Ralph Lauren is a reliable giant
Compared to Guess?, Inc. (NYSE:GES) and Express, Ralph Lauren Corp (NYSE:RL) is a giant. With a market cap of $15.7 billion, it is one of the largest publicly traded apparel retailers in the world. Yet, it’s that size that makes it one of the safest investments in the retail apparel sector. The stock has risen nearly 20% over the past twelve months on the strength of its iconic Polo Ralph Lauren Corp (NYSE:RL) brand.
During the fourth quarter, Ralph Lauren’s bottom line rose 42.4% from the prior year quarter to $1.41 per share, topping the consensus estimate by $0.11. Revenue also grew 1% to $1.64 billion, which slightly missed analyst expectations.
Investors should notice that even though Ralph Lauren Corp (NYSE:RL)’s top line is rising very slowly, its bottom line is growing at a much faster rate. This indicates that the company’s operating margin, which rose from 8.4% to 11.1%, is steadily climbing, and its expenses are declining at a healthy rate. Its retail same-store sales also rose 4% on a constant currency basis.
Ralph Lauren’s strength comes from its earnings growth. While other apparel retailers have recently reported rising revenue dragged down by flat to negative earnings, Ralph Lauren keeps piling on the profits. In fact, over the past ten years, Ralph Lauren Corp (NYSE:RL)’s earnings have grown at a CAGR (compounded annual growth rate) of 16.4%, making for a perfect example of a slow and steady company that wins the race while its competitors simply burn out, as seen in the following chart.
The Foolish fundamentals
Last but not least, let’s compare the fundamentals of these three apparel retailers.
Forward P/E | Price to Sales (ttm) | Return on Equity | Debt to Equity | Profit Margin | Qty. Earnings Growth (y-o-y) | Qty. Revenue Growth (y-o-y) | |
Guess? | 14.60 | 1.00 | 14.52% | 0.90 | 6.16% | -62.80% | -5.20% |
Express | 11.71 | 0.82 | 35.32% | 48.80 | 6.00% | -22.90% | 2.50% |
Ralph Lauren | 17.34 | 2.27 | 20.17% | 8.06 | 10.80% | 34.70% | 1.30% |
Advantage | Express | Express | Express | Guess? | Ralph Lauren | Ralph Lauren | Express |
Source: Yahoo Finance, 6/6/2013
It’s clear that Guess?, Inc. (NYSE:GES) has some severe top and bottom line growth issues, but it has much lower debt than either Express or Ralph Lauren Corp (NYSE:RL). Meanwhile, Express, Inc. (NYSE:EXPR) can be considered the cheapest stock based on P/E and P/S valuations, as well as from past stock performance. Lastly, Ralph Lauren has the most robust margins and bottom line growth, but its stock appears to be trading at a slight premium to its peers.
In closing, I think conservative investors should stick with Ralph Lauren, and more speculative ones should go with Express. As for Guess?, I would simply keep an eye on the company to see if it can fulfill its promises of streamlined operations and a turnaround in its critical North American market.
The article Which of These 3 Retailers Should You Buy? originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Guess?. The Motley Fool owns shares of Guess?. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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