Tag: US Market
Business Strategy & Outlook
Ralph Lauren’s restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, 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, 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 73% of sales in fiscal 2032 from 63% in fiscal 2022, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning.
An increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls. Much of Ralph Lauren’s growth came from international markets. The brand is more of a premium brand in Europe and Asia than in North America, allowing for reduced discounting and higher average unit retail. In Europe, store openings in underserved markets to support its existing e-commerce and attract new customers. In Asia, where Ralph Lauren trails some competitors, 7% compound average annual sales growth over the next decade as stores open and e-commerce expands in mainland China. Sales in Europe and Asia-Pacific will rise to 58% of total sales in fiscal 2032 from 49% in fiscal 2022. As evidence of the potential for Ralph Lauren, a comparable American brand, narrow-moat PVH’s Tommy Hilfiger, produced 75% of its sales outside North America in fiscal 2021.
Financial Strengths
Ralph Lauren has a strong balance sheet. The company recently sold Club Monaco (undisclosed terms) and licensed Chaps. It also paid off $500 million in debt that came due in 2022. After these moves, it closed September 2022 with long-term debt of $1.1 billion but $1.4 billion in cash and investments (net cash of about $4 per share). Ralph Lauren will generate significant cash flow for stock buybacks and dividends despite disruption from the pandemic. After suspending it during the pandemic, the firm resumed its dividend in fiscal 2022 and plans to pay $3 per share in dividends in fiscal 2023.Its long-term dividend payout ratio at about 44%. As for buybacks, Ralph Lauren repurchased shares on a consistent basis prior to the pandemic and has recently resumed them. It will generate an average of about $680 million per year in free cash flow to equity over the next five fiscal years and use practically all of it for share repurchases and dividends. Ralph Lauren’s yearly capital expenditures dropped below 3% of sales as its conserved cash during the pandemic. Now, though, larger investments in digital capabilities, store remodels, and store openings. Ralph Lauren’s annual average capital expenditures at 4.5% of sales over the next five years.
Bulls Say
- Business trends have improved for Ralph Lauren in Europe and Asia, which is advantageous as both regions have higher average unit retail and better growth prospects than the United States.
- Ralph Lauren’s gross margins are higher than those of some competitors and have been improving, as much of its merchandise achieves premium pricing.
- Ralph Lauren’s growth came from controlled retail and e-commerce, allowing for better command over pricing and marketing. The firm has reduced its share of revenue from wholesale channels by about 20 percentage points over the past 12 years.
Company Description
Founded by designer Ralph Lauren in 1967, Ralph Lauren Corp. designs, markets, and distributes lifestyle products in North America, Europe, and Asia. Its products include apparel, footwear, eyewear, jewelry, leather goods, home products, and fragrances. The company’s brands include Ralph Lauren Collection, Polo Ralph Lauren, Lauren Ralph Lauren, and Double RL. Distribution channels for Ralph Lauren include wholesale (including department stores and specialty stores), retail (including company-owned retail stores and ecommerce), and licensing.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
State Street provides a range of asset servicing and ancillary servicing, including maintaining custody of assets, fund administration, record-keeping, securities lending, foreign-exchange trading services, and data services to institutional asset owners and asset managers. Although State Street is a market leader, its asset manager and asset owner clients are sophisticated on the pricing of its custody and ancillary services. In addition, as asset managers consolidate and face industry wide fee pressure, they are increasingly seeking operating expense savings. State Street saw pricing compression of 4% in 2018 and 2019, though it did appear to moderate to about 2.5% in 2020. In addition, low interest rates continue to pressure net interest income, but this is showing signs of moderating. Following its announced acquisition of Brown Brothers Harriman, which is expected to close in the third quarter of 2022, State Street will be the largest custodian by assets under custody. Given pressures in the industry, the management to continue to focus on managing expenses. With the acquisition of Charles River Development in 2018, State Street is emphasizing its integrated “front to back” offering (branded as State Street Alpha), which it believes will lead to stickier, high-revenue-generating customer relationships. State Street’s back-office offerings include custody, fund accounting, and fund administration. Its middle office includes client reporting, post-trade workflows, investment risk monitoring, and performance/attribution analysis. State Street’s front office includes Charles River’s portfolio modeling and data-management software as well as legacy State Street’s foreign-exchange trading and securities finance solutions.
State Street is also one of the largest global asset managers, with over $3 trillion in primarily passive assets under management. This business, which is less than 15% of the firm’s revenue, has underperformed. Media reports indicate that the firm may explore strategic alternatives, including a joint venture; while such a course of action may make strategic sense, it won’t materially affect the fair value estimate.
Financial Strengths
State Street’s financial structure is sound. As of Dec. 31, 2021, the firm had a common equity Tier 1 ratio (advanced) of 14.3%, comfortably exceeding its regulatory minimum of 8.5%. State Street’s supplementary leverage ratio was 7.4%, above the 5% minimum. While the firm had some extraordinary losses during the financial crisis related to asset-backed commercial paper, it has learned from the crisis and looks quite unlikely to see a repeat of this. In addition, the balance sheet is conservatively invested and the firm’s loans and leases have resulted in relatively low charge-offs. The company did increase its provisions amid the COVID-19 epidemic but has since released these as the economy performed better than expected in 2021.
