Ralph Lauren Corp., Case Study Example
Words: 3739Case Study
Within the realm of businesses the longevity success is dependent on a number of factors, tools used to evaluate a company’s success are utilized by their shareholders in the forms of financial statements such as the income statement, or cash flow statements. For investors and potential investors looking to buy stock within the company the best tool that they use is stock profile analysis. The object of this report is to provide a clear company analysis provided for the view of an investor in evaluating the probability of buying stock from Ralph Lauren Corporation. Within this report will be an overview of the company’s background, brands, business model, along with a SWOT analysis that details their strengths and weaknesses as a billion dollar global company. Along with the aid of charts and financial analysis will help to guide the investor into future earnings that will net the investor considerable ROI in the next few years. This report recommendation is to buy stock within this company, based on their performance in the last five years, and their future performance.
In 1968, American fashion designer Ralph Lipschitz who later changed his name to Ralph Lauren during his childhood, found the Ralph Lauren brand. He founded the brand by turning rags in to ties, and received the financial backing from a Manhattan clothing manufacturer, Norman Hilton and opened a necktie store, where he sold his own design of ties which labeled, “Polo” By expanded his line under the brand Polo which is popularly known today as Polo Ralph Lauren that includes his famous men’s Polo collared shirts. He chose the moniker Polo to honor the sport that symbolizes the discreet and classic elegant style of polo. Ralph Lauren’s clothing apparel group offers a unique infusion of romanticism and traditions of European aristocracy made for American High Society. His line expanded to include not only men’s shirts and ties, but a women’s counterpart where classic men’s looks were made with a feminine approach. The different brands serving under Ralph Lauren Inc. include, Polo, Polo by Ralph Lauren, Ralph Lauren, Ralph Lauren Purple Label, Polo Sport, Blue Label, Lauren, Polo Jeans, Chaps, Club Monaco, and RL. Ralph Lauren opened up their first flagship store in 1984 in New York City.
Presently, Polo Ralph Lauren Corporation now, Ralph Lauren Corporation is currently engaged in marketing, designing, and the distribution of premium lifestyle products, which includes children, women, and men’s apparel, accessories, home furnishings, and fragrances. Currently Ralph Lauren branded merchandise is globally available in over 10,000 retail locations around the world to include Europe, South America, Israel, Asia, and other countries, and they employ over 24,000 people around the world. Ralph Lauren, high quality, sophisticated wear and design that has grown them into a billion dollar company, making Ralph Lauren the 126st richest men in the world with an estimated wealth at $6.5 billion dollars. (Forbes, 2012)
Polo Ralph Lauren is globally perceived as the premier brand that represents the High Society American style. Polo Ralph Lauren has incorporated a unique marketing strategy that leads the pack in strong brand equity, and they have a business model that is mainly focused on merchandising, advertising, and design. Their diversified product portfolio helps to resonant across the globe and within multiple distribution channels. In addition, Polo Ralph Lauren is able to sell their products on an international scale where they have developed a reputation and distinct image that has lasted them over 40 years as a high quality brand, which constantly manages a close relationship with their consumers.
The brand began with the Polo Ralph Lauren Logo that has demonstrated a symbol of elegance and high class. The logo of the Polo player is closely matched with the company and is easy for consumers to recognize as Polo Ralph Lauren. The logo has helped to position the brand on the top lists of brand recognition, where they are able to position in the 10 of the Top 10 Fashion Brands Rankings.(Digital IQ Score, 2010) There brand performance has gained a considerable reputation in the development of a variety of clothing apparel, furnishings, and accessories. The market to a wide range of consumers that include different ages, genders, backgrounds, and demographics. The Polo Ralph Lauren products are resounded as durable, stylish, luxury, and durable quality. Their large diversification in their target demographics and products allow the brand to offer multiple products without shutting out select marketed audiences. As reported earlier their brands wide diversification in target markets and audience which includes: Apparel: women, men, and children
Accessories: eyewear, footwear, hats, belts, leather goods, eyewear, and fine jewelry.
Home: fabric, furniture, wallpaper, paint, bedding, bath, paint, and giftware
Fragrances: Romance, Big Pony, Safari, Ralph, Black Label, Love Polo, etc.
