By Jonathan Chen
Today it has proven why it is nothing but world class, as the premium lifestyle retailer beat earnings estimates. The company also raised guidance for the full year. Despite this, the company is losing around 6% this morning, as nearly every stock is falling on Italian debt concerns, and there are some concerns about margin pressure, falling 140 basis points due to input costs.
The New York, NY-based company reported earnings of $2.46 per share on $1.9 billion in revenues. This blew away Wall Street estimates. Analysts were looking for earnings of $2.24 per share on $1.84 billion in revenues. The company also guided higher for the rest of the year, saying it sees revenues up from the high mid teens to low 20% growth. It had previously saw growth in the mid to high teen percentile
"Our momentum in the first half of the year demonstrates the incredible vitality of our brand and the growing desirability of our products around the world," said Ralph Lauren, Chairman and Chief Executive Officer, in a company release. "The progress we are making with our international development and the acceptance of our vibrant accessories merchandise confirms that we are paving important new avenues of growth. At the same time, demand for our products in more developed markets has been very strong. Customers around the world understand that Ralph Lauren stands for the highest quality products that withstand the test of time, and this is reflected in our strong performance over the last six months."
Roger Farah, President and Chief Operating Officer was especially positive on the long term growth the company faces, in a company release. "And while we continue to face margin pressure for the remainder of the year, even as we contend with considerable market volatility and geopolitical uncertainty, we are excited about our long term growth prospects," Farah said.
With a blow out earnings report, and guidance raise, this is exemplary of what we are seeing in this country: the stark difference between the very wealthy and the very poor.
Polo Ralph Lauren is one of the most well known brands around the world, and the company exemplifies luxury and prestige. There are people out there who are willing to forgo food on the tablet for a Ralph Lauren sweater or polo shirt. That is how revered the company is. Today's blowout earnings report shows the trend continues. The upper end consumer is clearly spending, and looks to continue to open up their wallets, as far as Ralph Lauren is concerned.
Polo Ralph Lauren is trading at 19 times 2012 earnings and sports a 0.5% dividend yield, so shares are starting to get a little pricey. However, the company continues to generate strong returns on equity, at nearly 21%. It has almost a $1 billion in cash on the books, and just $300 million worth of debt.
Shares have soared year to date, up almost 35%, compared to a loss of 0.73% for the S&P 500.
Ralph Lauren has been the epitome of what is working in this country: catering to the wealthy. Ralph Lauren has brands that are aspirational in nature, and continues to benefits from the fruits of its labor.
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. Consider buying the dip in these names.
- Also consider really high end names, like Louis Vuitton Moet Hennessy, Hermes, and Prada.
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 heard earned dollars.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.