This has been an all-American, upscale brand for more than 40 years, but can it last? Branding 101 tells you that if you are supposed to be considered a “luxury” brand, a presence on discounted retail racks does nothing but cheapen your brand image. Too much distribution through the off-price channels could be the ruin of Polo Ralph Lauren.
Further, the company's fate is closely linked to that of department stores, which have been losing market share for years and now are consolidating. In fiscal 2005, more than 25% of Polo Ralph Lauren's total revenue came from Federated, Mays and Dillard, with over 18% of revenue from just Federated and Mays. Now that Federated and Mays have merged, Polo may see a real contraction in its sales.
I also don’t like that founder and CEO Ralph Lauren directly controls seven out of nine board seats -- and his interest makes up 88% of the shareholders votes. This is the Ralph Show, through and through, and as visionary as he may be, such dominance on the board doesn’t make for good corporate governance.
Type of stock: A slow growth apparel stock that has 40 years of being linked to all-American luxury.
Price target: I wouldn’t go near RL right now. Trading at $67.47, I’d buy only if the stock price dips to the mid-$40s.