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Ralph Lauren (RL) Outperforms the Industry: What's Ahead?

Ralph Lauren Corporation’s RL strategic focus on digital and omni-channel initiatives seems to be paying off well. The company is committed toward three strategic pillars, which has been aiding performance. Elevating and energizing its lifestyle brand, expanding the core business and focusing on key cities with the consumer ecosystem are its core strategies for driving growth.

Management is focused on developing a sustainable and resilient model with multiple drivers, which places it well for long-term growth and value creation.

Ralph Lauren has been impressive in the stock market, demonstrating a 38.3% increase in the past six months against the industry’s decline of 3.8%. Driven by robust demand and brand strength, RL currently carries a Zacks Rank #2 (Buy).

The company has outperformed the Zacks Consensus Estimate for 14 quarters in a row, coupled with year-over-year improvements in both revenues and earnings. This uptick was driven by the success of RL’s direct-to-consumer channels and contributions to sales.

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Zacks Investment Research

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Ralph Lauren made a significant stride with its Next Great Chapter: Accelerate plan, despite the challenges posed by the operating environment. The company has been focused on shifting to “Go-to-Customer" strategy, harnessing big data and AI, and maintaining operational and balance sheet discipline. As part of the plan, transitioning Chaps to a licensed business and simplifying its global organizational structure highlight its focus on streamlining operations and concentrating on core brands.
Ralph Lauren, a major apparel designer, has achieved significant growth in new customer acquisition and loyalty with the addition of 1.7 million new consumers in its direct-to-consumer (DTC) business in third-quarter fiscal 2024. This reflects both the effectiveness of the company’s strategies and appeal for its products. Its business has a solid framework with each enabler playing a crucial role in supporting and driving the business forward.

By prioritizing enablers, which include people and culture, best-in-class digital technology and analytics, superior operational capabilities, a powerful balance sheet, and leadership in citizenship and sustainability, the company has built a robust foundation for the success of its business and long-term growth.

For fiscal 2024, management anticipates constant-currency revenues to grow low-single digits. RL projects gross margin to increase 140-180 basis points (bps) at constant currency, driven by factors such as favorable freight costs, solid Average Unit Retail, and a favorable channel and geographic mix, which will more than offset continued product cost inflation.

The company expects operating margin expansion of about 30-50 bps at constant currency to 12.3-12.5% for fiscal 2024. Management envisions a modest sequential improvement in North America in the fiscal fourth quarter, with solid DTC trends offsetting weakness in wholesale. In Asia, it forecasts growth in the fiscal fourth quarter will be closer to the full-year guidance (up low-double digits).

Other Key Picks

We have highlighted three other top-ranked stocks in the broader sector, namely Duluth Holdings Inc. DLTH, Electronic Arts Inc. EA and Gildan Activewear Inc. GIL.

Duluth Holdings sells casual wear, workwear, outdoor apparel and accessories for men and women under the Duluth Trading brand. It currently has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for DLTH’s current financial-year sales and earnings suggests growth of 0.8% and 75.0%, respectively, from the year-ago reported figures.

Electronic Arts develops, markets, publishes and distributes games, content and services for game consoles, PCs, mobile phones and tablets worldwide. It has a Zacks Rank #2 at present. EA has a trailing four-quarter earnings surprise of 16.1%, on average.

The Zacks Consensus Estimate for Electronic Arts’ current financial-year sales and earnings suggests growth of 3.0% and 29.5%, respectively, from the year-ago reported numbers.

Gildan Activewear, a distributor and manufacturer of activewear products, currently carries a Zacks Rank #2. GIL has a trailing four-quarter negative earnings surprise of 0.7%, on average.

The Zacks Consensus Estimate for Gildan Activewear’s current fiscal-year sales and earnings suggests growth of 1.7% and 14.4%, respectively, from the year-ago reported numbers.


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