Ralph Lauren Corporation (NYSE:RL) is expected by most analysts to steadily climb back to pre-economic crisis numbers and continue to grow. The major keys to growth for Ralph Lauren is continued growth in luxury spending in both mature and emerging markets. This will offset the timid retail sales environment in the US as demonstrated in this week’s retail sales data for Gap (NYSE:GPS), American Eagle (NYSE:AEO) and others.
The day to day stock prices may at times be volatile, but the overall growth for Ralph Lauren has been solid. Luxury spending has increased, and as a luxury brand, Ralph Lauren is in prime position to continue to make gains. A look at Ralph Lauren’s income statements over the past three years reflects steady revenue growth in 2009, 2010 and 2011; it should be noted there was also an increase in SG&A as a percent of revenue over the same years. Even with the increase in SG&A expenses, RL has been able to increase net income steadily.  As of October, year to date revenues are up 24 percent from the same time last year. And, Ralph Lauren is not alone – The S&P Global Luxury Index has returend 2 percent year-to-date, outperforming the S&P Global 1200 which has a return of -4.2 percent. 
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Despite these strong reports, the future is uncertain for luxury stocks, as indicated by the Trefis Stock Value for Ralph Lauren Corporation.
Currently the Trefis Price is at $160 while the market price is at $147. Though much of Ralph Lauren’s growth is depending upon emerging global markets, the company still relies heavily on US, European and Japanese consumers to support the larges driver of its stock value – the Ralph Lauren Factory Stores.
The mature market consumers targeted by these stores are still struggling and with the current crisis in the EU, it is a challenge to determine whether the future spending will be there. Unfortunately, the Chinese economy is also showing signs of slowing down.
China is a close third in world luxury market spending, with the Chinese luxury market growing 23 percent last year. Commodities and luxury goods alike are concerned about a potential Chinese slow down. The luxury market, particularly Ralph Lauren (with the reliance on value-conscious consumers in mature markets), will not be able to continue solid growth if both the mature market, strongly affected by the EU crisis, and emerging markets, strongly driven by China, start to slow down. Notes: