This Company is Putting up a Sizzling Show

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Premium fashion retailer Ralph Lauren (NYSE: RL) seems to be unaffected by the prevailing economic conditions and restricted buying of customers. The retailer has been posting marvelous results over the past few quarters, and its recent third-quarter results were no exception.

It lit up the Street with its power-packed results, which were way ahead of analysts’ expectations, and the company saw its share prices move north. Let us unravel the secret of this stellar performance.

Unraveling the secrets

Driven by increased demand for high-end and fashionable products, Ralph Lauren’s revenue moved north to $1.85 billion. The holiday season, which has been quite disheartening for most retailers, brought more than just good news to the company. Moreover, if we get rid of the negative effects of unfavorable currency movements and some store closures, then the top line would have been even better.

The retail segment was the star performer during the quarter with impressive same-store sales growth.  The company’s amazing collection lured plenty of customers into the stores. However, the wholesale segment was a laggard. Its performance was hampered mainly because of the discontinuation of American Living. Also, sales to some European customers were stopped. Nonetheless, these measures have been taken in order to concentrate on the more profitable businesses, which will help Ralph Lauren grow further.

The results get even more interesting when we reach the bottom line. Adjusted earnings stood at $2.4 per share compared to $1.78 per share a year ago, a huge jump of 35%. The company did a commendable job in containing its costs. Additionally, lower input costs as well as a lower tax rate played an important role. This enabled gross margins to expand further to 59.3%.

Overall, Ralph Lauren had a decent quarter. However, it has been one of the exceptions in the industry. Other premium retailers such as Coach (NYSE: COH) and Tiffany (NYSE: TIF) are not doing well. Both the retailers witnessed a muted holiday season with little consumer enthusiasm for spending. Customers’ restricted spending led Coach to register a quarter below expectations. Coach's revenue stood at $1.5 billion, a 4% increase in sales only, which was below analysts' expectations. Though revenue from China surged remarkably, both European and the American markets have been showing low demand for luxury and expensive products.

Lower demand for such products in Europe and America not only hampered Coach’s results, but also Tiffany’s performance, since it is a jeweler and a specialty retailer. It caters to an affluent class of customers and is hence prone to any kind of economic slowdown. Both Coach and Tiffany are experiencing dwindling sales, which is also affecting their stock prices. Tiffany's revenue for November and December increased only 4% to $992 million in spite of having 28 new stores compared to same period last year. Moreover, retailers are expected to perform extremely well during the holiday season, but Tiffany's performance was below expectations. Hence, Ralph Lauren’s extraordinary results have been quite surprising for investors.

Looks Tempting Going Forward

The premium products retailer looks even more interesting when we look at some of its future prospects. Firstly, it will be making uniforms for the U.S. Olympic Committee in 2014. Though this is not the first time, manufacturing the uniforms and maintaining the quality standards speaks to the company’s growth potential.

Also, Ralph Lauren has recently launched its new vintage collection which will have unique product pieces and will cater to a niche market. The company has even taken an initiative to let its customers’ poll on its website to see which product should be brought back to production once again. Customers’ feedback will play a very important role in boosting the retailer’s sales.

Lastly, its strategy of doing away with unprofitable brands seems to benefit the retailer, and will help Ralph Lauren remain focused on its core brands. Going forward, these efforts will start bearing fruit.

Conclusive Thoughts

With an 18% appreciation in its stock price, Ralph Lauren has been a marvelous performer. It has the right strategies in place along with initiatives to reduce its cost structure. Its efforts in the e-commerce segment, especially in the European region, have already started showing positive results, and it is expected to grow further.

Moreover, the company has been expanding into new regions as well as into new collections, which is driving more and more customers to its stores. I believe the company’s strength lies in the fact that it concentrates on customers’ preferences more than anything else. This has been its key to success. Owning this stock will definitely make your portfolio look good.

justhimanshu has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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