A New CEO Could Be a Catalyst for Ralph Lauren Stock
Ralph Lauren Corporation (NYSE:RL) has not had a good year. Ralph Lauren stock is trading at $113.00, one of the lowest points since a high of $189.00 last December. As the company prepares to announce its second-quarter results, it is worth asking whether the brand still has the prestige to drive sales. After all, a luxury brand thrives mostly on the perception of value and prestige.
Analysts polled by Thomson Reuters have estimated earnings of $1.74 per share on revenue of $1.95 billion based on a three to five percent higher consolidated net revenue forecast. (Source: “Ahead Of Ralph Lauren’s Q2 Results”, RTT News, Nov. 3, 2015.) There is reason to remain optimistic on Ralph Lauren stock.
In the first quarter, Ralph Lauren’s earnings drop resulted from a combination of bad sales timing (due to the Easter Calendar), foreign exchange pressure, and infrastructure investments related to the launch of Polo Sport and new shops. (Source: RTT News, last accessed Nov. 4, 2015.) However, the company is entering a new era in the third quarter and the novelty is likely to win new customers for the Ralph Lauren brand, even as it retains its traditional market and appeal.
Ralph Lauren stock will benefit from the company’s overall brand reorganization and the infrastructure investment, including a better e-commerce re-platform over the next year, which should push the value of RL stock back toward the $180.00 mark. The Ralph Lauren brand is still highly visible and popular, especially in a market where it counts most: China.
Ralph Lauren Stock Continues to Benefit from Brand Strength
In a study of brand popularity by investment bank Piper Jaffray, Nike was the favorite among teens, and it’s not a surprise. What was surprising is that Ralph Lauren, whose products have a wide appeal among all age groups, was among the top five favorite brands for teens along with Urban Outfitters and American Eagle, which cater to a different customer. (Source: Alexandra Ilyashov, “The Most Popular Brand, According To Teens, Might Surprise You,” Refinery 29, Oct. 15, 2015.) However, the real litmus test for luxury good endurance is brand popularity in China.
China now boats more billionaires than the United States. The wealthiest Chinese customers like to shop at Hermès, according to a French study, followed by Louis Vuitton, Chanel, and Prada. However, Ralph Lauren is among the top brands for the millionaire set, which China produces at the rate of one per week.
Finally, the 75-year-old Ralph Lauren himself, the brand’s founder and perhaps the biggest name in American fashion, will leave the general direction of the group after almost half a century at the helm. Ralph Lauren founded the company that bears his name in 1967. Stefan Larsson, a 41-year-old Swede who led Old Navy, part of The Gap (NYSE:GPS) clothing chain, will replace him in November.
Ralph Lauren Finds New CEO at Old Navy
Ralph Lauren will remain as Chairman and retain some of his creative responsibilities, but Ralph Lauren stock will benefit from the new blood. Larsson drove Old Navy’s sales way up and its revenue has grown continuously since his arrival three years ago. Before that, he spent 15 years in the Swedish group H&M, one of the most popular fashion brands in the world in the low price segment. (Source: Bridget Foley, “Ralph Lauren Hands CEO Reins to Stefan Larsson of Old Navy,” WWD, Sept. 29, 2015.)
Indeed, Larsson’s departure is a blow for The Gap, whose eponymous franchise and Banana Republic are struggling, unlike Old Navy. The Gap stock has already been dropping and Larsson’s move to Ralph Lauren will benefit RL stock even more than it will hurt The Gap. Essentially, everything is in place to support growth at the company, to the benefit of Ralph Lauren stockholders. In 2014, Ralph Lauren posted revenues of $7.6 billion, and net income of $702 million. In five years, sales and net income for the group increased by half (+ 53% and + 46% respectively).
Ralph Lauren has grown thanks to a diversification involving over 10 different brands and some 1,000 shops worldwide, including 466 company-owned stores.
Over the years, Ralph Lauren has not only increased its founder’s wealth, but has contributed to American culture in developing the American style, a mixture of elegance and relaxation. He changed the way fashion is advertised, using Ivy League imagery, catering to aristocratic aspirations and the outdoor life, mixing classic British country elegance with color and a touch of imagination. That is the key to its success. The combined creative and management talents of Ralph Lauren and Stefan Larsson will push Ralph Lauren stock to new highs.