PVH Corp (PVH), Michael Kors Holdings Ltd (KORS), Ralph Lauren Corp (RL): A Review of the Luxury Apparel Industry

Ralph Lauren: Slowing growth

Ralph Lauren Corp (NYSE:RL) is one of the leading luxury companies. It sells diverse goods including apparel, home products, accessories and fragrances. Although the company has posted profits of $127.2 million in the latest quarter of 2013 and showed a 35% increase against the same quarter last year, its stock has been declining at a steady pace for the past month. The company’s shares have lost 7% so far, reaching $173.

Ralph Lauren Corp (NYSE:RL) seems to be the exception to the peer group analyzed. It has cut its growth guidance and forecasts revenue growth for 2014 to be around a “low-single-digit percentage.” The company has warned over increasing costs as it expects its operating margin to fall by around 2%.

The company is still in good shape, but concerns have arisen over its poor revenue growth during the past year: revenue has grown by a mere 1% compared to the previous year, totaling $1.6 billion. It’s possible that management’s strategy is oriented at giving a harsh guidance to produce a surprise in the coming quarters so that the company can benefit from the upside. According to I/B/E/S estimates, Ralph Lauren Corp (NYSE:RL) is expected to achieve a revenue of $7.62 billion for fiscal 2014.

Final comment

Despite some data related to cuts in spending by Chinese consumers and the still struggling economic situation in Europe, the Dow Jones Luxury Index is up almost 30% from June 2012. This is certainly a good sign that confidence in this industry has not been lost for some investors. Most of the companies analyzed in this article have also increased their sales or profits and remain highly priced: Ralph Lauren Corp (NYSE:RL) is trading at 21 times its trailing price-to-earnings ratio, whereas Michael Kors Holdings Ltd (NYSE:KORS) is at 30 times and PVH Corp (NYSE:PVH) at 30.5 times. We can expect to see some arduous battles for the high-income consumers’ pie if things get complicated, however.

Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article A Review of the Luxury Apparel Industry originally appeared on Fool.com and is written by Vanina Egea.

Vanina 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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