Ralph Lauren’s Cheap Valuation and Bright Prospects Make It a Long-Term Buy

Ralph Lauren’s strategies and favorable valuation are strong reasons why you should consider the stock for your portfolio.

Mar 20, 2014 at 6:25PM

Ralph Lauren (NYSE:RL) recently released its third-quarter financial results. Performance exceeded consensus estimates on the back of solid North American demand. Also, considering that Ralph Lauren is far cheaper than peers PVH (NYSE:PVH) and Kate Spade (NYSE:KATE), Ralph Lauren could be a value investment. The stock has been performing very well, and its different strategies suggest better times ahead.

Strong performance
Ralph Lauren registered 9.7% net income growth in the third quarter, well above Wall Street's expectations. Profit climbed to $237 million, or $2.57 per share. That's up from $216 million, or $2.31 per share, in the year-ago period. Performance surpassed analysts' estimates of $2.51 per share. Ralph Lauren's revenue performance was at the high end of its 8% to 10% growth forecast. The company sees revenue growth of 10%-12% this year.  

The sales improvement was driven by the Polo and Club Monaco brands, which reported robust wholesale demand; international sales also helped growth.

Solid growth
Ralph Lauren achieved double-digit growth in Asia, having received a solid response from China in the third quarter. Ralph Lauren considers China a strong opportunity for growth and expansion. It plans to open a dual-gender flagship store at Lee Garden in Hong Kong, which will be 20,000 square feet. Ralph Lauren is focused on spreading its brand image in China through various points of distribution and believes that the Ralph Lauren flagship store will be a major growth driver in the region. 

Ralph Lauren also achieved high single-digit growth in Europe. With the spring and summer seasons around the corner, the company will be increasing shipments to Southern Europe to drive growth.

Ralph Lauren experienced strong quarterly results in its e-commerce channel, resulting in concrete growth in the teen segment globally. International e-commerce revenue has grown by more than 50% year to date, with Japan and Europe as significant contributors. Ralph Lauren is strengthening its e-commerce business further and expanding its operations by investing $75 million in ralphlauren.com. Ralph Lauren is focused on enhancing the customer experience by making browsing and buying merchandise through mobile and other electronic devices easier. 

Ralph Lauren also reported tremendous growth in its accessories line, especially Ricky handbags. The company has successfully spread awareness regarding Ricky handbags with investments in production, merchandising, and presentation. As a result, Ricky posted remarkable sales growth in the third quarter. Ralph Lauren has partnered with specialty-stores globally, further enhancing its long-term prospects.

Cheaply valued
Ralph Lauren possesses several positive characteristics, such as consistent revenue growth, manageable debt, and a cheap valuation as compared to peers.


Trailing P/E

Forward P/E

Expected five-year CAGR

Profit margin


Dividend Yield

Ralph Lauren






Kate Spade












Source: Yahoo! Finance

Ralph Lauren isn't expected to grow the fastest of the group, but its cheap valuation and superior profitability make it a solid pick. A value investor will be inclined toward an investment in Ralph Lauren, as it offers stable growth at a decent earnings multiple. In addition, Ralph Lauren's profit margin exceeds the other two; the same can be said about the dividend yield.

More aggressive investors will probably consider an investment in either PVH or Kate Spade. However, PVH was recently downgraded by Morgan Stanley on fears that the company could struggle in a highly promotional environment. Ralph Lauren has been consistently and aggressively growing its business and is is no doubt a threat to PVH.

Kate Spade, on the other hand, is very expensive. It might be a long time before it can deliver consistent gains to investors. Kate Spade is aiming to quadruple its sales to $4 billion. However, Kate Spade faces tough competition from already established peers such as Ralph Lauren, Michael Kors Holdings, Coach, etc. Given its sky-high valuation and not-so-impressive profit margin, it might not be a good investment.

With significant investments in e-commerce, Ralph Lauren is moving in the right direction. The company is growing internationally and is targeting the right areas for expansion. Also, it is quite cheap when compared to peers, as we just saw, making it a good buy at a reasonable price.

But what will you buy your clothes with?
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.


Neeta Seth has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information