A long-established brand, Ralph Lauren (RL) appears to be making good strides in engaging younger consumers, explains Mike Cintolo, a leading growth stock expert and editor of Cabot Top Ten Trader.
The efforts at attracting this customer base include live-streaming fashion events on metaverse platforms, offering digital outfits in the popular game Fortnite — and real-life versions in its stores — and even selling Ralph Lauren-branded skateboards.
It also continues to have good traction in China (notwithstanding the slumping consumer market in that nation). Those things, combined with the easing of inflationary pressures on cotton fabric, led the company to exceed analysts’ expectations in its recent earnings report.
Specifically, fiscal Q3 (ended December 30) revenue of $1.93 billion increased 6% from a year ago, while earnings of $4.17 a share blew consensus estimates out of the water (by 17%).
The company seems to have found a happy middle ground between continuing to sell luxury items to wealthier, older consumers — especially in the U.S. and Asia (a new line of handbags is selling very well there) —while building out digital channels to attract younger consumers.
Lauren further made progress worldwide in its digital segment, mostly from younger buyers. It posted mobile gains of 4% in North America, 12% in Europe and 25% in Asia (though Asian digital growth is coming off a smaller base). Despite potential headwinds from the economy and from currency conversions, management guided for Q4 revenue to rise 2% to around $1.6 billion.
Further out, a renewed focus on reducing costs, helped along by continuing improvement in the cost of cotton and the price of transportation, should allow Lauren to expand margins. Wall Street sees earnings per share of $1.64 for Q4, which would be an 80% leap from the comparable period.
Technically, RL spent the eight weeks leading up to the Q3 report building out a tight base while the 50-day line caught up, which set the stage for the recent breakout.
The earnings announcement resulted in the strongest volume in nearly three years, with the stock rocketing to its highest level since 2015. Near-term volatility wouldn’t surprise given the extent of the run-up, but we’re fine using pullbacks to nibble.
