At one end where we remain optimistic about
Ralph Lauren Corporation
) based on its inorganic expansion initiatives, healthy balance
sheet and impressive outlook, on the other hand macroeconomic
challenges and risks faced by the company's overseas operations
makes us less constructive on the stock. As a result, we maintain
our Neutral recommendation.
Why the Reiteration?
Ralph Lauren is one of the major specialty retailers of premium
lifestyle merchandise in the U.S., commanding a stellar portfolio
of globally recognized brands that provide it with a competitive
edge. The company is aiming to strategically expand
internationally, particularly in Asia.
Ralph Lauren has taken direct control of operations in Asia
from its licensee in order to effectively capitalize on
opportunities in emerging economies like China, Korea and India.
We believe that this strategy will aid in gaining incremental
revenues and profit.
Further, Ralph Lauren boasts a debt-free balance sheet and a cash
balance of $1.4 billion at the end of first-quarter fiscal 2014
that provides it with the financial flexibility to drive future
growth. The company's ability to generate a strong operating cash
flow has helped in the execution of its long-term strategies
including global expansion, enhancing product and brand offerings
as well as building operational infrastructure.
Moreover, management reiterated the guidance for fiscal 2014. It
anticipates revenue growth of 4% to 7% and operating margin
expansion of 25¬-75 basis points (bps) during fiscal 2014. Also,
the company's earnings had surpassed the Zacks Consensus Estimate
in eight out of nine consecutive quarters and going forward, we
expect its upbeat performance to continue.
All the above factors make Ralph Lauren an attractive option for
investors. However, lingering macroeconomic factors are likely to
hinder the company's growth financials in the near term. In
addition, the company's performance may be adversely affected due
to its significant presence in the international market which
exposes it to unfavorable foreign currency translations, economic
or political instability and other governmental actions on trade
and repatriation of foreign profits. In addition, intense
competition is likely to undermine the company's growth
Other Stocks to Consider
Currently, Ralph Lauren carries a Zacks Rank #3 (Hold). Other
stocks worth considering in the textile apparel sector include
Michael Kors Holdings Ltd
Gildan Activewear Inc.
). While Michael Kors and Hanesbrands carry a Zacks Rank #1
(Strong Buy), Gildan Activewear has a Zacks Rank #2 (Buy).
GILDAN ACTVWEAR (GIL): Free Stock Analysis
HANESBRANDS INC (HBI): Free Stock Analysis
MICHAEL KORS (KORS): Free Stock Analysis
RALPH LAUREN CP (RL): Free Stock Analysis
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