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Ralph Lauren's Digital & Other Efforts Aid: Apt to Hold the Stock?
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Ralph Lauren Corporation (RL - Free Report) remains well-poised to tap the positive trends in the fashion arena, thanks to its sturdy digital endeavors and other robust strategies. The company has been making significant progress in expanding its digital reach and omnichannel capabilities through investments in mobile, omnichannel and fulfillment. Ralph Lauren’s “Next Great Chapter” plan appears encouraging too.
Let’s delve deep.
Ralph Lauren’s Digital Success
Ralph Lauren’s digital business, including its directly-operated sites, departmentstore.com, pure players and social commerce, has been impressive. The company added 1.3 million new consumers via its direct-to-consumer (DTC) businesses in the first quarter of fiscal 2025. Its followers on social media grew in the low teens year over year to more than 60 million, driven by TikTok, Threads, Instagram, Line and Douyin. The net promoter scores rose globally led by Europe while online search increased in solid double digits.
Region-wise, digital sales were up 14% in Europe and 21% in Asia during the fiscal first quarter. The company registered solid DTC comps growth apart from expanding its connected ecosystems across significant markets. Global DTC comparable store sales jumped 5%, backed by continued brand elevation, double-digit increases in average unit retail and positive retail comps at all regions.
Image Source: Zacks Investment Research
The company remains focused on digital investments to continue the creation of content for all platforms, enhancing digital capabilities to improve the user experience and leveraging AI and data to serve its consumers more efficiently. Ralph Lauren continues to scale and expand its connected retail capabilities, including virtual selling appointments, “buy online, pick up in store”, endless aisle product availability and more.
RL’s Strategic Move – Next Great Chapter Plan
Ralph Lauren remains on track to exceed its top and bottom-line targets under the “Next Great Chapter” plan. It had also announced measures to accelerate the plan which includes creating a simplified global organizational structure and rolling out improved technological capabilities.
As part of the plan, the company completed the transition of Chaps to a licensed business, hence concluding its portfolio realignment. This move enables it to focus on the core brands, being part of the Next Great Chapter elevation strategy.
In addition, the company’s strategy of product elevation, personalized and targeted promotion, disciplined inventory management and favorable channel and geographic mix bode well. Ralph Lauren is focused on elevating and energizing its lifestyle brand, driving the core business while expanding other businesses and winning in major cities with its consumer ecosystem.
Headwinds Faced by Ralph Lauren
Despite its solid growth efforts, Ralph Lauren is not immune to the tough macro challenges, including inflationary pressures. Higher compensation, rent and occupancy costs and elevated marketing investments are also adding up to costs and are likely to weigh on its profitability. The company has been witnessing higher operating expenses for a while now.
During the fiscal first quarter, adjusted operating expenses grew 3% year over year, and as a percentage of sales, the metric expanded 80 basis points. Management expects marketing investments to increase at a faster rate in the first half of the fiscal year and decrease in the second half. These factors are likely to hurt the company’s profitability in the near term. Ralph Lauren has also been struggling with dismal performance across its North America segment’s wholesale channel for a while now.
What’s More for Ralph Lauren?
Nonetheless, this Zacks Rank #3 (Hold) company is making constant efforts to maneuver the challenges and boost overall growth. Ralph Lauren’s shares have surged 52.1% in the past year against the industry’s 8.8% decline.
For fiscal 2025, management anticipates year-over-year revenue growth in the low-single digits, revolving around 2-3%. RL still expects the operating margin to grow in the range of 100-120 basis points at constant currency (cc) on higher gross margin and operating cost leverage. The gross margin is likely to increase in the band of 50-100 bps in cc.
For the fiscal second quarter, the company anticipates revenues to grow in the low-to-mid single digits on a cc basis, in the band of 3-4%. Operating margin is likely to expand in the range of 80-120 basis points in cc on higher gross margins. The gross margin is anticipated to grow in the range of 110-130 bps, more than offsetting increased planned operating costs.
Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for second-quarter fiscal 2025 sales and earnings per share (EPS) is currently pegged at $1.7 billion and $2.37, respectively. These estimates indicate corresponding growth of 2.2% and 12.9% year over year. The consensus estimate for fiscal 2025 sales and EPS is presently $6.7 billion and $11.24, respectively, indicating increases of 1.6% and 9%.
Key Consumer Discretionary Picks
We have highlighted three better-ranked stocks, namely Royal Caribbean (RCL - Free Report) , G-III Apparel Group (GIII - Free Report) and Gildan Activewear (GIL - Free Report) .
Royal Caribbean, which is a cruise company, owns global brands like Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s current financial-year sales indicates an increase of 18.1% from the year-ago reported level. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #2 (Buy) at present.
GIII Apparel has a trailing four-quarter earnings surprise of 571.8%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.
Gildan Activewear, a manufacturer of premium quality branded basic activewear, carries a Zacks Rank of 2 at present. GIL has a trailing four-quarter earnings surprise of 5.5%, on average.
The consensus estimate for Gildan Activewear’s current financial-year sales indicates growth of 1.4% from the year-ago corresponding figure.
