Ralph Lauren (RL) announced blowout earnings this week. The stock has barely moved. What to do? That’s a fair question.
First, decide whether you are in the stock for the short or the long haul. If you are in it for the short term, the run may be over. The stock popped about 10% in the past few days due to 19% revenue growth over the past nine moths and a 23% rise in profits for the same nine-month period.
If you are in for the long haul, that is another matter altogether. Simply put, the man born Ralph Lifshitz – I kid you not – has figured it out. Beautiful stores with breathy sales people and expensive clothes at the high end – great clothes my children have purchased only with the help of Grandma’s gift cards. Very strong outlet stores with very quality clothing and accessories – that is where I shop now that Filene’s is closed – but not the same articles to be found in the branded, high-end stores. A great Web site. Very careful and productive licensing.
And, underneath it all is the quintessentially American brand. Back before I could shave, a very female friend of my sister’s, the same height as the shooting guards on the Knicks at that time, with blonde hair and cheekbones to match, became a Ralph Lauren model. His models look the same today – and that kind of consistency and loyalty
Ralph Lauren stock for the longer term
Yes, I worry about fundamentals, silly things one finds in the real world like product mix, branding, balance sheets and so on. The things stock pickers used to worry about until the market became index-driven. In 2012, the stock picker has returned and is here to stay and that is why RL, longer term, is a terrific company and stock to own. Why? Are there reasons other than one quarter’s or one year’s success?
Yes – it is called the New Frugal, what others may soon recognize as the New American Consumer. Who is that consumer? The person forgoing a shopping spree and targeting high quality products and brands. The monthly Wal-Mart (WMT) shopper now shops at Dollar General (DG); Wall Street knows this. The JC Penney (JCP) and Target (TGT) shopper now shops at Nordstrom or the Polo outlet store, foregoing five run-of-the-mill items for one high-quality shirt or sweater with that little man playing polo – or on my sons; rugby shirts a ridiculously large man playing polo. Must be a generational thing. The Street thinks the high-end brands are succeeding because the high-end consumer is spending again. These folks need to go to a mall or a store once in a while. It is the middle-of -the-road consumer buying that one special something – and they are also buying them at Coach (COH) stores and Tiffany (TIF) stores as well. Yes, the wealthier spender is durable. It is the middle-tier spender making the growth in these brand what it is today – and in the future. This is a structural change in spending yet to be incorporated into stock prices.
What about the coming slowdown or recession I have also been writing about? The mass-marketing of diamonds to the little guy – me and you – began during the middle of the Great Depression. The modern and at the time very expensive refrigerator made its debut at the same time. (There is much more about the New Frugal in my free e-book Contrarian Profits. Click here.)