An Optimistic Sign for Ralph Lauren

Ralph Lauren (NYSE: RL  ) has experienced a great run-up over the past five years. It has gained more than 330%, which beat the S&P 500's return of only 97%. Moreover, it paid dividends to its shareholders without interruption during this period. With a strong second quarter performance, the company raised its full-year forecast and increased its dividend payment by 12.5%. Is Ralph Lauren a good stock for investors to buy now? Let's take a closer look and find out.

Growing business performance and good cash return to shareholders
In the second quarter, Ralph Lauren delivered good growth in both wholesale and retail sales, driving its revenue to increase by 3% to $1.9 billion. However, its operating income dropped from $348 million to $295 million. Wholesale operating income decreased by 13% due to lower international wholesale revenue and negative currency exchange. Retail operating income declined by 14% because of investments in its global store and e-commerce development, combined with foreign currency impact and concession shops' lower profitability. 

Ralph Lauren has been well-known for consistent cash return to shareholders via both share repurchases and dividend payments. In the second quarter, the company bought back around 285,000 shares at around $176 per share. In the future, it expects to utilize its remaining $427 million share repurchase authorization to provide returns to shareholders. Moreover, Ralph Lauren also increased its quarterly dividend payment to $0.45 per share, which makes the annual dividend per share equal to $1.80. At a price of $172.50 per share, the dividend yield is not very impressive at only 1%.

PVH will deliver more value after Warnaco's acquisition
Ralph Lauren's dividend yield looks quite small. However, compared to peers PVH (NYSE: PVH  ) and Fifth & Pacific Companies (NYSE: KATE  ) , Ralph Lauren offers the highest dividend yield. While PVH pays its shareholders 0.1%, Fifth & Pacific does not pay any dividends at all. PVH's business operating performance has been strong due to its impressive results with Tommy Hilfiger and Calvin Klein.

PVH made a sensible strategic move with the acquisition of Warnaco, which gives PVH full control of two big categories – the underwear and jeans of the Calvin Klein brand. The potential synergies will definitely boost Calvin Klein's sales and profitability. For the full year of 2013, Calvin Klein is expected to generate around $2.75 billion in revenue while Tommy Hilfiger's sales are expected to grow by 6% to $3.42 billion. At $126.70 per share, PVH does not look either expensive or cheap. It is valued at 15.3 times its forward earnings, a bit cheaper than Ralph Lauren's forward earnings valuation of 17.4.

Fifth & Pacific's strategic move
Fifth & Pacific seems the most expensively valued among the three at as much as 74.40 times its forward earnings. Its share price has risen from only $5 per share in September 2011 to more than $30 per share at the time of writing. The company is still in the midst of a turnaround. Recently, it agreed to divest the declining Juicy Couture business to Authentic Brands Group for around $195 million in order to focus on the fast-growing Kate Spade brand. 

I personally think Fifth & Pacific's decision to grow the Kate Spade brand is a good idea. In the third quarter, Kate Spade managed to deliver 76% growth in sales, which rose to $180 million, and the total direct-to-consumer comp increased by 31%. Fifth Pacific estimates that its adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, could come in at around $130-$140 million for 2013. 

My Foolish take
Ralph Lauren, with its ongoing share repurchases and increasing dividend payments, could deliver decent long-run returns to shareholders. Fifth & Pacific could drive its business forward with its recent business restructuring. However, after a significant increase, its share price has become quite expensive and it is not suitable for value investors at the current level. Among the three, I like PVH the most because it has the lowest valuation and the highest potential to boost its operating performance after taking full control of the Calvin Klein brand.

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