Foot Locker and Ralph Lauren: 2 Companies That Stand Out

Investor sentiment in the apparel and footwear space has been low for the better part of 2014. However, two companies stand out and are taking the necessary steps today to drive future growth.

Jun 30, 2014 at 4:59PM

Apparel and footwear companies are operating in a difficult environment characterized by a challenged U.S. consumer as well as a heightened promotional environment because of increasing competition and lower traffic in shopping malls.

Many companies are taking the necessary steps today in order to post better results in 2015 and beyond. Foot Locker (NYSE:FL) and Ralph Lauren (NYSE:RL) are taking the necessary steps today to drive future growth.

International expansion
In order to offset a challenging environment in the U.S., many companies are focusing on international growth, especially in Europe, whose economy is showing signs of growth.

When Foot Locker reported its first-quarter results on May 23, the footwear and athletic apparel retailer noted that it is seeing a mid-single-digit comp gain in Europe.

Foot Locker acquired Runners Point to gain exposure to the German market. The acquisition is already proving to be a worthwhile one as the division saw a 14% gain in sales and delivered a double-digit comp.

Foot Locker is well positioned to drive further sales in Germany following the ECB's interest rate cut, which resulted in the highest level of spending by young Germans in seven years.

Management is still undecided if a prudent course of action would be to expand to other European countries through Runners Point or through its Foot Locker brand. Long term, Foot Locker expects to have 700 to 750 stores with a focus on under penetrated markets such as France.

Over the past several years, Foot Locker has partnered with NBA superstars to help promote its House of Hoops concept in Europe. Foot Locker could also benefit tremendously, as basketball is enjoying a surge in popularity throughout Europe.

Bottom line, Foot Locker's aggressive expansion to new European markets could help drive sustainable long-term growth as the company increases its scale in Europe.

Lebron

NBA Superstar Lebron James inaugurating Foot Locker's House of Hoops in Paris, France. Source: Nikelebron.net.

Investments in digital
Ralph Lauren (NYSE:RL) benefits from its reputation as being a luxury brand that has successfully diversified itself through new segments and channels. However, what Ralph Lauren is doing behind the scenes is where the company really stands out over its peers.

Ralph Lauren's operating margins has been under pressure over the recent quarters, as a result of investment expenses related to its technology upgrades.

Ralph Lauren embarked on a multi-year phase, the first step of which was focused on global order procurement and North American wholesale order to cash systems. 

Investors should understand that one of the largest reasons to hold a bullish sentiment on Ralph Lauren shares in the medium and long term is the implementation of and integration of its technology systems. When Ralph Lauren has completed its investments in digital tech, it will operate with a fully consolidated, companywide platform rather than a legacy system that was patched together as a result of many acquisitions over the past decade.

Ralph Lauren will operate with greater flexibility and improve its speed to market. Additionally, the company could benefit from a more cohesive design, planning, and sourcing approach.

Foolish take
Investors should have confidence in Foot Locker's ability to deliver on its mid-single-digit same-store sales growth forecast on mid-single-digit comp growth. Naturally, a continued expansion of the Runners Point will drive growth. Additionally, during the first-quarter conference call, the company's CEO Kenneth Hicks said it will consider further acquisitions to expand its presence in the continent.

Ralph Lauren appears to have fared well so far in its technology upgrade and is without a doubt following the lead of one of its retail partners, Macy's. Ralph Lauren is likely to be aware of potential issues and is taking its time to ensure a smooth execution.

When Ralph Lauren finalizes its technology upgrades, it should translate to better planning as well as stronger top-line and gross margins.

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Jayson Derrick 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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