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Ralph Lauren (RL) Jumps on Q4 Earnings Beat, Gives '18 View

Zacks Equity Research

Ralph Lauren Corporation RL reported fourth-quarter fiscal 2017 adjusted earnings of 89 cents per share that fared better than the Zacks Consensus Estimate of 79 cents and increased 1.1% from 88 cents reported in the prior-year quarter.

On a reported basis, the company posted loss per share of $2.48 against earnings of 49 cents in the prior-year quarter. Reported earnings for the quarter primarily included restructuring and other charges associated with the company’s Way Forward plan, which was announced in Jun 2016.

Following the earnings beat, the company’s shares jumped about 2.6% in the pre-market trading session. Overall, Ralph Lauren’s shares have declined 20.3% year to date, underperforming the Zacks categorized Textile–Apparel industry’s fall of 8.8%.


Net revenue of this luxury apparel retailer was down about 16% year over year to $1,565.4 million, and missed the Zacks Consensus Estimate of $1,593 million. The decline was in line with the company’s guidance and resulted from its initiatives to improve quality of sales and reduce excess inventory, as well as challenging traffic trends.

On a currency-neutral and a 13-week comparable basis, revenues fell nearly 12% in the quarter. Currency impacted revenues by nearly 100 basis points (bps), while the extra-week in the fiscal fourth quarter contributed about $72 million to revenues.

During the quarter, reported revenues for the International business were down 9%, while the North American business reported 21% decline.

Segment-wise, reported Wholesale revenues witnessed a 17% decline year over year to $777 million, while 13-week comparable and currency-neutral revenues dropped 15%. The decline in Wholesale revenues can be attributed to the soft performance in North America due to lowered shipments as part of its efforts to improve quality of sales, better align with demand and cut excess inventory.

Retail reported revenues dipped nearly 16% to $745 million. On currency-neutral and 13-week comparable basis, Retail revenues declined 9%. The fall was due to a decline in comparable-store sales (comps) that were hurt by challenging traffic and average transaction size trends, offset by actions to improve quality of sales. Currency-neutral and 13-weeks comparable comps declined 11% owing to calendar shifts of both Christmas and Easter holidays that hurt comps by 3 percentage points. Excluding this, Comps dipped 8%.

Licensing revenues rose 7% to $43 million on a reported basis.


Ralph Lauren's adjusted gross profit margins expanded 90 bps to 55.4% owing to enhanced quality of sales, favorable geographic and channel mix shifts, lower promotions and reduced product costs. However, the improvement was partly offset by foreign currency headwinds.

Adjusted operating income margin expanded 10 bps to 6.5%. Excluding the impact of 53rd week, operating margin expanded 60 bps. The year-over-year increase can mainly be attributed to gross margin expansion, partly negated by higher fixed expenses and 100 bps impact from currency.


Ralph Lauren ended fiscal 2017 with cash and investments of $1,353 million, total debt of $588 million and total shareholders’ equity of $3,299.6 million.

During the fiscal fourth quarter, the company bought back $100 million worth shares, bringing the year-to-date share repurchases to $200 million. This was in line with the guidance provided on Investor Day in Jun 2016.

Store Update

As of Apr 1, 2017, Ralph Lauren had 466 directly-operated stores and 619 concession shops globally. The directly-operated stores included 109 Ralph Lauren, 79 Club Monaco and 278 Polo factory stores.

Additionally, the company’s global licensing partners operated 105 Ralph Lauren stores and 59 Club Monaco stores, bringing the total number of licensed stores to 164. Additionally, the company had 99 licensed concession shops in operation.


Ralph Lauren provided outlook for first-quarter and fiscal 2018. The company expects fiscal first-quarter reported revenues to be down low-double digits, excluding currency impact. Operating margin for the fiscal first quarter is expected to be 9.5–10%. The company expects currency headwinds to reduce revenue growth by nearly 225 bps and operating margin rate by about 75 bps.

In fiscal 2018, the company is adopting the Accounting Standard Update (ASU) 2016-09 for the accounting of employee share-based payments, which was recently issued by the Financial Accounting Standards Board (FASB). This is likely to impact effective tax rate, with the first and second quarters bearing the maximum impacts. Consequently, effective tax rate for fiscal first-quarter is anticipated to be 33%.

For fiscal 2018, the company expects revenue to decline 8–9%, excluding currency. Operating margin is estimated to be 9–10.5% on a currency-neutral basis. Foreign currency is anticipated to pull down revenues by 150 bps and operating margins by 50–75 bps in fiscal 2018.

Excluding ASU 2016-09, fiscal 2018 tax rate is expected to be 25%. Based on the current share price, the adoption of ASU 2016-09 is expected to increase fiscal 2018 tax rate to 28%. Capital expenditures are estimated to be $300-320 million in fiscal 2018.

Ralph Lauren Corporation Price, Consensus and EPS Surprise


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

Zacks Rank

Currently, Ralph Lauren carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Tailored Brands Inc. TLRD, sporting a Zacks Rank #1 (Strong Buy), Gildan Activewear Inc. GIL and PVH Corp. TLYS, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tailored Brands, with a long-term earnings growth rate of 16.5%, has seen positive estimate revisions for the current fiscal in the last seven days.

Gildan Activewear has jumped 7.4% year to date. The stock has a long-term earnings growth rate of 12.3%.

PVH Corp. has gained 8% year to date. Moreover, it has a long-term earnings growth rate of 10.7%.

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