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Here's Why Ralph Lauren (RL) Q1 Earnings Are Poised to Grow

Zacks Equity Research

Ralph Lauren Corporation RL is slated to release first-quarter fiscal 2020 results on Jul 30, before the opening bell.

Impressively, this premium lifestyle products’ designer boasts a robust earnings surprise history, having surpassed the Zacks Consensus Estimate in the last 17 quarters. Moreover, it came up with average trailing four-quarter beat of 9.5%. On the top-line front, Ralph Lauren outshined the consensus mark for five straight quarters now.

Ralph Lauren Corporation Price and EPS Surprise

Ralph Lauren Corporation Price and EPS Surprise

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

Let’s see how things are placed before the upcoming earnings release.

Which Way Are Q1 Estimates Headed?

The Zacks Consensus Estimate for fiscal first-quarter earnings is pegged at $1.67, suggesting 8.4% growth from the prior-year quarter reported figure. Notably, the consensus mark remained unchanged over the past 30 days.

For quarterly revenues, the consensus estimate stands at $1,417 million, indicating about 1.9% rise from the year-ago quarter’s reported number.

Factors Likely to Impact Q1

Ralph Lauren is benefiting from the solid execution of its key initiatives including the “Next Great Chapter” plan, announced in June 2018. In fact, this growth strategy started well in its first year, aiding the company to outshine its commitments with respect to revenues, quality of sales, operating income and earnings per share.

The company is executing this growth plan through five priorities — including winning over a new generation of customers; energizing core products and accelerating underdeveloped categories; driving targeted expansion in its regions and channels; leading with digital; and operating with discipline to fuel growth. Backed by these efforts, the company is likely to boost top- and bottom-line growth in the to-be-reported quarter.

Further, the company’s upcoming quarterly results are likely to gain from strength in the international regions and focus on digital expansion. Management has elevated the brand in Asia, particularly China. In fiscal 2019, Ralph Lauren’s constant-currency revenues in Greater China increased 20%, with over 30% growth in Mainland China.

Management had earlier projected first-quarter fiscal 2020 net revenues to increase 3-5% in constant currency owing to gains from the timing of Easter. Moreover, operating margin is anticipated to expand 30-50 basis points (bps) in constant currency.

While the aforementioned factors drive optimism, Ralph Lauren’s sluggish performance in the North America segment remains a concern. Soft performance at both retail and wholesale channels is hurting the segment’s performance.
 
Furthermore, currency headwinds are likely to impact revenue growth by about 190-200 bps in the to-be-reported quarter. Also, operating margin expansion includes a negative impact of about 10 bps from foreign currency.

What Does the Zacks Model Say?
 
Our proven model does not show that Ralph Lauren is likely to beat earnings estimates in the fiscal first 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.

Although Ralph Lauren’s Zacks Rank #3 increases the predictive power of earnings beat, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

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

Prestige Consumer Healthcare Inc. PBH has an Earnings ESP of +1.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Columbia Sportswear Company COLM has an Earnings ESP of +40.00% and a Zacks Rank #3.

PVH Corp. PVH has an Earnings ESP of +0.33% and a Zacks Rank #3.

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