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Ralph Lauren's Digital & Other Efforts Aid: Apt to Hold the Stock?
Ralph Lauren Corporation (RL - Free Report) remains well-poised to tap the positive trends in the fashion arena, thanks to its sturdy digital endeavors and other robust strategies. The company has been making significant progress in expanding its digital reach and omnichannel capabilities through investments in mobile, omnichannel and fulfillment. Ralph Lauren’s “Next Great Chapter” plan appears encouraging too.
Let’s delve deep.
Ralph Lauren’s Digital Success
Ralph Lauren’s digital business, including its directly-operated sites, departmentstore.com, pure players and social commerce, has been impressive. The company added 1.3 million new consumers via its direct-to-consumer (DTC) businesses in the first quarter of fiscal 2025. Its followers on social media grew in the low teens year over year to more than 60 million, driven by TikTok, Threads, Instagram, Line and Douyin. The net promoter scores rose globally led by Europe while online search increased in solid double digits.
Region-wise, digital sales were up 14% in Europe and 21% in Asia during the fiscal first quarter. The company registered solid DTC comps growth apart from expanding its connected ecosystems across significant markets. Global DTC comparable store sales jumped 5%, backed by continued brand elevation, double-digit increases in average unit retail and positive retail comps at all regions.
Image Source: Zacks Investment Research
The company remains focused on digital investments to continue the creation of content for all platforms, enhancing digital capabilities to improve the user experience and leveraging AI and data to serve its consumers more efficiently. Ralph Lauren continues to scale and expand its connected retail capabilities, including virtual selling appointments, “buy online, pick up in store”, endless aisle product availability and more.
RL’s Strategic Move – Next Great Chapter Plan
Ralph Lauren remains on track to exceed its top and bottom-line targets under the “Next Great Chapter” plan. It had also announced measures to accelerate the plan which includes creating a simplified global organizational structure and rolling out improved technological capabilities.
As part of the plan, the company completed the transition of Chaps to a licensed business, hence concluding its portfolio realignment. This move enables it to focus on the core brands, being part of the Next Great Chapter elevation strategy.
In addition, the company’s strategy of product elevation, personalized and targeted promotion, disciplined inventory management and favorable channel and geographic mix bode well. Ralph Lauren is focused on elevating and energizing its lifestyle brand, driving the core business while expanding other businesses and winning in major cities with its consumer ecosystem.
Headwinds Faced by Ralph Lauren
Despite its solid growth efforts, Ralph Lauren is not immune to the tough macro challenges, including inflationary pressures. Higher compensation, rent and occupancy costs and elevated marketing investments are also adding up to costs and are likely to weigh on its profitability. The company has been witnessing higher operating expenses for a while now.
During the fiscal first quarter, adjusted operating expenses grew 3% year over year, and as a percentage of sales, the metric expanded 80 basis points. Management expects marketing investments to increase at a faster rate in the first half of the fiscal year and decrease in the second half. These factors are likely to hurt the company’s profitability in the near term. Ralph Lauren has also been struggling with dismal performance across its North America segment’s wholesale channel for a while now.
What’s More for Ralph Lauren?
Nonetheless, this Zacks Rank #3 (Hold) company is making constant efforts to maneuver the challenges and boost overall growth. Ralph Lauren’s shares have surged 52.1% in the past year against the industry’s 8.8% decline.
For fiscal 2025, management anticipates year-over-year revenue growth in the low-single digits, revolving around 2-3%. RL still expects the operating margin to grow in the range of 100-120 basis points at constant currency (cc) on higher gross margin and operating cost leverage. The gross margin is likely to increase in the band of 50-100 bps in cc.
For the fiscal second quarter, the company anticipates revenues to grow in the low-to-mid single digits on a cc basis, in the band of 3-4%. Operating margin is likely to expand in the range of 80-120 basis points in cc on higher gross margins. The gross margin is anticipated to grow in the range of 110-130 bps, more than offsetting increased planned operating costs.
Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for second-quarter fiscal 2025 sales and earnings per share (EPS) is currently pegged at $1.7 billion and $2.37, respectively. These estimates indicate corresponding growth of 2.2% and 12.9% year over year. The consensus estimate for fiscal 2025 sales and EPS is presently $6.7 billion and $11.24, respectively, indicating increases of 1.6% and 9%.
Key Consumer Discretionary Picks
We have highlighted three better-ranked stocks, namely Royal Caribbean (RCL - Free Report) , G-III Apparel Group (GIII - Free Report) and Gildan Activewear (GIL - Free Report) .
Royal Caribbean, which is a cruise company, owns global brands like Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s current financial-year sales indicates an increase of 18.1% from the year-ago reported level. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #2 (Buy) at present.
GIII Apparel has a trailing four-quarter earnings surprise of 571.8%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.
Gildan Activewear, a manufacturer of premium quality branded basic activewear, carries a Zacks Rank of 2 at present. GIL has a trailing four-quarter earnings surprise of 5.5%, on average.
The consensus estimate for Gildan Activewear’s current financial-year sales indicates growth of 1.4% from the year-ago corresponding figure.