Polo Ralph Lauren Corp.: Expanding the Brand

| About: Polo Ralph (RL)

Polo Ralph Lauren Corp. (NYSE:RL) announced that it would start making jewelry, more specifically luxury watches and fine jewelry. Its partner will be a Swiss firm, Compagnie Financiere Richemont AG. The new venture will be called Polo Ralph Lauren Watch and Jewelry Co.

What makes this interesting for the Watch list is that Ralph Lauren continues to expand its brand by adding lines. But it always keeps control of the design and mostly licenses out the manufacturing. This latest move is a joint venture and each company will own 50% of the new entity.

The new jewelry will be marketed through Ralph Lauren's boutiques and independent jewelry stores as well as upscale watch retailers globally, starting in 2008. This is a first for RL in the fine jewelry sector. Richemont added that this is its first joint venture with a fashion designer. You may know Richemont by some of its brands such as Cartier, Van Cleef & Arpels, and Alfred Dunhill.

Ralph Lauren designs and markets apparel, accessories, fragrances, and home furnishings. Polo prefers licensing over manufacturing. It oversees many licensees, as well as more than 350 contract manufacturers worldwide. It operates about 275 retail and outlet stores in the US and licenses more than 100 others worldwide. Founder Ralph Lauren controls almost 90% of Polo's voting power.

Sales have been growing at about 9.5% a year over the last 5 years while earnings increased by 10%, on average. For the next 5 years, analysts are looking for both to improve: revenues to 12% a year, on average, and earnings to 14% a year, on average. Sales for 2006 should be $4.3 billion, up from $3.8 billion in 2005. Look for $4.75 billion in 2007. Earnings were $2.87 in 2005, expected to be $3.65 in 2006 and increase to $4.10 in 2007.

RL has many brands: Polo, Polo by Ralph Lauren, RL Purple Label, RL Black Label, Blue Label, Lauren, Chaps, Club Monaco and others. By segmenting the market by "lifestyle", it has successfully built one of the best brands in apparel. It's known for quality in all of its products. Now it's taking a natural step and adding one more lifestyle item to its offerings. And the margins in fine jewelry will only help profitability for the whole company.

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Disclosure: Author has no position in RL.