Ralph Lauren has online expansion opportunities
Ralph Lauren currently has over 25,000 listings on Amazon
Luxury apparel firm Ralph Lauren has an opportunity to expand its apparel presence online, analysts believe, if it wants to drive growth and differentiation.
Cowen & Co analysts believe that while the Ralph Lauren brand is still resonating with consumers, they remain cautious near-term over its US wholesale business given industry wide promotions, outsized exposure to domestic tourist locations, and recent luxury weakness in Asia.
For its first-quarter, which is expected to be reported on 5 August, the company is guiding for flat sales and margin pressure, both impacted by foreign currency.
"We suspect management will reiterate its FY16 outlook of mid-single-digit revenue growth ex FX and operating margin contraction of (180bps) to (230bps), and guiding Q2 below consensus EPS of $1.87<" the analysts noted.
As a result they have lowered their second-quarter EPS guidance to $1.74 from $1.91 previously, driven by further contraction in the operating margin to 301 basis points year-on-year from 189 basis points previously.
Nonetheless, the analysts noted: "Ralph Lauren is currently undergoing a substantial amount of global restructuring in an effort to reduce expenses, improve margins, gain efficiencies and drive growth longer-term."
Indeed, management reiterated at its June CFO investor meeting that its prior peak adjusted operating margin of 16.5% is achievable in three to five years.
Cowen believes that longer-term, there is an opportunity for Ralph Lauren to expand its online presence in apparel both through its own DTC investments and through online wholesale partners including Amazon.
The brand currently has over 25,000 listings on Amazon, almost entirely from a third-party seller basis.
"With Amazon gaining in apparel distribution versus traditional retailers, this could yet be another direct avenue for Ralph Lauren to drive growth and differentiation versus other luxury peers, but management will need to monitor pricing and promotion efforts of third-party sellers to keep brand image in check."
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