Ralph Lauren’s Q3 Earnings: What Lies Ahead?

Note: Ralph Lauren Company’s fiscal year 2023 ended on April 1, 2023

Ralph Lauren (NYSE: RL), renowned for its premium lifestyle products, is geared up to unveil its fiscal third-quarter results on Thursday, February 8. Despite its stock soaring by 40% since 2023, the forecast suggests that Ralph Lauren’s stock may experience a slight downturn as its revenues and earnings are anticipated to moderately miss expectations. Looking ahead to Fiscal 2024, the company remains steadfast in its projection of a low single-digit increase in revenues compared to the previous year. Specifically for Q3, the company foresees a 1-2% rise in revenue from last year in constant currency. However, foreign currency is poised to cast a negative impact on revenue growth by approximately 30 basis points. The retailer’s operating margin for Q3 is expected to remain relatively flat in constant currency, with about 10 basis points of foreign currency benefit. Setting its sights on the future, the company has outlined a strategic growth plan titled “Next Great Chapter: Accelerate” along with a three-year financial outlook projecting mid-to-high single-digit revenue compounded annual growth.

Stock Performance Analysis

The journey of RL stock has been turbulent, with fluctuations encompassing its buoyant 40% surge from early January 2021 to the present levels, and a corresponding 30% increase for the S&P 500 over the same duration. However, this bullish trajectory has been interspersed with periods of inconsistency, marked by a 15% return in 2021, a -11% setback in 2022, and a robust 36% rebound in 2023. In contrast, the S&P 500 experienced a 27% upturn in 2021, followed by a -19% decline in 2022, and a 24% resurgence in 2023, thereby indicating Ralph Lauren’s underperformance relative to the S&P 500 in 2021. Yet, achieving consistent market outperformance against the S&P 500 has been a formidable challenge for individual stocks across various sectors in recent years, including heavyweight contenders in the Consumer Discretionary sector. Notably, even tech giants Amazon, Tesla, Home Depot, Google, Microsoft, and Apple have grappled with this trend. Conversely, the Trefis High-Quality (HQ) Portfolio – comprising 30 stocks, has remained an outlier, outperforming the S&P 500 every year during the same timeframe. This prompts the question: why have these stocks managed to defy market norms? The HQ Portfolio has delivered superior returns with reduced risk, signifying a less roller-coaster-like ride, as underscored by its performance metrics.

Earnings and Revenue Estimates

(1) Revenues to be slightly below the consensus estimates

Per Trefis estimates, RL’s Q3 2024 revenues are projected to hover around $1.85 billion, slightly below the consensus estimate. For its fiscal 2024 second quarter, the luxury retailer witnessed a 3% year-over-year revenue increase, reaching $1.6 billion. The surge in Asia Pacific sales, coupled with a rise in European sales, offset the downward trajectory of North American sales. It’s worth noting that RL’s inventory ascended to $1.2 billion, representing a mere 1% uptick from the previous year, with the escalation in Asia and Europe to support growth endeavors mostly counteracted by a decline in North America. On the financial front, RL concluded Q2 with approximately $1.4 billion in cash and short-term investments, alongside roughly $1.1 billion in long-term debt. The current projection for Ralph Lauren’s revenues in the full year of 2024 stands at $6.6 billion, reflecting a 2% year-over-year upswing.

(2) EPS expected to be marginally below consensus estimates

According to Trefis analysis, RL’s Q3 2024 earnings per share (EPS) are anticipated to amount to $3.51, slightly falling short of the consensus estimate. In Q2 of 2024, the retailer disclosed a net income of $147 million, translating to $2.19 per share compared to $2.18 per share a year ago. Notably, its adjusted gross margin witnessed an 80 basis points improvement from the previous year, settling at 65.4% of sales in Q2 of 2024. The company attributed the surge in margins to robust average unit retail growth across all regions, decreased freight costs, and favorable shifts in channel and geographic mix, more than offsetting persistent pressure from raw material costs.

(3) Stock price estimate lower than the current market price

The Ralph Lauren’s valuation, with an EPS estimate of around $9.38 and a P/E multiple of 14.7x in fiscal 2024, translates into a price of $137, marking a 7% dip from the current market price.

Comparative Performance

[1] Returns as of 2/5/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.