We maintain our long-term Neutral recommendation on
Polo Ralph Lauren Corporation
) with a target price of $160.00 per share. However, the company
has a Zacks #4 Rank, implying a short-term Sell rating.
Polo Ralph Lauren is one of the leading specialty retailers of
premium lifestyle merchandise in the U.S. Moreover, the company
commands a strong portfolio of globally recognized brands, which
provides it with a competitive edge and strengthens its
well-established position in the market.
Polo's fourth-quarter 2012 earnings of $0.99 per share surpassed
the Zacks Consensus Estimate of $0.85 and surged 33.8% from $0.74
posted in the prior-year period. The robust performance was
primarily driven by solid top-line growth, a lower tax rate and a
reduced number of shares outstanding.
Polo Ralph Lauren expects net revenue in fiscal 2013 to increase
by a mid-single-digit percentage due to the company's anticipation
of a low-single-digit decline in wholesale sales and
low-double-digit growth in retail sales. Moreover, the company
expects moderate operating margin expansion which will be mainly
driven by gross margin expansion, partially offset by the negative
impact of continued investment in long-term growth initiatives and
overall channel mix.
The company aims to strategically expand and elevate its
international presence, particularly in Asia. Polo Ralph Lauren
recently took direct control of operations in Asia from its
licensee in order to effectively capitalize on opportunities in
emerging markets such as China, South Korea and India. We believe
Polo's initiatives to capitalize on opportunities in Asia spurred
by reduced long-term debt augur well for future operating
Moreover, the company has a very strong balance sheet with cash
and investments of $1,187.3 million and long-term
debt-to-capitalization ratio of just 7% at the end of fiscal 2012.
We believe a solid cash position provide Polo Ralph support in
times of dividend payout, share repurchase and strategic
acquisitions. This offers Polo Ralph Lauren financial flexibility
to drive future growth.
However,Polo Ralph's financial performance may be substantially
affected due to its significant presence in international market
(almost 36% of net revenue in fiscal 2012), which exposes it to
unfavorable foreign currency translations, economic or political
instability and other governmental actions on trade and
repatriation of foreign profits.
Moreover, consumer confidence and spending behavior may dampen
due to macroeconomic factors including increase in fuel and energy
costs, credit availability, high unemployment levels, and high
household debt levels, which may negatively affect their disposable
income, and in turn, the company's growth and profitability.
Above all, Polo Ralph Lauren operates in a highly fragmented
market and competes with a number of well-established players, such
Estee Lauder Companies Inc.
Kenneth Cole Productions Inc.
). The company primarily competes on the basis of fashion, quality
and service. To retain the existing market share, Polo Ralph may
have to reduce its sales prices, which could affect its
COACH INC (COH): Free Stock Analysis Report
ESTEE LAUDER (EL): Free Stock Analysis Report
KENNETH COLE PR (KCP): Free Stock Analysis
RALPH LAUREN CP (RL): Free Stock Analysis
V F CORP (VFC): Free Stock Analysis Report
To read this article on Zacks.com click here.