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Ralph Lauren (NYSE:RL) has had a nice six months. The stock has seen a 38% increase in that time period and they posted strong results in their last quarter.

They had strong growth in their retail and wholesale segments and predicted low double digit revenue growth for this quarter, while upping their expected earnings per share to $3.50-3.60 for the full year. The strength behind this continued earnings growth lies in Ralph Lauren's brand image. They have always been the premier American luxury clothier and will continue to foster that image.

No Department Store Damage
A previous article on SeekingAlpha.com made the case that the brand was being undermined by its presence in department stores. While I would agree that flooding the market with cheap clothes isn't the way to promote exclusivity, this isn't a wide spread image the brand holds. When you go into a department store, Ralph is typically the most expensive brand in its section. Other brands, which used to be considered competitors, such as Nautica or Tommy Hilfiger, have lost their popularity among the younger crowd.

With Ralph, the "pony" which is emblazoned on most every shirt is instantly recognizable and synonymous with quality and style. If anything, their presence in department stores promotes themselves as a luxury brand. Consumers who typically don't spend a lot on clothes would see it as something to be sought after, because the price tag is more expensive and it's always been known for quality. Even at Ralph Lauren's outlet shops, their prices are discounted, but not cheap. With that in mind, the company shouldn't worry about being seen as bargain basement.

If we look at the other end of the consumer spectrum, we see strong growth potential. The end of 2006 brought enormous bonuses to Wall Street's finest and it seems like most every periodical (The Economist, Barron's, Business Week) is highlighting the growth of the upper class. Even Philadelphia Magazine's latest cover story was titled - "Why Aren't You Rich? How 100,000 Millionaires Took Over Philly."

Only Man on the Mountain
Ralph Lauren does face stiff competition in this crowd - Brooks Brothers, Burberry (OTCPK:BBRYF), Armani, Gucci, etc. - but they do have strong presence. RLXjackettagIn Aspen, Colorado, the official clothier of the mountain is the sports division of Ralph Lauren, RLX. This is fantastic product placement, as every skier on the four mountains sees the jacket on display when they pass an employee in the hotel, a ski instructor on the slopes and every time they get on the ski lift. The impact is seen in the large number of skiers wearing the same jacket, minus the mountain logo. I realize this is anecdotal, but strong presence in an upper class market like this is a good indicator of a premium brand's health, as is Ralph's continued upper-market growth both at home and abroad.

Ralph Lauren's 3rd quarter, fiscal 2007, results will be released on Feb 7th and investors thinking of buying into RL should look out for some certain things. Management stated that at the end of last quarter that they are expanding into premium department stores (Saks Fifth Avenue, Bergdorf Goodman, etc.) so look for their Black and Purple label lines to bring in more revenue here as well as in Europe, which has delivered strong growth to them.

Look for management notes about their "Rugby" retail stores. The investment into these specialty outposts has been offset by company wide growth, but it remains to be seen whether or not this will be a profitable venture for them. I personally think they should grow via their bread and butter stores, rather than a niche clothing line, whose chief product (rugby style clothing) will go in and out with popular tides. Wholesale and retail numbers should continue to be strong and will drive their core revenue growth. The stock definitely isn't a value play, but will provide strong growth to an investor looking for a stable company with an excellent brand image in the profitable high-end market.

RL 1-yr chart

rl chart

Source: Ralph Lauren: Continued Strength in Brand Image