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Ralph Lauren's (RL) Q4 Earnings & Revenues Beat Estimates

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Ralph Lauren Corp. RL has reported fourth-quarter fiscal 2021 results, wherein the top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. Results gained from solid performance across Europe and Asia regions and brand strength. Also, accelerating digital capabilities, enhanced marketing efforts, cost-savings plans and reducing structural woes contributed to quarterly growth.

Despite impressive results, shares of this apparel and footwear retailer fell more than 3% before the trading session on May 20. However, shares of this Zacks Rank #1 (Strong Buy) company have gained 17.9% year to date, outperforming the industry’s growth of 7.9%.

Q4 in Detail

Ralph Lauren reported adjusted earnings per share of 38 cents in the fiscal fourth quarter, surpassing the Zacks Consensus Estimate of a loss of 73 cents. However, the bottom line came ahead of a loss of 68 cents reported in the prior-year quarter.

Net revenues inched up 1% year over year to $1,287 million and exceeded the Zacks Consensus Estimate of $1,210 million. On a constant-currency basis, revenues were down 3% from the prior-year quarter. The uptick was attributable to growth across regions in Asia and Europe. Meanwhile, the top line reflected gains of 370 basis points (bps) from favorable currency.

Apart from these, the strong momentum in digital business continued, recording 52% growth in digital revenues across all regions and in both owned and wholesale digital channels.

Segment Details

North America: During the fiscal fourth quarter, the segment’s revenues declined 10% from the year-ago quarter to $569 million. The retail channel in the region witnessed a rise of 3% in comparable store sales (comps), including a 25% rise in digital commerce, partly offset by a 2% decrease in brick-and-mortar stores. Revenues from the North American wholesale business plunged 22% from the prior-year period.

Europe: The segment’s revenues grew 5% year over year to $370 million, with a 4% decline in currency-neutral revenues. Comps at retail stores in Europe declined 45% due to a 65% decrease in brick-and-mortar stores, somewhat offset by 79% growth in digital sales. Revenues for the segment’s wholesale business surged 41% on a reported basis and 29% at constant currency.

Asia: The segment’s revenues advanced 35% year over year to $289 million on a reported basis and 28% on a currency-neutral basis. Comps in Asia were up 23%, backed by a 21% rise in brick-and-mortar stores and a 59% increase in the digital business.

Margins

Ralph Lauren's adjusted gross profit margin expanded 380 bps to 62.9%, driven by positive regional and channel mix shifts along with enhanced AUR in all regions. Also, currency movements to the tune of 80 basis points (bps) contributed to margin growth.

Adjusted operating expenses declined 4% from the year-ago period to $765 million in the fiscal fourth quarter. The decline can be attributable to savings from compensation-related expenses, rent and occupancy, and other discretionary expenses. Adjusted operating expenses, as a percentage of sales, decreased 300 bps to 59.5%.

Further, the company reported an adjusted operating income of $44 million, as compared to a loss of $43 million in the year-ago quarter.

Financials

Ralph Lauren ended the quarter with cash and short-term investments of $2,579 million, total debt of $1,632.9 million and total shareholders’ equity of $2,604.4 million. Inventory at the end of fiscal 2021 grew 3% year over year to $759 million. Capital expenditure for fiscal 2021 came in at $108 million and is likely to be nearly $250-$275 million during fiscal 2022.

In another development, the company resumed dividend payments, which were suspended earlier due to the pandemic. Notably, the board approved a quarterly dividend of 68.75 cents to be payable on Jul 9, 2021, as of shareholders’ record on Jun 25.

Store Update

As of Mar 27, 2021, Ralph Lauren had 548 directly-operated stores and 650 concession shops globally. The directly-operated stores included 151 Ralph Lauren, 72 Club Monaco and 325 Polo factory stores. Additionally, the company operated 282 licensed stores globally.

Strategic Realignment Plan

Previously announced actions related to the Fiscal 2021 Strategic Realignment Plan included a reduction of the company's global workforce in fiscal 2021, transitioning the Chaps brand to a fully licensed business model, and the shutting down of its Polo store in London. Going ahead, management plans to further consolidate its global corporate offices to better align with its current organizational profile.

Further, the company identified about 10 stores for potential closures in fiscal 2022. It also expects to consolidate its existing North America distribution centers to drive greater efficiencies, improve sustainability and enhance the customer experience.

As per the Next Great Chapter elevation plan, the company on May 13 entered a deal to sell Club Monaco to Regent, in a bid to focus on its core brands.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

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

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

Outlook

Driven by solid fourth-quarter fiscal 2021 results, management issued an upbeat fiscal 2022 view. The company anticipates revenue growth of nearly 20-25%, on a cc basis. Although the 53rd week in fiscal 2022 is likely to aid the top line by roughly 140 bps, currency headwinds to the tune of 50-70 bps remain a drag. Further, fiscal 2022 operating margin is likely to rise 620 bps to 11% while gross margin is expected to decline 40-60 bps.

For first-quarter fiscal 2022, it envisions revenue growth of approximately 140-150% on a cc basis, driven by a favorable currency impact of nearly 250 bps. The guidance includes lockdowns and other COIVD-related restrictions across few regions such as Europe and Japan. Also, any extension of these restrictions or additional measures might affect quarterly growth.

Apart from these, the fiscal first-quarter view takes into account the operating performance of Club Monaco as the divestiture is likely to be concluded by the end of the said quarter. Moving on, operating margin is forecasted to be 7-7.5% with lower operating expenses more than offsetting dismal gross margins. Notably, gross margin is projected to contract roughly 575 bps year over year.

Other Stocks to Consider

Crocs, Inc. CROX, a Zacks Rank #1 stock at present, has an impressive long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gildan Activewear GIL has a long-term earnings growth rate of 28.6% and currently, a Zacks Rank #1.

Columbia Sportswear Co. COLM has a long-term earnings growth rate of 32% and presently, a Zacks Rank #2 (Buy).

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