Ralph Lauren (RL) Poised for Growth: Surges 44% in a Year

Ralph Lauren Corp.RL has been a solid investment pick for quite a while now as it continues to portray a strong earnings trend, backed by smooth progress on the Way Forward Plan alongside strategic efforts to expand digital and international presence. The cumulative effect of these efforts is clearly visible in its price performance graph, which continues to scale up despite all odds.

The company's shares showed remarkable growth in the past year, which is mostly reflective of positive earnings surprise trend. Notably, it topped earnings estimates in 12 straight quarters. This Zacks Rank #2 (Buy) stock surged 44.3% in the past year, outperforming the industry 's growth of 30.3%.

Additionally, the stock grew nearly 7% in the past month, indicative of the positive sentiment, even two months after the third-quarter fiscal 2018 results that released on Feb 1. This is further justified by the positive estimate revisions witnessed in a month's span.

Notably, the Zacks Consensus Estimate for fiscal 2018 climbed to $5.98 per share from prior estimate of $5.93 in the past month. Moreover, estimates for fourth-quarter fiscal 2018 and fiscal 2019 reflect a gain of 1 cent and 2 cents, respectively, to 86 cents per share and $6.12 per share in the last 7 days.

Let's analyze some more factors that are acting as catalysts.

Growth Catalysts

Ralph Lauren remains on track to deliver goals under its Way Forward Plan that was announced in June 2016. Divided into two parts, the plan is all about refocusing on the core, strengthening the brands and returning the company to profitable growth in the long term. Reflecting its commitment to the core business, the company has been keen on improving assortments by discontinuing unproductive styles. It is focused on curtailing the number of Stock Keeping Units (SKUs) alongside closing down underperforming stores.

Further, Ralph Lauren is on track to reduce its supply chain lead times to improve sales quality and curtail markdowns. It is also focused on lowering inventories to keep it on par with demand. Apart from this, Ralph Lauren is well on track with the restructuring plan, which is likely to generate savings of roughly $140 million by the end of fiscal 2019. These restructuring activities include rightsizing the portfolio and cost-structure, alongside streamlining the organizational structure.

Coming to digital and international growth, Ralph Lauren sees immense growth potential in Asia, where it is building a strong business foundation and elevating the brand for the past two years. With nearly 15% of its business in Asia, the company is currently underpenetrated in the region and sees numerous growth opportunities ahead. In third-quarter fiscal 2018, its constant-currency revenues in Asia grew 7% while comparable sales (comps) improved 3%.

Going forward, the company expects Mainland China to be a major contributor to growth in Asia due to lower penetration and strong brand awareness. Moreover, it is continually expanding both online and physical presence in China while also focusing on marketing and distribution. By the end of fiscal 2018, it plans to have total 60 stores in Mainland China. Moreover, in the next five years, it targets generating nearly $0.5 billion of revenues in Greater China, including Hong Kong, Macau and Taiwan.

As already said, these efforts have greatly influenced the company's positive earnings stream in the last 12 quarters. Looking ahead, management remains confident about Ralph Lauren's performance, based on its efforts related to global brand reorganization and constant infrastructural investments. Also, management lowered its effective tax rate forecast for fiscal 2018, which should benefit the bottom line.

Bottom Line

Ralph Lauren is a sure-shot winner in all aspects. However, we cannot ignore the mishaps in the North America business, which is hurting revenues. Lower retail and wholesale sales at home, due to distribution and brand-exits, the planned reduction in shipments and promotions to enhance the quality of sales, and lower customer demand, have been pressing concerns for the company.

Nonetheless, we believe that the company has been taking the necessary initiatives to revive the segment. Its Way Forward Plan should take care of this hurdle, helping the stock to retain its solid market position.

Looking for Trending Apparel Picks? Check These

Other top-ranked stocks in the industry include Guess? Inc. GES , sporting a Zacks Rank #1 (Strong Buy), Michael Kors Holdings Limited KORS and G-III Apparel Group, LTD. GIII , carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Guess? gained 38.5% in the last three months. Moreover, it has long-term earnings growth rate of 17.5%.

Michael Kors has long-term EPS growth rate of 7%. Further, the stock returned 39.6% in the last six months.

G-III Apparel increased 42.5% in the last six months. Moreover, it has long-term earnings growth rate of 15%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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