Whether markets go up or down, it seems as if the spotlight only belongs to stocks linked to the sectors of tech, certain resources like uranium, lithium and maybe some oil and gas as well as the typical dividend stories. However, in the background and barely noticed by the broader public an entirely different name has made a ferocious comeback – Ralph Lauren. Boring for some, timeless for others, shares of RL outperformed the S&P 500 over the last one, three and five years (and even quarter-century). Not by little, but by a wide margin. Even before dividends. So, what’s in store for this iconic name?

Summary and key takeaways from today’s Weekly
– The stock of Ralph Lauren almost unnoticed by the public has massively outperformed the S&P 500 index over several time spans. Including over the long-term.
– Especially as of late, the performance was just astonishing.
– However, under the hood there are problems. Not making it better, the stock is trading now at what looks like to be a cyclical top.

When choosing a halfway proper headline for this analysis, I thought between using “fashion” or “style”. I know that “going out of fashion” better expresses what I wanted to say. However, “fashion” for my taste is not a proper fit for Ralph Lauren (ISIN: US7512121010, Ticker: RL).

Fashion comes and goes / passes. What remains is style (see here for thoughts on who said that).

Speaking of fashion and style, where there are likely no different opinions, is the fact that the stock of RL had an incredible run by showing the S&P 500 the backlights. Not by a little, but by a wide margin. And not just recently, but over the last one, three and even five years, i.e. during a time when the tech sector saw its gigantic rise.

Since 2000, the difference is embarrassing – for the index!

This was not always the case, as the stock before breaking out to new all-time highs last year saw a painful drought period. Shareholders didn’t have much to celebrate for an entire decade.

One of the reasons for the recent strength, if not the primary one, is that RL wasn’t soaked into the recent “Asia slowdown” which affected many of its peers, not sparing out higher-class names. To the contrary, Ralph Lauren managed to grow in this crucial market while some peers experienced even double-digit declines.

By sticking to its roots and remaining (largely) a timeless brand, the question is whether this recent outperformer will continue to impress.

A look at the stock of RL.

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Performance doesn’t only come from tech stocks

As I am sure I do not need to make a big introduction to the conservative and iconic old money / quiet luxury brand of Ralph Lauren, I am coming straight to the point.

The stock performance of RL has been just awesome. As of writing this Weekly, the class A stock is up

• by 70% over the last twelve months (!)
• by 131% over the last three (!)
• and by 119% over the last five years. *

* All numbers before dividends. Class A is the only publicly traded share class. The founder Mr. Ralph Lauren, Executive Chairman and Chief Creative Officer of RL, holds 84% of voting rights privately via a second share class.

Let that sink in.

A seemingly boring clothes, accessories and home decor company, not a hot tech stock.

Out of interest, I also checked the performance over the last quarter-century, from the start of 2000 until today. This time, using the total return numbers, i.e. including dividends.

Just incredible.

While the S&P 500 at least quadrupled, RL almost 20x-ed (incl. dividends).

So much on great returns come only from spectacular tech, commodity or biotech stocks.

Over the last ten years, though, the stock of RL is trailing the S&P 500.

You will have noticed a big, temporary slump between 2013 / 2014 and until new highs were made in early-2024. The stock didn’t find its bottom until the major sell-off in March 2020.

One could say this was only due to the exceptional circumstances. But a closer look reveals that RL stock was already on almost the same level around 2017.

The old all-time high was a bit above 180 USD, hence a drop into the 60–70s USD range was by no means just a small correction. It was a serious down-trend.

The painful drop is easily explained.

While the iconic brand is still holding up its image of offering affordable luxury, but at the same time more conservative and timeless (exceptions apply) than its peers, the truth is that the business was struggling for quite some time.

As we know, stocks price in expectations for the future development of the underlying business. If the wind starts to blow in a different direction, stocks usually change course sooner or later.

Below is a snapshot of the development of sales and operating margins between FY 2015 and 2020. Even before the events starting in 2020 both, sales and operating margins (and thus also earnings) were on a downward trend.

This was clearly a shrinking company, not a growth story anymore.

Being valued at the former top with a price to earnings multiple of 24–25x, it was only logical that the hot air needed to be left out. A shrinking company with such a business model is unlikely to hold up a premium valuation which has priced in not even little growth. Not even consistent and generous buybacks as well as a growing dividend (more on shareholder returns later) were enough to offset the stock’s decline.

Over these five years, sales fell from 7.5 bn. USD to the low 6 bn. USD range by FY 2018. A drop of ~20% – before the disruptions and enforced closures started in 2020.

At the same time, operating earnings disproportionately slipped by more than a third.

Due to positive, though not eternally repeatable working capital changes, cash flows were less affected. But it didn’t change the fact that RL switched from a growing into a shrinking icon. The company was not on the verge of bankruptcy or in serious financial trouble at any point in time, unlike the steep decline might suggest.

However, the development was clearly in the wrong direction.

Below is the equity market cap. Losing roughly two-thirds in a few years while the broad market rallies in parallel is not a sign of strength, to put it mildly.

The main reason was that the US market brought in almost 70% of sales near the top and growth rates came to a standstill, before they started even to fall off the cliff.

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Other markets despite showing decent growth weren’t able to balance out this step on the breaks as it was simply too much to lift.

Ralph Lauren until today has not made new record-sales!

The good news is, thanks to strict and effective working capital as well as cost management, Ralph Lauren, despite not having been able to achieve until today new record sales, is able to generate record gross profits as well as operating cash flows.

Quality over quantity and higher margins as the recipe for success, it seems.

Another big driver was the flourishing Chinese / Asian business which has grown disproportionately. As of today, it contributes 24% to sales and even half (!) to operating profits. China as a sole market according to one of the latest conference calls contributed only 7% to total sales. It grew dynamically from 3%-only pre-2020, but there’s still room to grow.

