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.

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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.

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