Ralph Lauren (RL) Q2 Earnings & Revenues Surpass Estimates
Ralph Lauren Corporation RL has posted impressive second-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Results have gained from robust demand and brand strength. The company has been on track with its Next Great Chapter: Accelerate plan.
RL has reported adjusted earnings per share of $2.10 for the fiscal second quarter, surpassing the Zacks Consensus Estimate of $1.92. However, the bottom line fell 5.8% year over year from $2.23 in the year-ago quarter.
Net revenues grew 3% year over year to $1,633 million and beat the Zacks Consensus Estimate of $1,609 million. On a constant-currency (cc) basis, revenues were up 2% from the prior-year quarter. The top line witnessed the positive impacts of 170 basis points (bps) from foreign currency rates. Also, the top line witnessed growth across all regions, driven by brand strength, pricing efforts and continued strategic investments.
Shares of this Zacks Rank #3 (Hold) company have gained 8.9% year to date against the industry’s 0.7% decline.
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Segmental Details
North America: In the fiscal second quarter, the segment’s revenues declined 1% from the year-ago quarter to $718 million and came ahead of our estimate of $688.1 million. Comparable store sales (comps) for North America’s retail channel rose 4% year over year, wherein the same for brick-and-mortar stores moved up 4%, while digital commerce decreased 4%. Revenues from the North America wholesale business decreased 7% year over year.
Europe: The segment’s revenues rose 7% year over year to $527 million, while it remained flat on currency-neutral revenues. The metric lagged our estimate of $542.9 million. Comps for the retail channel in Europe were up 6%, whereas brick-and-mortar stores grew 5% year over year and digital sales witnessed a 14% rise. Revenues for the segment’s wholesale business were flat on a reported basis, while it fell 7% at cc.
Asia: The segment’s revenues increased 10% year over year to $348 million on a reported basis and 13% on a currency-neutral basis. The metric beat our estimate of $335.4 million. Comps in Asia were up 8%, backed by 7% growth in brick-and-mortar stores and a 19% increase in the digital business.
Margins
Ralph Lauren's adjusted gross profit margin expanded 80 bps year over year on a reported basis and on a cc basis to 65.4%. This was mainly driven by solid AUR growth across all regions, a favorable channel and geographic mix, and reduced freight, which more than offset continued pressure from raw material costs.
Adjusted operating expenses rose 11% from the year-ago period to $897 million in the fiscal second quarter, driven by higher compensation, and rent & occupancy costs, and higher digital and marketing investments. Adjusted operating expenses, as a percentage of sales, expanded 370 bps to 54.9% in the reported quarter.
The company’s adjusted operating income was $172 million, down 18.8% year over year. The adjusted operating margin contracted 290 bps year over year to 10.5%.
Financials
Ralph Lauren ended the quarter with cash and short-term investments of $1,466.9 million, a total debt of $1,139.5 million and total shareholders’ equity of $2,369.2 million. Inventory grew 11.6% year over year to $1,195.3 million.
The company repurchased Class A shares for about $125 million in the fiscal second quarter.
As of Sep 30, 2023, capital expenditure was $82.4 million. Management expects a capital expenditure of $250 million for fiscal 2024.
Store Update
As of Sep 30, 2023, Ralph Lauren had 564 directly operated stores and 710 concession shops globally. The directly operated stores included 221 Ralph Lauren and 343 Polo factory stores. The company operated 194 licensed stores globally as of the same date.
Ralph Lauren Corporation Price, Consensus and EPS Surprise
Ralph Lauren Corporation price-consensus-eps-surprise-chart | Ralph Lauren Corporation Quote
Outlook
For fiscal 2024, RL anticipates year-over-year revenue growth (cc) in the low-single digits. This includes 50 bps of negative impacts of currency. The company is concerned about the wholesale channel.
The gross margin is forecast to expand 120-170 bps, up from the prior mentioned 100 bps on a constant-currency basis, driven by solid AUR, a favorable channel and geographic mix, and lower freight costs, which more than offset continued product cost inflation. The metric includes 30 bps of adverse impacts of foreign currency. The operating margin is predicted to expand 30-50 bps to 12.3-12.5% on the back of gross margin expansion, partly offset by adverse currency impacts of 10 bps. The fiscal 2024 tax rate is likely to be 22-23% compared with the previously stated 23-24%.
For the fiscal third quarter, the company anticipated revenue growth of 1-2% on a constant-currency basis. This includes approximately 30 basis points of negative foreign currency impact.
The operating margin is predicted to be flat on a constant-currency basis, including 10 bps positive impact of foreign currency. The gross margin is expected to expand 100-150 bps, which will more than offset higher operating expenses. The metric is likely to witness 20 bps of adverse currency impacts. Also, the tax rate is estimated to be 23-24%.
Stocks to Consider
Some better-ranked companies are MGM Resorts MGM, Guess GES and lululemon athletica LULU.
Guess currently sports a Zacks Rank of 1 (Strong Buy). GES has a trailing four-quarter earnings surprise of 43.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GES’ fiscal 2023 sales and EPS implies improvements of 3.4% and 9.9%, respectively, from the year-ago period’s reported levels.
MGM Resorts currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 81%, on average.
The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates year-over-year increases of 2.2% and 31%, respectively.
lululemon athletica, a yoga-inspired athletic apparel company, currently carries a Zacks Rank of 2 at present. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 17% and 18.4%, respectively, from the year-ago reported figures.
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Ralph Lauren Corporation (RL) : Free Stock Analysis Report
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