VALUATION HIGHLIGHTS

1. North America constitutes 38% of the Trefis price estimate for Ralph Lauren's stock.
2. Europe constitutes 32% of the Trefis price estimate for Ralph Lauren's stock.
3. Asia constitutes 24% of the Trefis price estimate for Ralph Lauren's stock.

WHAT HAS CHANGED?

1. Ralph Lauren Q2 Snapshot

In its second quarter, Ralph Lauren posted adjusted earnings of about $3.79 per share, ahead of expectations, on revenue of roughly $2.0 billion, representing mid-to-high-teens year-over-year growth. Performance was broad-based, with double-digit growth across North America, Europe, and Asia, supported by strong full-price selling and healthy demand in its direct-to-consumer channel. Importantly, margins expanded as higher average unit retail prices and favorable mix more than offset cost pressures, leading management to raise its full-year outlook and signal confidence in sustained brand strength and profitability.

Note: Ralph Lauren's FY'25 ended on March 29, 2025. Q2 FY'26 refers to the quarter that ended on September 27, 2025.

2. Looking Ahead

For the full fiscal year, the company now expects constant-currency revenue to grow about 5%–7%, up from an earlier low-to-mid single-digit outlook, driven by strong first-half performance and broad global demand. Operating margins are projected to expand roughly 60–80 basis points in constant currency as a result of expense leverage and disciplined pricing, with gross margin also expected to see modest improvement despite tariff and cost pressures.

For the upcoming quarter Q3, Ralph Lauren anticipates mid-single digit revenue growth and continued margin expansion. Management has also emphasized a three-year strategic plan under its “Next Great Chapter: Drive” initiative, which targets a mid-single-digit CAGR in revenues through fiscal 2028, roughly 100–150 bps of operating margin expansion, disciplined capital expenditures (about 4–5% of revenue annually), and returning at least $2 billion of excess free cash flow to shareholders via dividends and buybacks over that period.

BUSINESS SUMMARY

Ralph Lauren is a global leader in the design, marketing, and distribution of premium lifestyle products. Its products include apparel, accessories, and fragrance collections for men and women, as well as children's wear and home furnishings. The company's brands, such as Ralph Lauren, Club Monaco, and Polo, are some of the world's most widely recognized consumer brands.

The company offers a broad spectrum of lifestyle products that include:

1. Apparel: Products include men's, women's, and children's clothing
2. Accessories: Products encompass a broad range, including footwear, eyewear, watches, jewelry, hats, belts, wallets, sleepwear, and leather goods, including handbags and luggage
3. Home: Coordinated products for the home that include bedding and bath products, furniture, fabric, rugs, lighting, barware, wallpaper, paint, tabletop, and giftware
4. Fragrance: Fragrance products are sold under Romance, Polo, Lauren, Safari, Ralph, and Black Label brands, among others.

The company sells its products through company-operated retail stores and its website ralphlauren.com, as well as through upscale and mid-tier department stores and specialty stores.

SOURCES OF VALUE

We believe Ralph Lauren's North American and European divisions are significant sources of value for Ralph Lauren for the following reasons:

Margin Opportunity

Ralph Lauren has meaningfully reduced its reliance on department stores, following a multi-year strategy that involved exiting roughly 20%–25% of lower-quality wholesale doors. Rather than pursuing further large-scale exits, the company is now focused on maintaining a smaller, more selective department-store presence that supports brand elevation, full-price selling, and margin expansion.

Increasing Revenue Share Of Retail business

Over the past few years, Ralph Lauren has focused on increasing its direct-to-consumer reach to gain greater control over its brands and operations. As such, the firm has expanded its store base and increased the products and services offered on its online store. This is Ralph Lauren's response to the ongoing e-commerce boom in the apparel industry.

The result has been a consistent increase in the share of revenues coming from Ralph Lauren's company-operated stores and the firm's e-commerce websites.

KEY TRENDS

Ralph Lauren Has a Strong Brand Identity

Ralph Lauren's greatest competitive advantage has been its ability to maintain the strength of its brand for the past twenty years. While many fashion companies have struggled to retain customers with changing fashion trends, Ralph Lauren's brand has not only remained strong but has also expanded its brand to other products and geographies. The company's products are popular among all age groups.

Another advantage of Ralph Lauren is its broad consumer appeal. The company offers products across a wide range of price points from discounts (Chaps) to luxury (Ralph Lauren Collection), enabling it to appeal to a wide target demographic.

Weak Macroeconomic Conditions in Europe are a Near-Term Threat

Current weak macroeconomic conditions in Europe, particularly in Spain, Greece, and Portugal, pose a threat to Ralph Lauren's revenues in the near term. Ralph Lauren's wholesale business is most vulnerable to the situation, as Europe accounts for a significant percentage of the company's total wholesale revenues.

Expansion in Asia Should Help Sustain Growth

Ralph Lauren has been focusing on expanding retail operations in emerging markets, especially in Asia. The Asian market has become a focal point of the global retail industry, with major global brands aggressively expanding their footprint in the region.

In FY 2025, Ralph Lauren's store presence in Asia was stronger than that in Europe. Compared to 104 Ralph Lauren freestanding stores in Europe, there were 237 freestanding stores in Asia. However, the number of wholesale distribution channels in Asia is still minuscule compared to that in North America and Europe (850 vs. 3,000 in North America and 5,600 in Europe). Going forward, there is tremendous scope for the company to expand its presence in wholesale stores in Asia.