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Factors Setting the Tone for Ralph Lauren's (RL) Q2 Earnings

Zacks Equity Research

Ralph Lauren Corporation RL is slated to release second-quarter fiscal 2020 results on Nov 7, before the opening bell.

The premium lifestyle product designer boasts a robust earnings surprise history, having surpassed the Zacks Consensus Estimate in 18 straight quarters. Moreover, it recorded average trailing four-quarter beat of 8.4%. On the top-line front, Ralph Lauren outshined the consensus mark for six consecutive quarters. Let’s discuss the factors that are likely to get reflected in the upcoming quarterly results.

Estimate Picture

The Zacks Consensus Estimate for fiscal second-quarter earnings is pegged at $2.39, suggesting 5.8% growth from the prior-year quarter reported figure. Notably, the consensus mark has been unchanged in the past 30 days.

Ralph Lauren Corporation Price and EPS Surprise


Ralph Lauren Corporation Price and EPS Surprise

Ralph Lauren Corporation price-eps-surprise | Ralph Lauren Corporation Quote

For quarterly revenues, the consensus estimate stands at $1,695 million, which suggests growth of approximately 0.3% from the year-ago quarter’s reported number.

Factors at Play

Ralph Lauren’s top and bottom lines have been gaining from strategic initiatives — including “Next Great Chapter” as well as cost-containment efforts and continued investment in brand elevation — over the past few quarters. Benefits from these endeavors are expected to get reflected in the company’s results in second-quarter fiscal 2020. Additionally, strength in the company’s International business and focus on digital expansion have been aiding top lines, which are likely to have continued this quarter as well.

On the last earnings call, management had stated that it expects the efforts to focus on consumer demand, elevate and energize its brands, and balance growth and productivity to drive growth in the quarters ahead. Management expected net revenue growth of 1% in constant currency for the fiscal second quarter. Further, it expected operating margin expansion of 40-60 basis points (bps) in constant currency, with tax rate of 23%.

However, decelerating digital sales in Ralph Lauren’s North America segment is likely to have offset top-line gains in the fiscal second quarter. Notably, the company has been witnessing a decelerating digital comps trend, on a sequential basis, over the last three quarters mainly on lower sales to international customers on its U.S. site due to currency headwinds and tighter import regulations in the major Asia markets.

Earlier, management had expected the biggest sales decline from the aforementioned factors to be witnessed in the second quarter of fiscal 2020, further hurting digital comps in the North America segment.

Additionally, the company’s fiscal second-quarter results are likely to reflect the continued impact of currency headwinds. Management had earlier expected foreign currency to mar revenue growth by about 90-100 bps and operating margin by roughly 20 bps in the fiscal second quarter.

What the Zacks Model Says
Our proven model predicts an earnings beat for Ralph Lauren this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ralph Lauren has a Zacks Rank #3 and an Earnings ESP of +0.21%.

Other Stocks With Favorable Combination

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

lululemon athletica inc LULU has an Earnings ESP of +1.54% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adidas AG ADDYY has an Earnings ESP of +0.14% and a Zacks Rank #3.

Spectrum Brands Holdings Inc SPB has an Earnings ESP of +2.60% and a Zacks Rank #3.

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