Ralph Lauren's (RL) Strategies Look Appeasing: Time To Buy?

Shares of Ralph Lauren Corporation (NYSE:RL) have been flying high on its strategic initiatives, Way Forward Plan & Restructuring Activities and robust earnings surprise history. In fact, the company’s third-quarter fiscal 2018 marked 12th straight earnings beat.

In a year’s time, this Zacks Rank #2 (Buy) stock surged 35.9% outperforming the industry’s gain of 29.8%. Further, the company’s VGM Score of A and a long-term earnings growth rate of 10.2% highlights its inherent potential.

Let’s delve deeper to find out the factors that are likely to have a bearing on the company’s performance.

Strategic Efforts

Ralph Lauren remains on track to deliver goals under the Way Forward Plan that was announced in June 2016. Divided in two parts, this plan mainly revolves around refocusing on the core business, strengthening the brands and returning the company to profitable growth in the long term. Further, Ralph Lauren is well on track with its restructuring plan that is likely to generate savings of roughly $140 million by the end of fiscal 2019. These restructuring activities include rightsizing the portfolio and cost structure, alongside streamlining the structure of the organization.

Apart from these initiatives, Ralph Lauren remains keen on bolstering digital and international presence. The company sees immense growth potential in Asia with about 15% of its business in the region. Moreover, it is continually expanding both online and physical presence while focusing on marketing and distribution.

Though the company looks good on the international front, Ralph Lauren’s North America segment continues to suffer since the last few quarters. Revenues at the North America unit were down 11% in the fiscal third quarter due to lower retail and wholesale sales.

Solid Q3 Earnings Push Estimates Higher

Ralph Lauren posted third-quarter adjusted earnings of $2.03 per share, which surpassed the Zacks Consensus Estimate by 16 cents and improved 9.1% year over year. Results gained from stringent focus on key initiatives during the holiday season that reduced discounts and improved the quality of sales. Also, favorable currency rates aided results.

Furthermore, margins continued to expand driven by efforts to enhance quality of sales through lower promotions, favorable geographic and channel mix shifts as well as reduced product costs. Management also adjusted fiscal 2018 outlook to account for the positive currency rates, which are likely to aid revenues and operating margins. (Read: Ralph Lauren Q3 Earnings Beat, Dips on Soft Sales)

Consequently, analysts are steadily growing bullish on the stock which is apparent from the rise in the earnings estimates. The Zacks Consensus Estimate for fiscal 2018 and fiscal 2019 has moved north by 37 cents and 71 cents, respectively, to $5.93 and $6.08, in the last 30 days. Also, fourth-quarter fiscal 2018 earnings estimate moved up 21 cents to 85 cents.

Interested in Textile - Apparel Stocks, Check These

Some other stocks worth considering from the same space include Columbia Sportswear Company (NASDAQ:COLM) , Delta Apparel, Inc. (NYSE:DLA) and Crocs, Inc. (NASDAQ:CROX) . While Columbia Sportswear and Delta Apparel sport a Zacks Rank #1 (Strong Buy), Crocs carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Columbia Sportswear with a long-term earnings growth rate of 9.6% has delivered an average positive earnings surprise of 16.5% in the last four quarters.

Delta Apparel with a long-term earnings growth rate of 15% has pulled off an average positive earnings surprise of 53.5% in the trailing four quarters.

Crocs with a long-term earnings growth rate of 15% has delivered an average positive earnings surprise of 108.9% in the last four quarters.

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