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Ralph Lauren Will Remain In Style After Recent Earnings

By Michael Lewis - Feb 12, 2014 at 9:06AM

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A true American brand with tremendous global appeal, Ralph Lauren continues to shine with steady prospects going forward.

Ralph Lauren (RL 4.65%) is one machine of a fashion house, consistently achieving high-fashion status while maintaining an amazingly profitable enterprise. Ralph Lauren is an American business that holds the same prestige as the great French and Italian labels. Its branding is so strong that it sets itself apart from the competition without fail. Closely tied to its branding is its publicity prowess. The company has a perennial knack for getting in front of the right eyes and pushing the right image. In its recent earnings report, Ralph Lauren surpassed analyst expectations on the top and bottom lines, and even raised guidance for the coming periods, but the stock still sold off. Is this a buying opportunity?

Promo machine
The world of high fashion can be completely entrancing and simultaneously alienating. A glossy Dolce & Gabbana ad screams style and exclusivity, but for most it seems downright fantastical. Ralph Lauren toes an equally tantalizing, yet more accessible line. The company is not afraid to speak to the masses. Take its frequent Olympic sponsorship efforts -- Beijing 2008, Vancouver 2010, London 2012, and now Sochi 2014. The Olympics are tremendous rallies for patriotism and speak to all levels of the socioeconomic scale.

Beyond the world of sports, Ralph Lauren is seeing continued demand. In the recently ended quarter (which included the holiday season), the company saw profit rise nearly 10% to $2.57 per share -- up from $2.31 per share in the year-ago quarter and above analyst estimates. The company also guided at the very top end of its previously issued 5%-7% sales growth in fiscal 2014.

Worth the buy?
Ralph Lauren has had a long run of growing sales, but also has a long runway for future growth, as the company largely remains an America-focused brand. While other high-fashion retailers such as Michael Kors and Coach derive substantial portions of their revenue from Asia, Ralph Lauren's presence there is relatively nascent.

On a fundamentals level, the company is perhaps even more appealing. Ralph Lauren has a net cash position of $1.1 billion (net cash being cash and equivalents minus debt). The company has plenty to devote to growing its wholesale business and increasing store counts. In the earnings release, management also cited the accessories business as having a growing global impact on sales. Investors can expect research and development spending on the segment to bump up.

At more than 16 times earnings, Ralph Lauren is reasonably valued considering its global growth prospects (for reference, Kors trades at 25 times earnings, while Coach is cheaper at 13.8 times). As the company follows the "it" strategy of omnichannel retailing and pursues global growth opportunities, sales have plenty of room to continue their upward trajectory. Add to that a bulletproof balance sheet and perennial branding, and this may be the fashion industry's best pick.

Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach. 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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Ralph Lauren Corporation Stock Quote
Ralph Lauren Corporation
RL
$99.96 (4.65%) $4.44

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