Ralph Lauren Brand Turnaround Is Gaining Traction, JPMorgan Says

Ralph Lauren Corp RL may be on the verge of a comeback.

The Analyst

JPMorgan analyst Matthew Boss maintains an Overweight rating on the stock and raised his price target from $140 to $141.

The Thesis

Ralph Lauren CEO Patrice Louvet says the company’s execution of its five-year profitable growth plan is "firmly on track."

Louvet told JPMorgan at a Boston roadshow the company’s top-line story is in transition from defensive re-positioning to offensive growth in 2020.

“Importantly, management sees foundational investments including a 25% cut in department store points of distribution, US off-price sales down 30%, Denim & Supply exit, SKU reduction and meaningful pull-back in promotions (particularly online) largely in the rear view mirror with multiple drivers to support low-single-digit revenue growth going forward,” Boss wrote in a note.

Ralph Lauren’s highest Average Unit Retail (AUR) is in China with room for continued growth, followed by Europe. Its brand perception is the lowest in the U.S., where Boss says the company has an opportunity to further elevate the brand through less discounting and utilizing a scarcity model at off-price locations.

Boss says management sees product differentiation is only in the second inning, with the company focused on China, digital and capturing a younger generation.

The analyst noted while the company is maintaining a multi-year conservative capital plan and balance sheet, Ralph Lauren is on track of guidance for $400 million of share repurchases in 2019 and is set to repurchase a further $600 million of shares by 2020.

“CFO Nielsen cited the ability to be ‘slightly less conservative’ as the brand turnaround gains continued traction,” said Boss.

Price Action

Ralph Lauren shares were up 2.8 percent at $124.19 Monday afternoon.

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