|Shares Out. (in M):||88||P/E||17.0x||14.8x|
|Market Cap (in $M):||13,734||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||-795||EBIT||1,179||1,334|
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Ralph Lauren’s brands are among the most globally recognized. Its branded products are featured across apparel, accessories and fragrances as well as children’s and home furnishings. RL employs a disciplined product segmentation strategy across several brands for various price points and distribution.
Wholesale (LTM $3.3B revenue—46% of revenue, 49% of EBITA)
“Our European wholesale operations reached an important inflection point in shipment trends for 2014 spring/summer season, following several quarters of strategic reductions and wholesale shipments to Southern Europe, we are now returning to growth. Before the financial crisis, Europe was a substantial driver of the company's sales and profit growth. We are pleased the region's economic climate has stabilized to a point where we feel more confident about returning to our pre-recession trajectory. At 20% of our consolidated revenues, Europe remains a significant area of opportunity for the company in wholesale and retail channels throughout the region.”
Retail (LTM $3.8B revenue—52% of revenue, 40% of EBITA):
Licensing (LTM $170M revenue—2% of revenue, 11% of EBITA)
1) Benefits from SAP Implementation: RL has lots of duplicative IT systems that stem from its various acquisitions made over the past 15 years. Its wholesale and retail businesses are essentially operated as six separate entities with separate IT systems that don’t communicate with one another nor leverage their combined scale for sourcing, purchasing and/or distribution. Per my conversation with the company I was told, “Our IT systems look like a bowl of spaghetti that will ultimately look like a bowl of ravioli upon completion of installing SAP throughout our global operations.”
There is a long way to go as RL is only mid-way through completion of the North American operation for wholesale and retail. Next year it will begin implementing European wholesale and retail. In 2016 it plans to begin implementation within Asia-Pacific. Since SAP won’t be fully implemented until 2017, the full benefits won’t likely come through until FY2018. What SAP will do for RL is:
2) Grow International Business, Particularly in Asia-Pacific:
3) Grow Women’s Business, Particularly within High Margin Accessories:
4) Grow Denim Business:
Low/Base/High Scenarios (based on CY2017E)
Low: ~$11 op. EPS x 12 (P/E) = ~$134 + ~$12/share net cash + ~$3 dividends = ~$150 total value (-4% over 2 years)
Base: ~$13.50 op. EPS x 15 (P/E) = ~$203 + ~$13/share net cash + ~$3.50 dividends = ~$220 (+40% over 2 years)
High: ~$17 op. EPS x 18 (P/E) = ~$300 + $14/share net cash + ~$4 dividends = ~$318 (+100% over 2 years)
Disclaimer: This report is neither a recommendation to purchase or sell any securities mentioned. The author and/or his/her employer may or may not have a position in any security discussed in this report. Further, the author and/or employer may buy or sell shares in any company mentioned, at any time, without notice. The information contained herein is believed to be correct as of the posting date. Readers should conduct their own verification of any information or analyses contained in this report. The author undertakes no obligation to update this report based on any future events or information.
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