Their competitors include Tommy Hilfiger Corporation that offers designs, and markets to women, men, and children through their trademarked sportswear and apparel. Like Polo Ralph Lauren is engaged in wholesale, retail, and licensing. The company offers fragrance, footwear, home furnishings, and accessories. Their products are offered globally in countries in Asia, the Americas, and Europe. Tommy Hilfiger operates under three prime labels, Tommy Hilfiger. Liz Clairborne their second leading competitor that also markets and designs their branded apparel, accessories, and fragrances for men’s and women. They operate as Wholesale Non-Apparel and Retail, and Wholesale Apparel, they targeted audience’s reaches different ranges of ages, genders, sizes, and shopping preferences of traditional and classic wear. They are available all across the world in over 30,000 retail locations. The Gap is their third biggest competitor that sales their clothing apparel, personal care products, and accessories for children, women, and men globally in countries such as Europe, Japan, Canada, and United States. Their clothing apparel offers an assortment of casual, and high quality fashion wear that varies in prices, styles, designs, sizes, and ages.
The strategic placement of their shops are centered in all the major capitals of the countries that they operate in. They place their stores within high brand stores In Europe in order to give off the image of high quality fashion wear such as in their European retailers like “Les Galleries Lafayette” or “Harrods” that have the perfect mixture of store environment and the brand image of luxury, prestige, and unique experience for consumers. Polo Ralph Lauren creates limited edition items that are available through limited distribution channels in order to keep up the appearance of high fashion and limited availability. This maintains a constant attachment of consumers to the brand. Their choice of advertisements includes a diverse mixture in models and celebrity endorsements that incorporate the company’s image and style.
Documenting their SWOT analysis allows for investors to see the company’s strengths and weakness within the market. In particular Polo Ralph Lauren’s strength is aligned with their brand equity, financial strength, infrastructure, and history. Their high brand recognition of the Ralph Lauren brand name and the infamous Polo logo are both the most recognizable to consumers. They are both highly regarded in the fashion world domestically and globally. Their classic fashion style allows for them to expand their diverse product portfolio that markets to a diverse range of audiences and the product that extends beyond clothing apparel to include, fragrances, home furnishings, and accessories. Their high customer loyalty permits them to have larger profit margin compared to other major companies in the clothing industry, and higher revenues. Their brand equity are responsible for their strong consumer following, brand recognition, and customer loyalty in defense of their price sensitivity to retail sales that have helped them remain one of the top companies during their economic downturn. Their improvements to their infrastructure are essential in the corporation for reducing costs in the changes in its in infrastructure, primarily in Europe where sales have shown little growth, but they have consolidated their distribution centers for increased growth and efficiency. Unlike other brands, they cross stock their merchandise at their American distribution center which have reduced costs and increased growth. Their competitive edge among their competition is their mainstay at setting the style for over 40 years as one of the most in demand fashion lines while created new ones to accommodate their growing consumer base.
Their debt ratio is relative low, low debt to capital ratio provides their financial strength that contributes to their future growth. Since paying off their revolving line of credit, they have clear any liabilities to bank loans and loan able funds. However their dependence on their department store sales and manufacturing are their weaknesses. Their department store sales make up approximately one third of their revenue. The unpredictability of their futures are uncertain since their usually housed under the same department as their competitors and dependent on the financial stability of the stores. Their steady competition on meeting quotas and capacity from other clothing manufacturers has resulted on limits with the situation of high demand with manufacturing. The quality of the product can hinder manufacturing and future growth in trying to meet the high standards of the brand.
In trying to plan for the future growth ways to expound upon these include brand extension, international expansion, and specialty retail. Extending their Polo Ralph Lauren brand includes building an integrated approach to marketing and advertising that uniquely showcases the Ralph Lauren brand. Their own stories continue to thrive and their expertise in the wholesale business which includes visual presentation, merchandising mix, and customer service can be applied internationally. Polo is presently expanding their Ralph Lauren Lifestyle brand to include numerous new categories and products in several parts of the world. Their specialty stores continue to release their limited edition products that are usually the most sought-after products in the marketplace.
Their real estate and placement of their stores has included the opening over 60 stores within the next five years in the United States, and over 20 stores in Europe. In expanding their international presence in expansion their present the prime opportunity to apply their unique approach to the specific region based on their structure and business climate, and increasing their brand ownership and control of store openings. In addition, Polo Ralph Lauren has a strong, flexible infrastructure that allows them to capitalize on growth and opportunities around the world. Their threats to their company however include their competition within the department stores and ability to respond to the changing fashion and retail trends in a timely manner for consumers. Their intellectual and property rights outside of the US, accepted labor laws in manufacturers and distributors, and the reliance of licensing partners to preserve the value of their licenses. More importantly the loss of Ralph Lauren and other key figures in management could mean for material and financial loss for the company.
