May 22, 2012
Recommendation: B-rated Buy
Welcome to the Stock of the Day for May 22, 2012. Of all the blue chip stocks to report earnings today, one of the best announcements was from Ralph Lauren Corp. (RL), which opened up 6% this morning. Ralph Lauren had been swept under the rug earlier this month after a gloomy earnings report from Fossil (FOSL) dropped a bombshell on the luxury sector. FOSL is down nearly 50% since its latest earnings report, but RL's solid report today is an indication that select fundamentally strong luxury names have been beaten down too much on Europe sales concerns—and now may just represent a buying opportunity. Let's dig into the details and see if we should dress up our portfolio with this fashion icon.
Company Overview: Ralph Lauren Corp. was launched in 1967 by American designer Ralph Lauren. Based in New York, Ralph Lauren Corp. is known for producing a number of fashion brands, including Polo, American Living, Chaps and Club Monaco. This company employs 24,000 across just under 650 locations across the Americas, Europe and Asia. In the most recent year, the company brought in $5.66 billion.
Earnings Buzz: Thanks to strong same-store sales growth and improved margins, Ralph Lauren Corp. posted strong top- and bottom-line growth for the fourth quarter. Compared with Q1 2011, net sales climbed 14% to $1.62 billion; this topped the $1.60 billion Street view by 1%. Over the same period, net income jumped 29% to $94.4 million, or $0.99 per share. Analysts forecast earnings of just $0.83 per share, so the company posted a 19% earnings surprise. Pleased with these results, company management has decided to double its quarterly dividend payment to $0.40 per share. Shareholders of record on June 29 will receive this payment on July 13.
Industry Breakdown: Ralph Lauren Corp. is a part of the Textile and Apparel Industry, which is composed of 119 different companies. Of those, Ralph Lauren is tenth largest in terms of market capitalization. Additionally, the company also stands out in terms of its dividend yield, which is eighth highest, and its Price/Earnings to Growth ratio, which is sixth highest. The company also falls in the top quartile in terms of sales and earnings growth, return on equity and long-term growth rate. Ralph Lauren Corp.'s largest competitors are Fifth & Pacific Companies Inc. (FNP) and The Jones Group Inc. (JNY). Of these three companies, Ralph Lauren has the highest sales growth, the highest gross margin and the highest operating margin.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over most of the past year, this stock has remained in buy territory because buying pressure has held firm. On the fundamentals side, Ralph Lauren Corp. pulls off top-notch return on equity and strong sales growth, earnings momentum, and cash flow. Nonetheless, the company is mediocre in terms of operating margin growth, earnings growth and its track record of matching earnings estimates, so there is still plenty of room for improvement. This stock receives a B for its Quantitative Grade, and a B for its Fundamental Grade.
Bottom Line: I consider this stock a solid buy.
Sound Off: What do you think about RL? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook. For more stock grades and commentary, please visit NavellierGrowth.com!