Treat yourself to Ralph Lauren's stock

Down the road, you'll find it's worth the price.

By InvestorPlace Jan 30, 2012 10:25AM
Image: Dog in purse (© Corbis)By Kyle Woodley, InvestorPlace Assistant Editor

Ralph Lauren (RL), the iconic luxury brand with a host of top-flight apparel, has spent decades as a mainstay in high-end retail.


As it turns out, it's a spiffy stock, too.


RL shares are up 40% in the last year and have tripled since 2009 thanks to steady growth. The company's fiscal 2011 earnings of $568 million, or $5.75 per share, were up almost 20% from the year before -- on top of 20% growth in both 2009 to 2010 previously.


Ralph Lauren also has thrown down earnings beats in four of the past five quarters (and matching once) -- with three upside surprises of over 20%.


Of course, Ralph Lauren has been riding a much bigger phenomenon to its success: While the economic downturn has put the squeeze on the middle class, luxury brands have managed to thrive because of relatively stable sales.


In the past 52 weeks, glitzy names like Coach (COH) and Nordstrom (JWN) have jumped 20%, and high-end athletic apparel retailer Lululemon (LULU) has scorched the old guard with 75% gains.


This trend is going nowhere. In addition to luxury's resilience in the U.S., the growing affluent class in China is further powering luxury sales. China's buying power has even been strong enough to buoy European luxury brands -- such as Rolls-Royce and Burberry -- through the continent's financial woes.


Ralph Lauren has been no exception. In its most recent quarterly earnings report, the company noted that growth in retail income and better margins were "a result of strong comparable store sales growth and improved profitability throughout Asia."


Not to mention luxury brands -- unlike many other businesses -- are mostly unaffected by rising material costs thanks to big margins. Ralph Lauren watch and jewelry CEO Guy Chatillion recently told CNN as much.


Analysts admittedly expect Ralph Lauren earnings to decline 3% year-over-year for the current quarter, but that's of little worry considering the mixed bag the entire retail sector showed in recent months. Past that, we're gravy. Earnings are expected to grow 26% the following quarter.


Looking out ahead, analysts see fiscal-year earnings increasing from 2011's $5.75 per share to $6.96 in FY12 and $8.14 in FY13, coming close to that 20% growth we've all come to love. RL shares are a little pricey with a P/E of 22, but that's pretty much in line with a host of other luxury stocks. And that valuation seems fine with Goldman Sachs (GS), which placed Ralph Lauren on its "Conviction Buy" list a couple weeks ago with a price target of $190. That would be a 25% gain from Friday's closing price around $152 and would have RL shares trading at a P/E of 23 on 2013's earnings.


Ralph Lauren also doubled its dividend to 20 cents in September -- RL still yields less than 1%, but it's a step in the right direction and a good sign that cash flows are rich.


The company also is trying to buck the trend of brick-and-mortar establishments being baffled or beaten by the Web. The Minneapolis Star Tribune recently showcased a host of advances Ralph Lauren has led in the technological arena, and Internet Retailer calculated that Internet sales grew from 6% of total sales in FY2010 to 6.5% in FY2011. Again, gotta love that direction.


And a little bonus the sports nut in me loves? Ralph Lauren's position as the Americans' official outfitter for the third straight Games, including the opening ceremony garb. It never hurts to trot out your product in front of a hundred million eyes.


Bottom line: Ralph Lauren's stock is much like I've found its wares -- a little pricey, but built to last.


Speaking of a little pricey, just wait until you hear about a pair of $565 jeans.


Kyle Woodley is the assistant editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.


Related Articles:

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
279
279 rated 2
416
416 rated 3
647
647 rated 4
548
548 rated 5
513
513 rated 6
669
669 rated 7
516
516 rated 8
317
317 rated 9
113
113 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.