We have upgraded our long-term recommendation on Polo Ralph Lauren Corporation (RL) to ‘Outperform’ from ‘Neutral’ with a price target of $139.00 per share. Also, the company has a Zacks #1 Rank, implying a short-term ‘Strong Buy’ rating on the stock.
Polo Ralph Lauren is one of the world’s leading designer, marketer and distributor of premium lifestyle products. The company possesses a strong portfolio of globally recognized brand names, such as Polo, Ralph Lauren Purple Label, Ralph Lauren Collection, Black Label, Blue Label, Lauren, RRL, RLX, Rugby, Ralph Lauren Childrenswear and American Living. This provides a competitive edge to Polo Ralph Lauren and strengthens its well-established position in the market over its competitors such as Liz Claiborne Inc. (LIZ) and Phillips-Van Heusen Corporation (PVH).
Moreover, the company offers lifestyle product collections in four categories – Apparel including men’s, women’s, and children’s clothing; Home comprising bedding and bath products, furniture, fabric and wallpaper, paint, tabletop and giftware; Accessories consisting of footwear, eyewear, jewelry and leather goods; and Fragrance and skin care products that are sold under Glamorous, Romance, Polo, Lauren, Safari, and Polo Sport brands.
Furthermore, the company plans to expand and elevate its international presence, particularly in Asia. In order to effectively capitalize on opportunities in the emerging markets, such as China, South Korea and India, the company has recently took direct control of operations in Asia from its licensee. Polo Ralph Lauren is in the initial stage of a broader Asian strategy, through which the company expects to transform itself over the long term. This provides a significant upside potential for the company.
Additionally, Polo Ralph Lauren has a solid cash position and an almost debt-free balance sheet at the end of third-quarter 2011, which supports the company in times of dividend payout, share repurchase and strategic acquisitions. Polo Ralph Lauren ended its third-quarter 2011 results with cash and short-term investments of $1,242.8 million and has a very low-level of long-term debt-to-capitalization ratio of just 7.8%. This offers Polo Ralph Lauren the financial flexibility to drive future growth.
Besides, the company has reported a strong operating performance in the third quarter of fiscal 2011.Polo Ralph Laurens’ earnings per share grew by an impressive 56.4% to $1.72 from $1.10 per share in the year-ago period, primarily driven by higher sales, favorable merchandise mix, improved inventory management and initiatives to control expenses. At quarter end, Polo operated 376 directly operated stores and 520 concession shops across the globe.
In addition, management expects revenues to grow in the low double-digit range including a net unfavorable foreign currency translation effect in full fiscal 2011. Moreover, the company has revised upward its operating margin guidance for fiscal 2011 by 50 basis points (bps), which is equivalent to fiscal 2010’s level.
LIZ CLAIBORNE (LIZ): Free Stock Analysis Report
PHILLIPS VAN HE (PVH): Free Stock Analysis Report
POLO RALPH LAUR (RL): Free Stock Analysis Report
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