In 2012, Ralph Lauren sales were around $6.8 million up 16.9 % from 2011 in part to their new product lines, children’s wear, and favorable currency of the Euro. Their net income was $681 million, were retail was up 26.9% from last year from new shop openings and European e-commerce sites, and 2.6% from licensing. Their Earnings forecasted include growth internationally and domestically with operating in the 10 ten GDP and GNP countries. Globally, Asia is the substantial growth engine: Japan keeps a steady 9% market share (10% in volumes of sales) while the continent is the 20% of the total market (with +8%). The Japanese market is changing with a major importance of Osaka over Tokyo as key fashion city. For what concerns China, the country is always more sophisticated, and consumers are switching from the “logo” to the real quality, tailor-made products and in-store experience. Women are strengthening their presence, reducing the men predominance on the market. If the U.S.A confirms their supremacy as the biggest market in the world ($59bn, +13%, $20bn in New York City), followed by Japan ($19.7 bn, +8%). While China registered $15bn and +20%, Hong Kong did $7bn and +18% being the two countries with the highest growth. Moreover if, the two are summed together and considered as “Mainland China”, they are actually the second market in the world. Another good Asian performer is Korea that was able to do +13% ($8.3 bn), thanks to duty-free shops. Outside Europe, the Middle East registered a + 10% while Russia a +7%. Asia is therefore, once again, the place to be, with a shift from Japan to China. For what concerns the other emerging countries, experts expect a growth of about 15-30% in Brazil, South Africa, South East Asia and India. More in the specific, the more attractive in terms of growth results to be India, whose population (1.2 bn people) represent a large potential market. Brazil shows to count nowadays for the 1.3% of the total market share and good perspective of growth (15-25%). Equal growth expectations but much bigger potential for South East Asia, that with a market valued $4,8 bn, counts for the 2,3 (%). The Chinese consumers represent in total the 25% of the luxury market while Japanese share is 14% and other Asian at 11%. All together that means the Asian consumers are around 50% of the entire market and are therefore and incredible prime target.
Sector and Industry Forecast
Within the clothing industry, Ralph Lauren is forecasted to perform very well.
The company outsources both finished garments and raw materials, and only 2% of the total production is done in the USA while the remaining 98% comes from Asia, Europe and South America. All manufacturers are under the control of production and quality supervisors and producers have been implemented under the company certification program. The Global luxury sector well performed in 2012 with the 3rd following year with double-digit growth, registering a +10%. The main trends that it was possible to observe are that Polo Ralph Lauren will continue to perform well in Asia, specifically China. Retail is still fundamental, and the key driver (+9%) together with branded wholesale (+14%) and together they value $212 billion. Ralph Lauren’s main market remains the USA, with Europe still marginal and a lot of players investing in the Asian market. The global e-commerce sector showed a +25% from 2012, with a major importance of off-price products. Outlets are over performing in both Asia and Europe, showing a 22% CAGR from 2009. Compared to others within the industry, the 5 year valuation shows that they are outperforming their competition and S&P 500.
The importance of each of these ratios is to look at their past 5 years of financial records, in order to see how they have progressed and to be able to forecast for the future. These ratios help to accurately convey the future of Polo Ralph Lauren. The current ratio of Polo Ralph Lauren for 2008-2013 has been increasing which has been a positive impact on the company. Their increase from 2008 to 2013 are largely due to their decrease in current liabilities. The Quick Ratio has also increased since 2008 with a large increase in 2010. Overall, the Liquidity Ratios are performing well and have steadily increased since 2010. The inventory turnover has slightly been increasing over the past 5 years for the company due to the decreasing total inventory and increase in revenues. The gross profit margin has increased steadily as a good indicator for the company, for efficiency in cost of revenue and profits. The operating margin ratio has increased as well as the Return on Assets, Return on Investment, Return on Equity, and Net Margin. Their profitability ratios of the company is favorable for the company as their COGS has decreased, as wells as tax margin. The Liquidity of the company is favorable as well as this trend will continue in the next few years as forecasted to grow and earnings to remain steady.
Compared to competition these ratios prove favorably with Beta Stock Price at 1.33. Polo Ralph Lauren is very similar to their competition compared to their top 3 competitors, Gap, Tommy Hilfiger, and Liz Clairborne their current ratios are closely above the others from 2009-2012, recently they are slightly lower. Polo has a quick ratio of 162, which shows that Polo Ralph Lauren’s current assets are equal to 162% of their current liabilities. Their Gross Profit margin slightly higher than their competitors, which shows their profit is also greater. Polo’s debt to equity is .08 and compared to the rest of the competitors. Overall Ralph Lauren is performing evenly if not better than their competitors.
