Tags: Polo | Ralph | Lauren | RL

Ralph Lauren Eyes Weak Consumer, Rising Costs

By    |   Thursday, 17 May 2012 04:51 PM

Polo Ralph Lauren (RL) is bullish on its prospects in developing Asia, despite a continuing restructuring of operations in China, Taiwan, Hong Kong and Macau. Management, meanwhile, warns that consumer demand continues to be impacted by a weak economy while the high cost of raw materials could pressure results.

Polo Ralph Lauren is a global designer, marketer and distributor of men’s, women’s and children’s apparel, accessories, footwear, fragrances and home furnishings. The company operates in three segments: wholesale, retail and licensing.

Sales have grown as a result of both acquisitions and organic growth, management said in a recent filing. “Our global reach is extensive, with Ralph Lauren-branded merchandise available through our wholesale distribution channels at approximately 10,000 different retail locations worldwide," management said in a recent filing. 

"In addition to our wholesale distribution, we sell directly to customers throughout the world via 367 full-price and factory retail stores, 510 concessions-based shop-within-shops and our e-commerce websites,” management said.

The company has invested $1.56 billion over the past five years, mostly from its own cash flow, on acquisitions and capital improvements.

"We intend to continue to execute our long-term strategy, which includes expanding our presence internationally, extending our direct-to-consumer reach, expanding our accessories and other product offerings, and investing in our operational infrastructure,” management said.

Polo Ralph Lauren has a market cap of $13.85 billion in a sector, textiles, apparel and luxury goods, where the average company size is $3.78 billion. Its trailing 12-month P/E ratio is 21.80 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.39, compared to 1.55 for the sector.

Its projected earnings per share growth for the coming year is 19.31 percent, compared to a sector average of 24.37 percent.

China reduction

Wall Street is generally positive on the outlook for RL, with buy or outperform ratings from UBS, Credit Suisse, and Citigroup.

“While we view the shares as appropriately valued at recent levels, we believe RL has ample opportunities to further penetrate the global premium apparel market, via geographic and product diversification, and a tiered pricing strategy that appeals to a broad range of shoppers spanning high end to value,” said Standard & Poor’s analysts on Feb. 21 in a report on the company.

“Risks to our recommendation and target price include execution risk in Greater China, where the company expects to close 60 percent of its store base by the end of FY 12, a sharp decline in global consumer discretionary spending, and unfavorable currency fluctuations.”

Polo Ralph Lauren next reports on May 22.

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