Ralph Lauren (RL) Shines on Strategic Plans & Digital Progress


Ralph Lauren Corporation (RL Quick QuoteRL ) appears solid on the back of its business strategies including the Next Great Chapter plan. On the digital front, the company is making significant progress in expanding its omni-channel capabilities through investments in mobile, omni-channel and fulfillment. It is progressing well on the Next Great Chapter plan, which focuses on creating a simplified global organizational structure to deliver sustainable growth.

These tailwinds aided the presently Zacks Rank #1 (Strong Buy) stock to surge 41% in a year compared with the industry’s 36.3% rally. You can see the complete list of today’s Zacks #1 Rank stocks here.

Delving Deep

Ralph Lauren’s digital investments focus on creating content for all platforms, enhancing digital capabilities to improve the user experience and leveraging AI and data to serve consumers more efficiently. The company is consistently witnessing momentum across all regions and in both owned and wholesale digital channels, globally.

In first-quarter fiscal 2022, digital business was a key driver with accelerated digital sales across all regions. The global digital ecosystem sales increased more than 80% while owned digital e-commerce rose more than 45% year over year. North America drove the biggest improvement the fiscal first quarter with strength across both the owned and wholesale digital channels. Regionwise, digital sales surged 51% in North America, 23% in Europe and 42% in Asia. Operating margin at its owned digital business expanded 70 basis points (bps) year over year and more than 1,400 bps from the first-quarter fiscal 2020 level.

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Apart from digital strength, Ralph Lauren’s performance is benefiting from a fast recovery across North America and Europe due to the easing of restrictions. Improved marketing efforts, cost-saving plans and reduction in structural woes are the added positives. Higher average unit retail (AUR) since the past few quarters on continued brand-elevation efforts is further aiding the company. During the fiscal first quarter, it delivered the 17th straight quarter of AUR growth. All the geographies exceeded the company’s annual long-term target of low-to-mid-single digit AUR growth, led by a 39% rise in North America on improved quality of sales and distribution.

Management remains on track to reach its long-term target of low-to-mid-single digit AUR growth, backed by its strategy of product elevation, acquisition of new full-priced consumers and a favorable channel and geographic mix besides a ramp-up in targeting and personalization efforts.

Other Strengths

Backed by robust strategies and a strong start to fiscal 2022, Ralph Lauren raised fiscal view. It anticipates constant-currency revenues to increase 25-30% year over year with a favorable currency impact of roughly 30 bps compared with 20-25% growth expected earlier. Gross margin is envisioned to improve 50-70 bps on average unit retail growth and a positive product mix, which more than offset higher freight costs. Operating margin is likely to be 12-12.5% compared with 4.8% and 10.3% reported in fiscal 2021 and fiscal 2020, respectively.

Ralph Lauren is on track to exceed the top and the bottom-line targets under the Next Great Chapter plan announced in June 2018. Later, it chalked out measures to accelerate this plan to create a simplified firm structure with improved technological capabilities. As part of its initial targets under the plan, the company anticipated seeing a CAGR of revenues in low-to-mid-single digit and operating margin growth in mid teens by fiscal 2023 in constant currency. Management had initially said that it intends to return 100% free cash flow worth $2.5 billion to its shareholders in the next five years on a cumulative basis through fiscal 2023 via dividends and share repurchases.

The Zacks Consensus Estimate for Ralph Lauren’s sales and earnings for fiscal 2022 is currently pegged at $5.79 billion and $7.02, respectively. The consensus estimates suggest an increase of about 32% for sales from the year-ago reported figure and significant earnings growth from $1.70 earned last fiscal. The company’s earnings status looks good as its bottom line beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 91.4%. A long-term expected earnings growth rate of 15% seems impressive.

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