On one hand we remain optimistic about
Ralph Lauren Corporation
) based on its global expansion initiatives, a healthy balance
sheet and an impressive outlook, while on the other hand
macroeconomic challenges and risks faced by the company's
overseas operations make us less constructive on the stock. As a
result, we maintain our Neutral recommendation.
HANESBRANDS INC (HBI): Free Stock Analysis
RALPH LAUREN CP (RL): Free Stock Analysis
QUIKSILVER INC (ZQK): Free Stock Analysis
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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
Further, Ralph Lauren boasts a debt-free balance sheet and a cash
balance of $1.4 billion at the end of second-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, we remain optimistic about the company's upbeat
performance in the upcoming quarters, given its track record of
surpassing the Zacks Consensus Earnings Estimate in nine of the
last ten quarters and a raised company outlook. Bolstered by
better-than-expected results, Ralph Lauren raised its lower-end
revenue guidance for fiscal 2014 to 5%-7% from its previous
guidance range of 4%-7%.
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).
Better-ranked stocks in the textile apparel sector include
Michael Kors Holdings Ltd
). While Hanesbrands carries a Zacks Rank #1 (Strong Buy),
Micheal Kors and Quicksilver have a Zacks Rank #2 (Buy).