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Factors Likely to Drive Ralph Lauren's (RL) Q3 Earnings

Zacks Equity Research

Ralph Lauren Corporation RL is slated to release third-quarter fiscal 2019 results on Feb 5, before the opening bell. The company has an impressive earnings surprise history, having outpaced estimates in the last 15 quarters. Also, it delivered average four-quarter positive earnings surprise of 7%.

The Zacks Consensus Estimate for third-quarter earnings is pegged at $2.14, reflecting 5.4% growth year over year. Notably, the consensus mark remained unchanged over the last 30 days.

Ralph Lauren Corporation Price and EPS Surprise

 

Ralph Lauren Corporation Price and EPS Surprise | Ralph Lauren Corporation Quote

Let’s see how things are shaping up prior to the earnings announcement.

Factors at Play

Ralph Lauren has been benefiting from initiatives — including stringent focus on consumer demand, efforts to elevate and energize brands, and balance growth and productivity. Moreover, significant progress on the Next Great Chapter growth plan has been aiding its earnings performance over the past few quarters. The company expects to execute this growth plan through by five priorities including — winning over a new generation of customers; energizing core products and accelerating underdeveloped categories; drive targeted expansion in its regions and channels; lead with digital; and operate with discipline to fuel growth.

Ralph Lauren is well on track with its restructuring plan. The company recently outlined a restructuring plan (Fiscal 2019 Restructuring Plan), which is likely to generate savings of roughly $60-$80 million in fiscal 2019. These savings will be incremental to savings of roughly $140 million to be realized in association with the Way Forward Plan.

Furthermore, the company’s results will continue to reflect gains from the focus on international expansion. It sees immense potential to expand in Europe, where it currently has only 21 full-price stores. The company plans to open five more stores in Europe in the second half of fiscal 2019, with more than 100 stores planned in the next five years. Additionally, its digital business is expected to significantly contribute to growth in the fiscal third quarter. Moreover, the company’s digital wholesale business has been witnessing marked improvements, which is driving market share gains in this channel at key retailers and categories.

Despite improvements, the North America segment continues to suffer due to soft in-store traffic and challenging wholesale business. The company projects challenging revenues for the North America wholesale business in the second half of fiscal 2019 due to the timing of off-price shipments. Additionally, currency headwinds are likely to impact revenue growth throughout fiscal 2019.

Soft outlook weighed on the stock’s performance in the last three months. Notably, the stock has declined 12.2% in the past three months, wider than the industry’s decrease of 2.6%. However, it has gained 11.2% in the past month, reflecting a positive sentiment ahead of earnings.

 



Zacks Model
 
Our proven model shows that Ralph Lauren is likely to beat earnings estimates in the fiscal second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ralph Lauren has an Earnings ESP of +0.86% and Zacks Rank #3, which makes us reasonably confident of an earnings beat.

Other Stocks With Favorable Combination

Here are some other companies that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Deckers Outdoor Corporation DECK has an Earnings ESP of +3.63% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dillard’s, Inc. DDS has an Earnings ESP of +2.56% and a Zacks Rank #2.

L Brands Inc. LB has an Earnings ESP of +0.91% and a Zacks Rank #2.

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L Brands, Inc. (LB) : Free Stock Analysis Report
 
Dillard's, Inc. (DDS) : Free Stock Analysis Report
 
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Ralph Lauren Corporation (RL) : Free Stock Analysis Report
 
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