This Fashion Retailer Did it Again, But With a Pinch of Salt
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In my previous article on Ralph Lauren (NYSE: RL) I had talked about how this retailer has been dodging the tough economic environment to keep itself away from having a negative impact on its results. Its efforts to boost the E-commerce segment and increasing number of new store openings has paid off once again with stellar first quarter results.
The company looks like a very strong one, and is now getting into the list of favorites for a number of reasons. Let’s understand them.
Driven by great domestic demand for its products, revenue surged 4.4% over last year to $1.59 billion in the quarter. The premium clothing retailer witnessed growth in all its segments with retail and wholesale segments expanding due to growing customer interest in the brand. Increased orders have pushed wholesale revenue north and Ralph Lauren’s new store openings helped drive retail sales.
A key reason behind this demand is also because of its efforts to expand its presence and work on its infrastructure and marketing. Ralph Lauren also spent to promote its sports apparel segment in the Olympics. This looks like a definite boost to its results in the future.
Moreover, it has been on a buyback spree and has been repurchasing shares each quarter and returning more value to investors. With more buyback plans in its arsenal, the premium retailer looks like a good opportunity to cash on.
As Against Peers
Ralph looks to have a strong hold in the American market with sales surging in the region. The demand for its trendy products come in sharp contrast with its rivals such as Coach (NYSE: COH), which has been finding the market for its luxury products to be sluggish and weak. This is definitely a valuable strength on Lauren’s part since the American market forms the largest portion of its revenue.
Additionally, the company has been very active with its expansion moves given the robust demand for its products. But on the other hand, its rivals such as Kohl’s and J.C. Penney (NYSE: JCP) have been witnessing low demand and declining sales, forcing them to provide discounts so that they can survive. In fact, a slight decrease in Penney’s discount program has been affecting the retailer badly. Penney cut down on its discounts which affected volumes in its recent quarter.
Also, these companies have been experiencing higher cost which is leading them to cut down on their promotions. But Ralph Lauren has been spending more on its marketing strategies to strengthen its foothold and still expects to widen its margins with better inventory control measures and saving costs.
Hitting a bump…
However, no company is perfect especially in such an uncertain market. It too has worries of the European market getting weaker and hurting sales. This has led Ralph to be cautious about the next quarter since Europe is the second highest contributor to its revenue.
Another problem is the shutting down of stores in China which are operated locally. This has already started to have a negative impact on its results. Nevertheless, the company has been taking initiatives to have company owned stores in China, that too at better locations where Ralph will be able to attract more shoppers.
Ralph Lauren looks to have a bright future with new store openings at premier locations in China which will further drive retail sales. Its North American and Wholesale business are already in demand. If we look at the cost side, there is better news coming in with lower cotton prices and the company’s inventory control techniques.
A very strong positive for the retailer is its factory stores which have great potential especially in an environment where people are cost conscious. Keeping all these factors in mind, this company should not be ignored for the simple reason of a cautious outlook and investors might consider it for the long run.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Coach. Motley Fool newsletter services recommend Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.