However, despite the hiccups of the last years, China was a meaningful contributor for Ralph Lauren.

As a positive and for me the main explanation for why the stock of Ralph Lauren has continued its big rally is that the company was able to expand further in Asia. As simple as that. Asia became the new growth story and as margins and the bottom line gained more traction, the stock attracted buyer’s interest.

Unlike some peers like LVMH (ISIN: FR0000121014, Ticker: MC), Kering (ISIN: FR0000121485, Ticker: KER), Burberry (ISIN: GB0031743007, Ticker: BRBY) or Capri Holdings (ISIN: VGG1890L1076, Ticker: CPRI), Ralph Lauren was somehow immune to the recent slowdown in the Asian luxury market.

It just continued as if nothing happened.

Even per last count, sales grew in Asia by ~10% (quarterly basis, second screenshot below) while operating earnings jumped by more than 20% (quarterly, screenshot above).

That’s not a sign of weakness or a slowdown.

From a multi-year perspective, sales rose by 50% measured by eye between 2019 and the latest reporting. On the side of operating earnings, the development was even more spectacular. This number more than doubled and as said is now contributing half of total operating earnings for the entire company.

All this was further supported by continuous and strong buybacks. Over the last ten years, share count has dropped meaningfully from 89 mn. class A shares to 65 mn. pieces – a reduction of 27%.

This is the equivalent of ~35% in performance, just from buying back stock.

However, the good news start to end here.

While the run was impressive, the strength in Asia masquerades issues on its home court.

Below are again screenshots from the quarterly reports for the Q2’s of FY 2015, 2020 and the most recent 2025. This time with the focus on the developments of the Western markets. Look especially at the domestic North American market.

These are only half-year results, but I think the trend is clear to see.

While sales in Europe continued to grow modestly until today, in its North American home market Ralph Lauren has experienced a sales plunge of almost 50% (!!) over the last ten years.

Let that sink in.

Being an American iconic brand in the public perception and seeing these numbers seems counterintuitive. While it is fine that growth could be found elsewhere and that margins were even increased, this is a worrisome trend.

If we now look again at the development of the market cap, we’ll notice that on an entire-company basis, we haven’t even seen a new high. The higher stock price / all-time high is a by-product of the aggressive stock buybacks.

While I am by no means against buybacks, my longer-time readers know that I put much weight on the timing question (as well as the company’s prospects).

I want to see a big bang for the buck.

In practical terms, the lower the valuation, the more effective a buyback as the same total sum is able to repurchase more shares. To the contrary, higher valuations make buybacks less effective.

That said, the valuation is again close to the highs we’ve seen a decade ago.

I had to cut the chart into two pieces in order to leave out some disturbing numbers in between.

^{source: TIKR}

Although reaching a valuation level where the stock in the past has turned down again is no guarantee that it will happen again, it is clearly not the best point to enter, either.

The risk and reward is certainly less favorable compared to when expectations are low.

The price to earnings ratio is currently 24x (the company, like its brand, has a conservative balance sheet with net cash before leasing, hence the equity price is okay to use here). There’s plenty of growth expected and priced in.

While it might happen that the Asian growth story continues, it is also possible that a new down-cycle emerges. Even if not, a realistic growth number is probably more towards 5–10%. I would even say that already this range is ambitious for several years to come. But anyhow, this steep multiple of 24x earnings for me is not justified.

The growth rate is too low. Risks too high. Too little margin of safety.

The odds are not good.

When looking at the price to sales ratio, we see the same picture.

The company’s valuation is clearly in the top range of its historical figures.

Simply put, below 1x its price to sales was the time to buy historically, while above 2x was a dangerous territory. No guarantee, just an observation.

Ralph Lauren as of late has generated ~1 bn. USD in operating and 0.9 bn. USD in free cash flow, supported by a few positive one-time effects. Assuming that sales and margins don’t fall (not guaranteed), this results in an equity multiple of 16–17x on a FCF basis (market cap = 15 bn. USD).

A bit more than half of the FCF is going towards buybacks. At this pace and valuation, share count is shrinking by only ~3% on a yearly basis. This is okay, but it is not the Big Bang for the buck that I’m seeking. The dividend yield is also close to its ten-year low and with only 1.3% certainly not exciting.

However, the much bigger portion of FCF goes into buybacks.

All in all, this is not convincing enough for me. Especially in light of the what it looks like melting-away North American business. That was shocking for me to discover.

Another question is what will happen after the founder is out of the business? While still motivated at the tender age of 85, the question of succession will sooner or later have to be answered. While it is possible that RL will be sold in the future to a bigger conglomerate, I wouldn’t bank on this. It is a nice option to have given the overall case is solid.

But it should never be the sole reason to buy the stock.

The company’s stock is trading at a low with a very undemanding valuation, because the business has experienced pressure. However, it seems that the tide might be turning now. Management repaid a big part of the company’s debt and also just last week announced a new shareholder return program.

Currently, the dividend yields ~7% while a multi-year buyback at prevailing prices will repurchase 5–6% of stock outstanding (per annum) for a total shareholder yield of 12–13%. The company currently is not growing – and it doesn’t need to! In other words, the potential for a surprise to the upside is NOT priced in while waiting is rewarded through big dividends and buybacks.

That’s a big bang for the buck worth a look.

I see an upside potential of 50–100%. As a bonus, this market leader could be acquired, as the valuation for my taste is simply too low.

Conclusion

The stock of Ralph Lauren almost unnoticed by the public has massively outperformed the S&P 500 index over several time spans. Including over the long-term.

Especially as of late, the performance was just astonishing.

However, under the hood there are problems. Not making it better, the stock is trading now at what looks like to be a cyclical top.

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