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Ralph Lauren, The Fashion Giant Offers Strong Growth Prospects

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Ralph Lauren (RL), the world’s premier luxury lifestyle brand, is considerably lagging its industry peers of late. In the last 12 months, the stock has declined approximated 4.2% whereas most of its peers have managed high double-digit returns. However, considering its growth strategies, recent earnings-beat, bullish future outlook and general industry trends, Ralph Lauren has all the qualities a good investment should possess.

Solid Q3 earnings and improved guidance
Driven by a strong top-line performance along with leveraged selling, general and administrative (SG&A), Ralph Lauren earnings per diluted share surged 11% to $2.57 in the fiscal-third quarter. The company’s net revenues increased 9.2% to $2 billion. The performance beat consensus analysts’ estimate of $2.51 per share, not to mention the revenues performance, which was at the high end of its 8% to 10% growth forecast. The robust growth was mainly supported by improved performance across the company’s wholesale and retail segments, in all key markets around the world. Exiting 2013, the company had $1.4 billion in cash and investments on balance sheet compare with $1.3 billion in year-ago quarter.

Bolstered by a strong quarterly performance, the company raised if fiscal 2014 revenue outlook to the top end of it previous guidance range. The company raised fiscal revenue outlook to 7% growth compared with its earlier guidance of 5% to 7%. For Q4 of fiscal 2014, the company expects consolidated net revenues to increase by 10% to 12%, while Operating margin is forecasted to grow in the range of 50 – 90 bps from the year-ago level of 11.1%.

Wholesale business to drive gains
Despite a mixed impact from the integration of Chaps men’s sportswear and net negative foreign...

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... the previously authorized $230 million available at the end of the third quarter, bringing its total current authorization to $730 million. Ralph Lauren is one of stocks in the industry that has share repurchase program. Unlike most of its peer, it has reduced its share count by 9.67% over the last five years.

Bottom line
In the highly competitive fashion retail business, brand strength is a great way to fend off competition. Not only is Ralph Lauren a great brand but also a great business model that is focused on inspiration and design, product development, effective advertising and marketing, and pleasurable in-store experiences. Furthermore, the case for Ralph Lauren is supported by strong financial result and shareholder value creation over the long term. All signs indicate that the company is well positioned for further success in both short and long term.
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