Ralph Lauren’s Distribution, Marketing, and Product Enhancements Support Its Margins and Brand Value

In our view, narrow-moat Ralph Lauren's completed restructuring puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, the firm has closed underperforming stores, reduced exposure to US department stores and off-price channels, and cut product lead times. These and other efforts have led to significant gross margin increases. Although North America sales have declined from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 75% of sales in fiscal 2035 from 67% in fiscal 2025, thereby reducing the brand’s dependence on US physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential, as customer visitation is declining in many retail stores and malls.