII) : Free Stock Analysis Report

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