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Will Ralph Lauren Struggle with Sales Growth in the Near Term?

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Can we expect a turnaround for RL anytime soon?

Ralph Lauren (RL) is working hard to improve its brand image and turn around its business.

Bank of America Merrill Lynch analyst Heather Balsky, however, believes the company might not return to growth anytime soon, as the demand for Ralph Lauren is “still not bright.” Balsky forecasted negative sales growth for Ralph Lauren through fiscal 2019.

“Fashion-led turnarounds in apparel are tough to execute,” added Balsky. “We expect the outlet business to continue to weigh on full-price sell-through until RL launches a more differentiated product by channel, and even then, there is a risk that the product will not be different enough.”

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RL fails to woo customers in the holiday season

Retailers recently had a great holiday season as sales jumped 5.5% YoY (year-over-year) in November and December 2017, reported the National Retail Federation. This was the most significant jump witnessed in retail sales since the end of the Great Recession. Clothing and accessories sales were up 2.7% during the period.

However, Ralph Lauren failed to attract customers even during the holiday period. Cascend Securities reported that the company recorded a 15% decline in December sales.

Analyst Eric Ross wrote, “We’ve been negative on RL because our consumer demand data shows decelerating Y/Y trends for RL.”

Nevertheless, Ralph Lauren’s recent strategic initiatives have driven the company back to profitability. RL reported adjusted operating margin increase of 150 basis points during the second quarter of 2018. See the next part of this series to learn more.

ETF investors interested in getting exposure to Ralph Lauren can consider the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD), which invests 1.42% of its portfolio in the company.

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