By Jonathan Chen
Polo Ralph Lauren Corp. (NYSE:RL) reported earnings this morning that clearly show the difference in the two consumers in this country: the very wealthy and the very poor.
The premium lifestyle company reported earnings of $1.90 per share on $1.53 billion in revenues. Wall Street had been expecting $1.45 per share in earnings on $1.43 billion in revenues.
As such, shares of the New York-based company are soaring in pre-market trading, gaining more than 10% to $132.00, a gain of $12.15 as of the time of this writing.
“We are a world-class Company that has been built on quality and timeless design with a long-term view,” said Ralph Lauren, Chairman and Chief Executive Officer in the press release. “The clarity of our luxury lifestyle positioning runs through all that we do, from design to marketing to our in-store presentations. We are leveraging this clarity of vision and purpose with an expanding range of merchandise and store environments around the world. We know our customers well and we are committed to offering them the best of the World of Ralph Lauren. The consistency of our approach has supported our strong financial performance and the momentum of our brand worldwide is tremendous,” Mr. Lauren added.
Brian Sozzi of Wall Street Strategies discussed the earnings report in a research note on the luxury goods maker following the earnings.
In his note, Sozzi writes, "Polo Ralph Lauren shares popped pre-market, a move we feel is warranted given the clean nature of the 1Q12 earnings report this morning. There was no mention of the impact from a calendar shift that hurt 4Q11 revenues by 10% (in turn aided 1Q12), but that looks to have been properly incorporated into the guidance. So, what we are left with is a three-month period from Polo that was surprisingly strong on the top line (did the company lowball the Street with respect to price increases for spring/summer?) and margins (gross margin 63.00% reported, 60.24% consensus), suggesting that the company is navigating global consumer headwinds relatively handily. In fact, total revenues by segment for 1Q12 were strongly ahead of first quarter periods dating back to the boom in consumer spending."
Sozzi went on to say, "To see strong comparable store sales growth acceleration at retail sequentially, broad-based no less (shouldn't factory be fluctuating with pressure on the "aspirational" shopper?), is about as peculiar as it gets in retail land at the moment. Polo appears to have benefited in the quarter from some degree of pricing actions to combat inflation, new businesses, and greater than expected interest in its discretionary wares at the traditional malls and off-malls."
Polo Ralph Lauren is one of the most well known brands around the world, and has stood for luxury and prestige for as long as I can remember. The strong earnings report clearly shows that the high end in this country, as well as around the world, have benefited. Some may say at the expense of the middle and lower class, but clearly the wealthy are doing well, and are spending.
Polo Ralph Lauren is trading at 16.4 times 2012 earnings, and sport a 0.7% dividend yield. The company has been able to generate strong returns on equity, up nearly 18%. Over the past year, the stock has trounced the return of the S&P 500, gaining 40%, compared to the putrid 4% of the S&P 500.
Ralph Lauren has been the epitome of what is working in this country: catering to the wealthy. If you have brands that are aspirational in nature, you are going to do very well. No ifs, ands, or buts.
A simply outstanding quarter from the provider of lifestyle and luxury.
Traders who believe that Polo Ralph Lauren will continue to grow strongly might want to consider the following trades:
- Luxury providers such as Tiffany's (NYSE:TIF) and Coach (NYSE:COH) will benefit, as the luxury consumer continues to more than pull its weight.
- Also look at names that trade outside the U.S., like Louis Vuitton Moet Hennessy, Hermes, and others.
For the middle class. If the Fed enacts a QE3, it will continue to crush the dollar. Stocks will rise, but the purchasing power of the middle and lower class will continue to evaporate into nothing. Consider gold stocks such as SPDR Gold Trust ETF (NYSEARCA:GLD) and dollar stores like Dollar General (NYSE:DG) which will see increased traffic and consumers try to squeeze their hard earned dollars.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.