Ralph Lauren is more attractive in two areas. First, its net margin (the percentage of revenue dollars it turns into profits) is considerably higher, at 10.54% versus 4.88% for PVH Corp (NYSE:PVH). Ralph Lauren management has been more effective at keeping costs low. Second, its dividend currently yields 0.90%, versus 0.10% for PVH. Ralph Lauren should continue to outperform PVH in the dividend area thanks to its stellar balance sheet: $1.25 million cash/$271 million in long-term debt. PVH Corp (NYSE:PVH) isn’t as impressive: $746 million cash/$4.48 billion long-term debt.
If you’re looking for a long-term investment, they’re both likely to be winners. That said, it’s important to note that both stocks plummeted more than 50% during the market crash of 2008-2009. If you’re concerned about the broader market’s ability to remain afloat, you won’t find much resiliency here.
A much easier comparison is Ralph Lauren versus Fifth & Pacific Companies Inc (NYSE:FNP). The latter (formerly Liz Claiborne) has a market cap of $3.02 billion, making it a much smaller company than Ralph Lauren Corp (NYSE:RL), with a market cap of $15.40 billion. Sometimes smaller companies make better investments, but that’s not likely to be the case here.
While Ralph Lauren has seen stock appreciation of 112% over the past three years, Fifth & Pacific Companies Inc (NYSE:FNP) has appreciated 435%. But this stemmed from Fifth & Pacific Companies Inc (NYSE:FNP)’s stock losing more than 75% of its value in 2008/2009. Therefore, it had more upside potential from the bottom. Plus, smaller-cap stocks tend to move faster (in either direction).
Fifth & Pacific Companies Inc (NYSE:FNP) offers several well-known brands, including Juicy Couture, Kate Spade New York, Jack Spade, and Lucky Brand. But unlike Ralph Lauren, Fifth & Pacific has had difficulty growing its top line and delivering profits.
Fifth & Pacific:
|Revenue (in billions)||$3.99||$3.01||$2.50||$1.52||$1.51|
Yes, the losses are narrowing, but whether this trend is capable of moving into profitable territory and sustaining and upward move is questionable. Fifth & Pacific Companies Inc (NYSE:FNP) hasn’t been able to overcome declining consumer demand, but it has managed to cut costs in order to aid the bottom line.
Fifth & Pacific sports a net negative net margin of (3.56%), and it’s trading at 60 times earnings, making it wildly expensive compared to Ralph Lauren and PVH, which trade at 17 and 16 times earnings, respectively. Fifth & Pacific Companies Inc (NYSE:FNP) also doesn’t pay a dividend. While Fifth & Pacific might make a decent speculative trade, it’s not likely to outperform Ralph Lauren or PVH Corp (NYSE:PVH) over the long haul.
As stated above, Ralph Lauren Corp (NYSE:RL) is likely to be a good long-term investment. But macroeconomic trends, combined with managements’ concern about consumers’ willingness to spend, lead me to believe that now isn’t likely an ideal entry point. That said, keep Ralph Lauren on your watch list and consider buying in if the stock suffers in the future — albeit only after investors have stopped selling it off.
The article A Top-Tier Apparel Stock Fighting Macro Trends originally appeared on Fool.com and is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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