When it comes to the investment community, Ralph Lauren knows the importance of longevity.
Five years ago, at the Polo Ralph Lauren annual shareholders' meeting, when the company was celebrating both its 35th anniversary in business and fifth year as a publicly traded firm, the chairman told attendees a public company needs to be able to do at least two things in order to succeed: "You have to prove longevity and that you can deal with Wall Street." He concluded then that the company had done both.
At this year's annual meeting in August, as the group marks its 40th anniversary and its 10th year on Wall Street, the focus was again on longevity.
"Through the years, we have had the same formula for running our business," Lauren stated. "We are not about trendy fashion. It's not a hot retailer. It's about longevity, which is unheard of in the fashion business, which is all about youth and change."
Wall Street seems to agree. The company went public with Ralph Lauren ringing the bell at the New York Stock Exchange on June 12, 1997. Its initial public offering price was $26 a share, and the stock closed the day up over 21 percent at $31.50. Earlier this month, the stock was trading at $77, a 196 percent premium over the IPO price.
According to Jennifer Black, analyst at her research firm, "A $10,000 investment in the company at its IPO price would be worth around $29,200 near the end of September."
Still, Lauren over the years hasn't been thrilled with the company's stock price. He bemoaned to shareholders at the company's August 2000 annual meeting that fiscal 2000 was then the most profitable in the firm's history, with a 15 percent increase in net income and a 7.5 percent increase in revenue, yet the stock was trading around $19 a share.
Since then, Polo's stock has climbed higher, riding the luxury wave over the last few years that boosted shares of such firms as Coach.
Since its IPO, the stock has not split. As of Oct. 2, the 52-week high was $102.58, and the low was $64.77. Polo Ralph Lauren has a market capitalization of $8 billion, and 94 percent of the company's shares are held by institutional investors, according to Capital IQ. Those investors include Janus Capital Management, FMR Corp. (Fidelity), Vanguard and Buckingham Capital Management."There is a huge opportunity for the company internationally, and that's why a lot of analysts like the stock," Black said. "Domestically, Rugby's Web site just went live, Club Monaco has an opportunity to expand and this new private label concept [Global Brand Concepts] program with J.C. Penney is huge. I guess that as long as Ralph is there, there won't be a shortage of ideas."
Those ideas have paved the way for a multibillion dollar franchise that, by all accounts, is still galloping along.
In May, when the company released fiscal year 2007 results, Lauren said the "brand's reach has grown to more than 80 countries and now represents more than $10 billion in retail sales worldwide."
At a recent panel discussion on mergers and acquisitions hosted by investment banking firm Financo Inc., Andrew Megibow of SPG Partners pointed out that while the truly great designers understand both the business and the bottom line, it is also imperative for the firms to have good management teams.
So far, the business model at Polo Ralph Lauren is working, with Roger Farah, president and chief operating officer, executing on the business and operational side, and Lauren remaining the visionary of the firm, Black said.
Her concern, if there is one, is also one of the biggest risks for Polo: "What is the company's future if something happened to Ralph?"
While Black has no knowledge of any succession plans, she noted the "company has enough designers working there for a long term that they can continue the work and remain true to the brand. I believe they will be able to carry on his legacy."
In August, when investors drove shares of Polo down by almost 12 percent after the company lowered its fiscal year 2008 outlook due to a higher tax rate, even though it also said first-quarter income rose by 10.1 percent, Polo's share price closed the trading day at $81.80.
Goldman Sachs analyst Margaret Mager wrote in an August research note, "we remain buyers of [Polo Ralph Lauren] shares...we highlight that nothing has changed in the 'thesis' while Polo's track record of excellence speaks for itself."
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