Zinger Key Points
- Ralph Lauren’s AUR has risen +110% since FY17.
- Analyst forecasts strong growth, with a $310 price target.
- Get real-time earnings alerts before the market moves and access expert analysis that uncovers hidden opportunities in the post-earnings chaos.
Needham analyst Tom Nikic initiated coverage on Ralph Lauren Corp RL with a Buy rating and price forecast of $310.
The luxury apparel brand has experienced consistent growth in Average Unit Retail within the DTC channel for 31 consecutive quarters. It shows a cumulative increase of +110% from FY17 to FY24, said the analyst.
In FY25, AUR growth has accelerated, with a 12% rise last quarter. However, unit sales have significantly declined, with estimates showing a ~50% decrease since FY17.
Despite this, Ralph Lauren seems to have reached a turning point. Over the past five quarters, AUR has risen sharply, while unit sales have remained stable or slightly increased.
If the company continues to boost AUR while keeping unit volumes steady or growing, it could drive strong growth in its high-margin DTC business, opined the analyst.
In the third quarter of fiscal 2025, the company reported impressive DTC comp growth of +12%. That’s a significant improvement from +5% in the first-quarter and +10% in second quarter.
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Growth, according to the analyst, is robust and accelerating across all regions:
- North America saw a +8% increase
- Asia (+14%) and Europe (+17%) experienced double-digit growth.
Additionally, Google search trends have reflected strong brand interest. Global searches for Ralph Lauren have risen by approximately 40% YoY in each of the past two quarters.
Since 2017, RL has seen a ~1,000 basis points increase in gross margin, though this has been partially offset by ~650 basis points of SG&A deleverage.
The analyst believes RL could start seeing SG&A leverage in the next few years if top-line growth continues, with an expected 30-40 basis points of leverage over the next two fiscal years.
The analyst thinks the stock offers strong momentum, as the company consistently executes its strategy to enhance the brand, boost pricing, increase brand strength, and expand margins.
Overall, the analyst expects a balanced path to driving EPS growth in the teens, which should support further stock price gains as earnings continue to improve.
Price Action: RL shares are trading lower by 0.35% at $271.23 at the last check Wednesday.
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