by Tom Gardner
ALEXANDRIA, VA, (June 12, 1997) /FOOLWIRE/ -- Ralph Lauren, a simple
collection of men's ties back in 1967, has grown into a world-class retailing
and fashion brand. Now, thirty years after its incorporation, the company
offered 29.5 million shares to the public. Valued at an initial price of
$26 per share, the deal raised $767 million of public funds today. The IPO
was underwritten by Goldman Sachs, Merrill Lynch and Morgan Stanley.
Of late, the typical Paintbrush Valuation has been at play in chatter about
the IPO, as the investing community muses about comparisons between Polo
Ralph Lauren (NYSE: RL), Gucci (NYSE: GUC), and Donna Karan (NYSE: DK). While
Gucci has been on an absolute tear since its IPO in October, 1995 (and on
Tuesday rose another $4 1/2 to $72 7/8), Donna Karan has wrinkled down to
$12 from its high of $30 per share in June, 1996.
So does Ralph Lauren step out from behind curtain number one or number two?
Well, it is certainly more like Gucci than DK, but is also a good bit of
neither. Donna Karan has performed poorly in part because it has a very different
licensing structure than that of companies like Gucci and Ralph Lauren. It's
a deal structure which favors DK management over public shareholders. And
today it has Donna Karan sporting profit margins under 1%. Conversely, Gucci
has gross margins of 65%, net margins of 19%, and is showing healthy global
If you haven't gotten a glimpse of just the very basics from Ralph Lauren's
income statement, consider the following numbers:
Revenues $1.2 billion $847 million
Income $117 million $80 million
Profit Margins 9.8% 9.4%
This is a very different company than Donna Karan. Ralph Lauren is financially
sturdy, well-branded, and posted healthy sales growth of nearly 16% last
year. Don't expect RL stock to triple in eighteen months, as did Gucci
(NYSE:GUC). But I don't think the numbers suggest we have another halving
in the offing, a la Donna Karan.
Priced dearly today, Ralph Lauren is certainly one for retail-stock aficionados
to follow closely in the years ahead. See you in the Polo Ralph Lauren folder.
Tom Gardner, Fool
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