Note: Ralph Lauren’s FY’23 ended on April 1, 2023
Ralph Lauren (NYSE: RL), a company engaged in the design, marketing, and distribution of premium lifestyle products, including apparel, accessories, fragrances, and home furnishings, is scheduled to report its fiscal second-quarter results on Wednesday, November 8. We expect Ralph Lauren stock to likely trade higher with both revenues and earnings beating expectations marginally. For Fiscal 2024, the company continues to expect revenues to increase approximately low single-digits compared to last year. For the second quarter, the company expects revenue to be flat to up slightly compared to Q2 2023. Operating margin for the second quarter is expected to be in the range of 9.5% to 10.0% on a reported basis. The company also set long-term sales and margin growth and presented a strategic growth plan titled “Next Great Chapter: Accelerate.” The company’s three-year financial outlook projects mid-to-high single-digit revenue compounded annual growth.
RL stock has seen little change, moving slightly from levels of $105 in early January 2021 to around current levels, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. Overall, the performance of RL stock with respect to the index has been lackluster. Returns for the stock were 15% in 2021, -11% in 2022, and 9% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 – indicating that RL underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could RL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
Our forecast indicates that RL’s valuation is $124 per share, which is 9% higher than the current market price. Look at our interactive dashboard analysis on RL Earnings Preview: What To Expect in Q2? for more details.
(1) Revenues to be slightly above the consensus estimates
Trefis estimates RL’s Q2 2024 revenues to be around $1.65 Bil, marginally above the consensus estimate. For its fiscal 2024 first quarter, the luxury retailer saw revenue grow marginally by 0.4% year-over-year (y-o-y) to $1.5 billion. Growth in Asia Pacific sales alongside a modest rise in European sales helped to offset declining North American sales trends. It should be noted that RL’s inventory rose to $1.2 billion, up only 1% from the prior year period, due to increases in Asia and Europe to support growth initiatives largely offset by a decline in North America. On the balance sheet, RL ended the quarter with $1.7 billion in cash and short-term investments and $1.1 billion in total debt. We now forecast Ralph Lauren’s Revenues to be $6.6 billion for the full year 2024, up 2% y-o-y.
(2) EPS expected to marginally beat consensus estimates
RL’s Q2 2024 earnings per share is expected to be $1.94 per Trefis analysis, slightly beating the consensus estimate. In Q1, the retailer reported adjusted net income of $158 million or $2.34 per share compared to $1.88 per share a year ago. Its adjusted gross margin improved 80 basis points from a year ago to land at 68.8% of sales in Q1 2024. The company’s margins were driven higher by average unit retail growth across all regions, lower freight, and favorable channel and geographic mix shifts, more than offsetting continued pressure from raw material costs and foreign currency.
(3) Stock price estimate higher than the current market price
Going by our Ralph Lauren’s Valuation, with an EPS estimate of around $9.42 and a P/E multiple of 13.1x in fiscal 2024, this translates into a price of $124, which is 9% higher than the current market price.
It is helpful to see how its peers stack up. RL Peers shows how Ralph Lauren compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
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