cheap ralph lauren Ralph Lauren Is An Attractive Investment

cheap ralph lauren Ralph Lauren Is An Attractive Investment

Ralph Lauren Is An Attractive Investment

All multinational organizations are fighting the impact of negative foreign exchange on their revenues and profits. Companies dealing in apparel and personal luxury brands, in particular, are facing tremendous challenges since the growth in the luxury market is directly proportional to economic recovery. The following discussion revolves around the steps employed by Ralph Lauren Corp.(NYSE:RL) to bolster its future earnings.

Earnings SummaryDuring the second quarter of FY2015, the company’e top line increased almost 4% YoY to approximately $2 billion from $1.92 billion in the same period a year ago. Analysts were hoping the top line would grow 5.2% YoY to $2.02 billion this quarter. The growth was driven by the retail segment whose sales increased about 7% YoY and by the new store openings that added to the company’s top line.

Even though the revenues showed positive growth, the impact did not trickle down to the bottom line. The company’s operating profit margin slumped 3.1% YoY primarily due to an approximately 8% increase in the SG expenses related to marketing and investments in strategic growth. Overall, the bottom line plunged 2% YoY from $205 million (reported a year ago) to $201 million. However, per share earnings increased marginally from $2.23 per share (reported last year) to $2.25 per share. The company vastly exceeded analyst estimates which stood at $2.05 per share, and per share earnings were significantly helped by the share buyback program. Although Europe and Asia are currently smaller contributors to the company’s top line, they are still regions that offer opportunities for expansion.

The company is contemplating the opening of a 20,000 square foot store in the Greater China Area which is expected to boost the company’s regional profits tremendously. The personal luxury goods market in China has been off lately owing to government restrictions on gift giving and corruption crackdown. However, the country’s growth is expected to completely recover in the upcoming future. In fact, the entire Asian region is expected to show very high growth in the luxury goods market.

Between 2013 and2018, China’s luxury market is expected to grow by 74%, Malaysia’s at 62%, Indonesia’s at 59% and India’s at 84% according to Euro monitor estimates. Although all of these countries are expected to demonstrate incredible growth, China is expected to continue to hold its top position, even though the sales growth is currently rather weak. The country is expected to contribute 35% to global luxury sales in 2015, while the country’s share is expected to increase to 50% in the next ten years. However, the global luxury market is expected to remain slow until 2015 with a 5% growth rate.

The market in the US is expected to improve as well, since the unemployment rates are declining and are presently at their lowest compared to historical highs. Low unemployment rates mean that more people are employed today, which also means that consumers have higher disposable incomes. Based on these facts, it is assumed that spending activity will thrive in the future. The following figure is a representation of the decelerating unemployment rate.

Source: Bureau of Labour Statistics

E CommerceThe company reported that retail sales in the current quarter were driven by double digit sales growth in the international and e commerce operations. The company is working on further establishing its e commerce business since shopping behavior has changed, and people find it more convenient to shop online than at conventional brick and mortar stores. Within North America, Ralph Lauren’s e commerce business is well established and now the company is making advancements in Europe and Asia.

E commerce has multiple benefits both for the company and the consumers. While the consumer gets the opportunity to research before making the final purchase, the company will benefit from lower operating costs which would lead to bottom line elevation.

Shareholder ReturnsThe company is a dividend payer and also enhances shareholder value through share buyback programs. During the second quarter of FY2015, Ralph Lauren repurchased shares worth $70 million.

Concluding RemarksIn my opinion, Ralph Lauren is an intelligently run company. The company understands the market and its consumers well enough and has proven itself flexible enough to change according to the prevalent demand. E commerce development and store opening plans in China will help the company bolster its future earnings. Although growth is expected to remain low this year, the company’s long term prospects deem it a good investment.

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