Ralph Lauren Corporation (NYSE:RL): Does The -59.10% Earnings Decline Make It An Underperformer?
Measuring Ralph Lauren Corporation’s (NYSE:RL) track record of past performance is a valuable exercise for investors. It allows us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess RL’s recent performance announced on 30 September 2017 and compare these figures to its historical trend and industry movements. View our latest analysis for Ralph Lauren
Was RL weak performance lately part of a long-term decline?
I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique allows me to analyze different companies on a similar basis, using the latest information. For Ralph Lauren, its most recent bottom-line (trailing twelve month) is $80.6M, which compared to the prior year’s level, has plunged by a non-trivial -59.10%. Given that these figures are somewhat short-term, I’ve calculated an annualized five-year value for Ralph Lauren’s net income, which stands at $541.5M. This doesn’t look much better, since earnings seem to have gradually been diminishing over time.
What could be happening here? Well, let’s look at what’s occurring with margins and whether the rest of the industry is feeling the heat. Revenue growth over the last few years, has been positive, nevertheless earnings growth has been declining. This means Ralph Lauren has been growing expenses, which is harming margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US luxury industry has been growing, albeit, at a subdued single-digit rate of 4.35% over the previous twelve months, and 4.03% over the last five years. This means whatever recent headwind the industry is enduring, it’s hitting Ralph Lauren harder than its peers.
What does this mean?
Ralph Lauren’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that endure a drawn out period of decline in earnings are undergoing some sort of reinvestment phase . Though if the entire industry is struggling to grow over time, it may be a signal of a structural change, which makes Ralph Lauren and its peers a riskier investment. I recommend you continue to research Ralph Lauren to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for RL’s future growth? Take a look at our free research report of analyst consensus for RL’s outlook.
2. Financial Health: Is RL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
