Is This Luxury Brand Dominating the Polo Field?

By Ryan Guenette - September 6, 2012 | Tickers: PVH, RL, JNY, WRC, TRLG | 0 Comments

• Email
• Print

Ralph Lauren Corporation (NYSE: RL) is a company involved in the design, marketing, and distribution of products for all ages and genders. Their portfolio of products includes apparel, accessories, footwear, fragrances, and home furnishings. The company is famous for its iconic logo of a polo player on his horse, and has always been regarded as a luxury brand. Over the past five years, the company’s stock has rallied 102.40%, vastly outperforming the declining broader market over this time period. The company employs approximately 25,000, and is valued at $14.46 billion on the New York Stock Exchange. So is this luxury brand dominating the polo field?

Durable and Strong Fundamentals

In 2002, Ralph Lauren reported earnings per share of $1.75. In 2012, the average analyst consensus believes the company will derive $7.13 per share from its business operations. This represents a 307.43% increase in earnings over a decade. Based on these statistics, Ralph Lauren’s compound annual growth rate (CAGR) is 15.08%, an astonishing feat for a luxury company that runs through a decade that possesses one of the worst financial collapses in human history. Ralph Lauren should be able to sustain this rate into the future, and may find even better rates when economic security and prosperity returns. Additionally, the company pays out a moderate dividend, which has been doled out consistently since 2003. Currently, the company pays out an annual dividend of $1.60, which at the current price, puts the dividend as yielding 1.01%. This is up from 2011’s annual dividend of $0.80, and is only expected to slightly increase into the future. From this we can see Ralph Lauren’s financial strength through times of economic misery, annualized double digit growth rate through the past decade, and meager dividend.

The chart below displays Ralph Lauren’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

Looking into the Future

There is no doubting the facts. Ralph Lauren is highly regarded as a luxury brand, as one men’s collared polo sells for nearly $100. In times time of economic downturn, such as in 2008, people are less likely to spend this type of money on wardrobe. When people are losing their jobs and sense of financial security, they are not shopping at luxury brand stores, such as Ralph Lauren. As the global economy stabilizes and improves, people are slowly regaining the confidence they once had, and are willing to spend money in luxury brand stores. This trend will be advantageous to Ralph Lauren, but it is also important to recognize that the company was able to sustain itself in 2008 and other times of downturn.

Another aspect that will benefit Ralph Lauren is the long-term shift that is occurring within the social hierarchy. More people than ever are part of the upper class, as the middle and lower classes shrink.  The chart below displays this phenomenon, and is injusted for inflation.

A final beneficial aspect of Ralph Lauren’s stock is the scarcity of debt the company possesses on its sheets. The company only possesses $7.60 per share of net debt on its balance sheets. Most retailers have more debt on their sheets because they take out loans to finance the opening of new stores, yet Ralph Lauren only has a small portion of money allocated to debt.

Who Is the Industry Trailblazer?

Compared to some of Ralph Lauren’s most prominent competitors, such as: PVH Corporation (NYSE: PVH), Warnaco Group Incorporated (NYSE: WRC), True Religion Apparel Incorporated (NASDAQ: TRLG), and The Jones Group Incorporated (NYSE: JNY), Ralph Lauren compares relatively favorably.

In terms of growth, Jones Group is the industry leader while True Religion is the industry laggard. All companies except for True Religion and Warnaco pay out dividends, with Jones Group possessing the largest dividend, and Ralph Lauren possessing the fastest growing dividend. In the fundamental ratio comparison, True Religion appears to trading at a bargain, while Jones Group appears pricy. The same is true when growth is taken into account. In the net profit margin comparison, True Religion stands out to the upside, while Jones Group stands out to the downside.

The Foolish Bottom Line

Ralph Lauren is undeniably a luxury brand, and is times of economic downturn; people do not have the confidence or the money to buy luxury items, however Ralph Lauren is capable of sustaining themselves in these drastic times. The company has incredible financial strength and an annualized double digit growth rate. The company also has a decent dividend, and should benefit from the recovering global economy. The company also has a small amount of debt, and compares relatively favorably to its peers. The foolish bottom line is that Ralph Lauren is a tremendous way to play the recovering global economy, and should explode in times of prosperity.             

• Email
• Print
• Feedback