Polo Anyone?

Posted by: Charles DuBow on January 07

Polo Ralph Lauren (nyse: RL) has been on a roller coaster this year as the stock price scooted down from an all-time high of $102.58 in July to just over $57 as of this writing. (It hit a one-year low of $56.34 last Friday.) But today both Cowen & Co. and Caris & Co. reinitiated coverage of the company, giving it a rating of “Outperform.” Their reasoning? Read on.

Among the factors cited for her optimism about the stock are the fact that the "company is likely to achieve long-term market share expansion, earnings growth and healthy ROIC, given its current investments and brand positioning initiatives." Also, the wealthy clientele that comprises its target audience is better insulated than most against economic downturns. Moreover, it has slapped its brand on just about everything in the luxury sector--short of automobilies and single malt whisky--yet--and has also been expanding overseas faster than a debutante can outrun an ugly escort.

The real driver behind this success? RL is a big believer in licensing. Which means it is minting money on all the low end, high profit products such as cologne and polo shirts that Ralph himself doesn't have the time to worry about. But a potential source of concern is that those licensing fees aren't as strong as they had been. A look at the company's second quarter earnings (the company's fiscal year ends in March) last September shows that fees from licensing were off just over 11% from the previous year. They were also hurt by a weak dollar (a problem they, and others, are by no means past). Net income was up, however, based largely on stronger retail sales. Most impressive, however, is the ease with which RL has grown beyond its "American" image to become a truly global brand. Just imagine doing that with Brooks Brothers...