Moody‘s Investors Service assigned a A2 rating to Ralph Lauren Corporation’s offering of new $300 million senior unsecured notes due 2020. The rating outlook remains stable.
The net proceeds from the offering will be used for general corporate purposes.
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Ralph Lauren’s A2/Prime 1 ratings reflect the company’s ownership of the Ralph Lauren family of brands, collectively one of the most recognized global apparel brands. The rating also reflects the company’s long term successful track record of growing this brand into new product categories and geographies, evidenced by operating margins that compare favorably to most consumer goods companies.
The rating also reflects the broad distribution of the company’s brands across multiple channels of distribution, strong operating efficiency, and significant international presence. Ralph Lauren’s financial policies are expected to remain very conservative and leverage is moderate with EBITA/interest expense of 15 times and debt/EBITDA of 1.5 times as of June 27, 2015.
The company’s ratings are constrained by the inherent risks in the apparel sector, and its continued reliance on a few key wholesale customers for a meaningful portion of sales.
The stable rating outlook reflects our expectations that Ralph Lauren will maintain its conservative financial policies and solid credit metrics notwithstanding near term pressure on earnings from the strength of the USD. The rating considers that the company may see some increases in domestic debt over time, but commensurate with earnings growth.
In view of the company’s reliance on a single fashion brand for substantially all sales there is limited upward rating momentum even if metrics were to improve from current levels. Over time upward rating momentum would build if the company were to drive meaningful growth internationally such that its current high reliance in the US department channel would ease and the benefit of its various transformation initiatives yield meaningful improvement in margins in the high teen range.
Ratings could be downgraded if the company’s financial policies were to become more aggressive or if the company was to see sustained pressure in operating margins indicating that its strong competitive advantage was being eroded. Quantitatively ratings could be downgraded if debt/EBITDA approached two times or interest coverage approached 10 times.
Revenue for the LTM period ending June 27, 2015 was $7.53 billion.