Company Financial Forecast and Valuation
From the company valuations, and the information available used in deriving the capital structure, the Abnormal earnings growth model is used in valuation for the Polo Ralph Lauren company due to their continued and steady growth of earnings.
Currently the drivers for revenue and profit growth continue to be their expanding product lines in home and children’s wear. Their international markets in Asia are increasing, and they predicted to grow at 11% next year. As the years progress and trend from current years suggest that the profit margins will continue to expand making it the most competitive in the industry. Currently there are 61,017,000 million shares to share and the number remains relatively the same with 417 owners and over 90% owned.
|3 Year Forecast||2014||2014||2015|
|Revenue||7.41 B||8.0 B||8.7 B|
Within the next three years, Polo Ralph Lauren will continue to grow as noted earlier from their financials that their ratio margins have increased a steady rate over the past 5 years. It will continue to grow, but will decrease in profit growth in 2014 due to competitors releasing new lines to compete with Polo’s lines that they have recently released. In 2015, they will increase in revenue at around a 12% annual growth. The gross margin will remain steady as will their net margin in relation with profit and revenue growth. The positive trends will be the continued profit growth internationally and with their accessory lines. While the EPS will continue to increase as in 2012 it was 7 in 2013 it has increased to 8.2 with a steady growth rate of 8%. However their negative impact is the dilution of the market for fragrances that not only compete with top 3 competitors but celebrity fragrances that sell out at an exceedingly fast pace.
Presently Polo Ralph Lauren operates in a high quality manner, requiring their manufacturers and licensing partners to operate in compliance with all the laws and regulations. They promote ethical business practices which the monitor periodically of not only their vendors but employees as well. Currently the company runs the Polo Ralph Lauren Foundation backs the education and service of cancer care in underserved communities. Along with a number of programs that Polo Ralph Lauren has founded or involved including, Polo Fashion School, Polo Volunteers, Habitat for Humanity, Pink Pony Campaign, American Heroes Fund, Hope Help & Relief Habitat, and the Ralph Lauren Center for Cancer Care and Prevention.
Ralph Lauren also funds the preservation of the American flag, offer reusable totes that proceed go to their Polo Ralph Lauren Foundation in support of the Pink Pony Fund and The Nature Conservancy that is the leading conservation organization working to protect nature for people all around the world. The employees also serves as Polo Volunteers with non-profit community-based organizations that consist of company-wide initiatives, the Polo Adopt-a-School program, AIDS Walk, and Food Banks. Ralph Lauren Center for Cancer Care and Prevention created in 2003 as an independent charitable organization to provide treatment services, and screening for breast, cervical, colon and prostate cancer in New York City. With all their charitable work they do including the use of their employees as volunteers to better serve the community and the planet, they have a sustainable business model that actively connects them with consumers. Allowing them to timely respond to their changing trends in fashion and quality needs, keeping them in the top position for their high brand yet affordable luxury clothing.
Polo Ralph Lauren is a leading company with that has an outstanding potential to grow and expand in due to their brand equity and expertise where they have maintain a leadership position around the world. Presently and in the past Ralph Lauren has been able to anticipate the growing trends within the fashion world and expanding their reach to e-commerce through their strategic business strategy. With this evaluation and analysis of the company the recommendation is to buy. The overall performance of the stock within the last five years has yield considerable return on assets and investments. The increased growth within the Asian markets, overseas, and in the United States provides a strong investment valuation. The apparel and accessory industry is increasing with many competitors within the markets, however Polo Ralph Lauren has continued to stay the leader in high end quality products. With a strong market share in the United States expected to grow, it is best to buy while there is still shares available.
A master investor that provides analysis for NASDAQ guru, provides a deeper analysis that is based that looks at the industry sector, sales based on the past 12 months, current ratio that must be greater than 2, long-term debt that must not exceed the net current assets, and long term EPS growth where companies must increase their EPS by 30% over a 10 year period. (NASDAQ, 2013) Investors also look at P/E ratio that is based on the greater of the current PE or the PE that uses the average earnings of the previous years, and lastly they look at the Price/Book ratio that must be reasonable. All these valuation tools are used by expert and amateur investors in order to evaluate the probability of stock in the future, for this analysis attention was paid to the ratios and the sales, however, long term debt was not an issue because Polo Ralph Lauren assets far outweigh their liabilities which makes for a good investment present and in the future.
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