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Here's Why You Should Add Ralph Lauren (RL) to Your Portfolio

Zacks Equity Research
Consumer spending, which accounts for more than two-third of economic output, increases 0.9% in March - the highest monthly increase since August 2009.

Ralph Lauren Corporation RL appears to be an investor favorite. Currently, the company is on track with its ‘Next Great Chapter’ plan. Expansion of digital platforms and international footprint is a key aspect of the company’s growth strategy.

All these factors helped the company to deliver robust third-quarter fiscal 2019 results, wherein the company continued with its positive earnings and sales surprise trend for the third straight time. Moreover, both the top and bottom lines grew year over year. This propelled the management to raise revenue and operating margin guidance for fiscal 2019.

Further, analysts are steadily growing bullish on the stock. This is apparent from the rise in earnings estimate. The Zacks Consensus Estimate of $7.03 for fiscal 2019 and $7.57 for fiscal 2020 has moved north by 25 cents and 26 cents, respectively, over the past 60 days.

In the past three months, shares of this New-York based company have rallied approximately 21% compared with the industry’s 18% growth.

All said, let’s take a closer look at the aspects driving this Zacks Rank #1 (Strong Buy) stock, which also flaunts a VGM score of A.

Next Great Chapter: Key Catalyst

Ralph Lauren is progressing well with its “Next Great Chapter” plan after the success of its 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 by five strategic priorities including winning over a new generation of customers; energizing core products and accelerating under developed categories; driving targeted expansion in its regions and channels; leading with digital; and operating 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 by fiscal 2023, in constant currency. Further, the company expects returning to constant-currency revenue growth by fiscal 2020.

Restructuring Plan On Track

Ralph Lauren is on track with its restructuring plan, which is in sync with the strategic objective of operating with discipline under the Next Great Chapter initiative. The company anticipates incurring restructuring charges of $100-$150 million, mainly pertaining 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.

Markedly, these restructuring 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.

Focus International Presence & Digital Growth

Ralph Lauren is making efforts to bolster its international presence by consistently 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. In the fourth quarter of fiscal 2019, the company plans to open two more stores in Europe with more than 100 stores planned for the next five years.

These apart, the company is expanding its digital platform, which is an added positive. In fiscal 2018, it has developed a winning digital ecosystem including directly-operated platforms, wholesale digital, pure plays and social commerce. Ralph Lauren’s constant-currency digital revenues improved 20% in the fiscal third quarter backed by strength across all regions.

Further, the company’s directly-operated digital flagships reported better-than-expected results, recording 21% and 13% digital comps growth in North America and Europe, respectively. In China, the company further intensified its brand footing through the expansion of its digital commerce in the country, which was launched in September 2018, and strengthening pure-play partnerships. Additionally, Ralph Lauren’s digital wholesale business has been witnessing marked improvements, which is driving market share gains in this channel at key retailers and categories.

We expect all the afore-mentioned factors to continue bolstering the company’s performance and help it remain in investors’ good books.

Other Key Picks

G-III Apparel Group, Ltd. GIII outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Under Armour, Inc. UAA has a long-term earnings growth rate of 22.7% and a Zacks Rank #1.

Columbia Sportswear Company COLM has a long-term earnings growth rate of 10.9% and a Zacks Rank #1.

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