Ralph Lauren (NYSE: RL) had a successful fiscal 2019 (ended March 31st), with the company’s revenues increasing 2% to $6.3 billion thanks to robust revenue growth in Asia and Europe and an uptick in AUR (Average Unit Retail) globally. The top line grew primarily due to another impressive performance by the company’s Asia segment, even as digital sales pick up steam. Asia is the fastest-growing division for the company and accounts for roughly 17% of Ralph Lauren’s Revenues.
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The Contribution Of Ralph Lauren’s Asia Segment Has Grown Steadily Over The Years
- Asia segment has added roughly $150 million to total revenues at an average annual rate of 5.3% over the last 3 years.
- Revenues of $1 billion for the segment in fiscal 2019 reflected a 11.5% y-o-y growth, and accounted for 16.5% of the company’s total revenue mix.
- Robust revenue growth has helped Asia segment’s contribution to the top line increase from 12% in 2016 to around 16.5% in 2019
- Although, the Asia segment reported lowest operating margin of 15.5% among all geographic divisions, the segment’s revenue growth has comfortably outpaced Ralph Lauren’s total revenue growth over the recent years.
- Asia segment has continued to achieve higher comparable sales growth as compared to the company. In fiscal 2019, Asia’s comparable sales growth of 5% was significantly higher than Ralph Lauren’s overall growth of just 1%.
- Moreover, China has been the largest growth driver for Ralph Lauren. During FY2019, roughly 30% of Asia’s revenues growth was led by Mainland China
- Additionally, the company opened 94 stores in Asia during the year, with 39 of them in China – highlighting the company’s focus on growth in China.
- To add to that, Asian economies have experienced strong economic growth. GDP growth in Asia remains much higher than in European and American countries. Accompanying this growth has been the notable increase in Asian consumers’ expenditure on luxury brands.
- As a result, Asia-Pacific has become one of the most important regions for the global fashion business. Ralph Lauren has continued to benefit from these macroeconomic factors.
What To Expect In The Near Term
- We forecast Ralph Lauren’s Asia revenues to grow 5.5% in the ongoing fiscal 2020 to $1.1 billion, likely to be driven by growth across all markets in Asia, particularly Mainland China.
- The company’s management indicated that its product and marketing initiatives have resonated well in Asia and they expect to increase their digital efforts while also expanding their store fleet. This should help Ralph Lauren achieve steady growth in Asia.
- Moreover, rapid urbanization, development of new markets, new technologies and shifting consumer needs will further support revenue growth in the near term.
- Similarly, the company’s digital business in China continues to expand following the launch of its directly-operated digital commerce site. With the Asian online apparel market projected to reach around $1.4 trillion by 2020, Ralph Lauren’s Asia segment is poised to achieve steady growth in FY 2020
- However, escalating U.S.-China trade tensions will likely pose a threat to the company’s revenue growth in the near term.
- Asia is the fastest growing division of Ralph Lauren, with China contributing a bulk of the growth in the Asia market. Despite a strong performance in the last few years, China only represents 3.5% of Ralph Lauren’s total global business.
- With growth fundamentals remaining strong in Asia, we expect the Asia segment to be pivotal for the company’s long-term revenue growth, profitability improvement, and enhanced shareholder returns in the coming years.
- Moreover, Ralph Lauren’s largest segment, North America, has struggled over the last couple of years – increasing the importance of the Asia segment to Ralph Lauren’s long-term growth.
Per Trefis estimates, Ralph Lauren’s EPS for fiscal 2020 is likely to be $7.40. Taken together with a P/E of 17.5x, this works to a fair value of $130 for Ralph Lauren’s stock.
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