Ralph Lauren Patches Itself Up Faster Than Expected, RBC Upgrades

Ralph Lauren Corp RL is up 18 percent in 2019, but one analyst still sees room for recovery.

The Rating

RBC Capital Markets analyst Kate Fitzsimons upgraded Ralph Lauren to Outperform and raised her price target from $135 to $145.

The Thesis

Ralph Lauren has returned to growth a year ahead of plan, and its turnaround isn’t over yet.

“[W]e see Ralph Lauren as shifting to offense, with the heavy lifting on distribution cleanup, SKU count reduction, and supply chain work now behind it and traction under way with customer acquisition work,” Fitzsimons wrote in a note.

Ralph Lauren’s global sales and differentiated supply chain lend protection from Chinese tariffs, and RBC sees a path to management’s $7 billion revenue target. Improvements in average unit retail and mix shifts further support gross margin growth.

Additionally, the analyst expects revenue reacceleration and a return to leverage in selling, general and administrative expenses.

“Into FY20/21, we see a potential bottom-line boost from opex leverage as the step-function on marketing lessens and expense controls/productivity efforts yield results,” Fitzsimons wrote.