Reasons for outperformance

During 2025, the business has consistently reported better-than-expected results, with revenue and earnings beating analyst estimates and leading to raised full-year outlooks. We’ll get a quarterly update at the end of this month, but expectations are again for a solid showing.

The company has benefitted from growing geographical presence. In the latest update, the CEO spoke about adding stores to be “largely concentrated in our key cities in each region.” This has certainly helped, with noteworthy growth in China and Europe.

Another factor is the focus on improving technology, AI and analytics. For a fashion brand, having more insights into how people shop, where their interests lie, and how to guide customers through the journey are all key. So, having this data has enabled the company to translate it into higher revenue directly.

Looking to 2026

A key element for success next year lies in Ralph Lauren’s core affluent customer base. Despite broader macroeconomic uncertainties and inflation this year, the client base has remained resilient and willing to pay full price for products, contributing to increased profitability. For me, this is a great sign. If the global economy struggles in 2026, further resilience may see investors cycle out of struggling fashion brands and go to the US stock. Yet if we get a boom period, then more people will aspire to buy the products and have the disposable income to do so.

In terms of investment in AI and analytics, this will only help even more in 2026. The more data that’s gathered, the deeper the value of the insights. As a result, the company should be able to enhance profits further using this strategy.

From a valuation perspective, the jump this year still doesn’t make it super-expensive. It has a price-to-earnings ratio of 25.15. For comparison, the S&P 500 average is 31.15. This means the share price could rally further before concerns arise that it’s overvalued.

In terms of risks, tariff concerns are worth watching. The company warned about this earlier in the year, and there are lingering concerns that prices might rise in 2026 to offset higher costs. This could turn some away from buying the products, or eat into profit margins.

Despite this worry, I think the business could do very well next year. I’m seriously thinking about adding it to my portfolio, and other investors could consider doing the same.

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