Bulls Say
- With the acquisition of Charles River Development, State Street’s front-to-back offerings offer competitive advantages and should lead to a greater wallet share of clients and stickier client relationships.
- In comparison with a traditional bank, only about one fourth of State Street’s revenue is from net interest income, and the firm has very modest exposure to credit risk.
- A joint venture or sale of its asset-management business could unlock value for shareholders.
Company Description
State Street is a leading provider of financial services, including investment servicing, investment management, and investment research and trading. With approximately $43.7 trillion in assets under custody and administration and $4.1 trillion assets under management as of Dec. 31, 2021, State Street operates globally in more than 100 geographic markets and employs more than 38,000 worldwide.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Molson Coors has long been a mainstay of the global beer industry, with North American staples like Coors and Miller and leading European brands such as Carling. However, these trademarks that were once strengths are now largely declining in relevance and volume. Moreover, while they are starting to see improvements, the firm’s legacy brands have proved difficult to parlay into higher-end categories with more propitious growth prospects, as innovation efforts in this regard have seen mixed success. With the firm’s dominance largely in secularly challenged segments of the malt category, this positioning reaps advantages sufficient for a moat. Management announced a plan in the fourth quarter of 2019 to realign the business. Though it was long overdue, CEO Gavin Hattersley’s plan was strategically prudent. It entails materially higher levels of manufacturing, innovation, and marketing investment across the portfolio, particularly in the above-premium segment where Molson Coors has lagged. Funded mostly by expected savings from business restructuring, the firm also looks to extract efficiencies by making its infrastructure and commercial functions more technologically adept.
Molson Coors’ competitive positioning is not entirely bleak, and its growth trajectory has been irreparably impaired. The company continues to look for capital-efficient opportunities internationally; for example, it has transitioned to licensing arrangements in markets like Mexico. It has also assembled an impressive portfolio of seltzers, which should allow it to capture some growth from exposure to an adjacent category. Roughly one third of volume in Europe is in the above-premium category, where the company either owns or licenses healthy brands like Blue Moon, Staropramen, and Peroni. Ultimately, however, establishing a more meaningful position in competitively advantaged malt and other alcohol segments will be tremendously difficult, as the firm will be beleaguered by competition while its legacy business continues to falter.
Financial Strengths
Molson Coors is in reasonable financial health. The company took on material debt in relation to the MillerCoors transaction, but management has done a good job reducing leverage at the cadence that was committed to when the deal was consummated. The firm closed 2021 with net debt/adjusted EBITDA of 3.5 times, putting it on track to reach management’s target of under 3 times by the end of 2022. Molson Coors has historically generated healthy free cash flow to equity, clocking in at an average of $1.3 billion annually over the past five years (a low-double-digit proportion of sales). Cash flow was adversely affected in 2020 by pandemic disruption, and it will remain depressed in the medium term due to incremental investment stemming from management’s revitalization plan and one-time restructuring charges associated with workforce severance and technology implementation. Still, levels will average $1.2 billion over the next five years, with steady improvement longer-term driven by improving margins, capital-efficient international expansion, and prudent working capital management. Management’s guiding principle as it relates to leverage is to maintain its investment-grade credit rating. This implies that it will continue to pay down debt, as well as confine its activities on the merger and acquisition front to strategic tuck-ins. The dividend, raised in 2019 after being frozen for three years, was suspended in May 2020 to shore up the liquidity profile amid COVID-19. In July 2021, the board reinstated the dividend at a payout roughly 40% below the antecedent, which it believes illuminates not only the firm’s financial prudence, but also its commitment to the hefty investments that will be required to resuscitate the brewer’s competitiveness. Liquidity should not be a concern as the firm continues to navigate the pandemic, as it had $525 million in cash plus $1.5 billion available under its revolving credit facility as of June 2022.
Bulls Say
- If management is able to strike gold with meaningful innovation, it has the distribution to scale its offerings more broadly and efficiently than smaller competitors.
- Management’s recent decision to decommission a slew of secularly challenged brands in the economy segment should free up resources (distribution space, administrative focus, manufacturing capacity) to divert toward more fruitful categories.
- Technology-enabled transformation of infrastructure and commercial functions should present low-hanging fruit from which to extract cost savings.
Company Description
Molson Coors is the fifth-largest beer producer globally, boasting top-two positioning in the U.S., Canada, and United Kingdom. It brews and markets a slew of company-owned brands including Blue Moon, Coors, Miller, Vizzy, and Staropramen. It also sells various partner brands in certain locales such as Topo Chico (licensed from Coca-Cola), Amstel and Dos Equis in Canada (through an exclusive import/license arrangement with Heineken), and Corona in Central Europe (through an agreement with Anheuser-Busch InBev). The firm’s go-to market approach differs by geography as well, primarily using independent distributors in the U.S. but deploying hybrid models in Canada and Europe.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
