Why Has Ralph Lauren’s Stock Price Increased Over 14% In One Week?

Ralph Lauren (NYSE:RL) recently posted its second quarter results, wherein it posted an EPS of $1.90, beating the consensus estimates of $1.71 by $0.19. However, the company’s revenue and earnings were both down compared to the same period last year. In the earnings call, the company stated its progress on its turnaround plan, titled the Way Forward plan, designed to revitalize the core brand, and to be more in tune with the consumer.

See Our Complete Analysis For Ralph Lauren Here

The revenue growth for the company has fallen from a healthy 7% in FY 2014, to 2.2% in FY 2015, and further to a negative 2.8% in FY 2016, which ended in March. The main reasons for the company’s poor performance in recent times has been a result of a decline in department store sales, the rise of fast fashion retailers, and the company’s own out of date supply chain model. The company’s focus itself was diluted with numerous brands and a multitude of initiatives. This was recognized by CEO Larsson, who listed the steps being undertaken by the company to overcome such problems, which includes the closing down of its underperforming stores, rightsizing of the organization, streamlining the supply chain, and a greater focus on its three core brands – Polo, Ralph Lauren, and Lauren.

In this regard, the company has made an effort to improve the quality of sales by moderating discounting activities, tightening inventory buys, and the closure of another seven underperforming stores in the quarter. Such initiatives have resulted in a reduction in inventories by 15%. In the international markets, Ralph Lauren’s revenue increased 2% in the second quarter, driven by improving quality of sales, right-sizing of the inventory, and optimization of the store count. In Asia, over the last nine months, the company has closed 72 points of distribution which were deemed to have weakened the brand, while at the same time RL has also opened 159 new high-quality points of sale, at better locations, and with refreshed store environments. Reducing the length of sales periods and decreasing the depth of markdowns have resulted in the average unit retail prices to be up 10% in constant currency, and improved gross margins.

Another important step taken by the company in the quarter was to discontinue the Denim & Supply brand, in line with the company’s efforts to focus on its core brands. The company will now be able to address the denim market more effectively through its Polo brand. The company is also working towards cutting down on unproductive styles, leading to a massive reduction in the number of SKUs (Stock Keeping Units). For fall 2016, the company achieved a 10% reduction in SKUs, and remains on track to achieve an over 20% reduction for spring 2017. This will help the company to refocus its resources and creativity on its core brands. CEO Stefan Larsson also stated that the company expects to be halfway to its goal of a nine-month lead time by the end of the fiscal year, and 90% there by the end of the next fiscal year.

These efforts seem to have been appreciated by the investors, and a number of investment firms have also upped their target price on shares of Ralph Lauren. For Fiscal 2017, RL anticipates a low double digit decline in revenues, but an operating margin of 10%, which would be an estimated 380 basis points improvement. This would be a significant highlight for investors. Furthermore, the company’s gross margins are higher than the average levels for its peers. It is further aided by a strong balance sheet, with just $692 million of short and long-term debt and nearly $1.1 billion in cash and equivalents. Looking further into the future, Ralph Lauren is attempting to improve operating margins and EPS by FY 2018, and return to profitable sales growth by FY 2019.

Have more questions on Ralph Lauren? See the links below:

• Ralph Lauren’s Earnings Decline As It Moves Forward With Its Turnaround Plan
• Decline In Revenue To Continue For Ralph Lauren In The Second Quarter
• Ralph Lauren Is The Latest Brand To Jump On The See-Now, Buy-Now Bandwagon
• Ralph Lauren Q1 2017 Earnings: Company Beats Low Expectations
• How Will Ralph Lauren Perform In The First Quarter Of Its FY 2017?
• What Are The Main Facets Of Ralph Lauren’s Turnaround Plan?
• How Will Ralph Lauren Perform In 2016?
• How Has Ralph Lauren Performed In Terms Of Inventory Management?
• What Are The Challenges Facing Ralph Lauren?
• What Led To A Sudden Drop In Ralph Lauren’s Share Price?
• What Percentage Of Ralph Lauren’s Stock Price Can Be Attributed To Growth?
• Ralph Lauren Q4 And FY 2016 Earnings And Revenue Beat Expectations
• Why Have Ralph Lauren’s Licensing Revenues Been Declining In Recent Years?
• How Have The Number Of Ralph Lauren Stores Operated By The Company Changed Over The Past Five Years?
• Why Is The Online Market Place The Next Big Thing For Ralph Lauren?
• How Has Ralph Lauren Performed In Comparison To Its Peers?
• How Has Ralph Lauren’s Sales Breakdown According To Geographic Locations Changed Over The Past Five Years?
• How Will Ralph Lauren’s Retail Division Perform In The Next Five Years?
• How Did Just The Month Of February Make Ralph Lauren One Of The Worst Performing Companies, Amongst Its Peers?
• Why Did We Revise Our Price Estimate Of Ralph Lauren To $102?
• How Will Ralph Lauren’s Revenue And EBITDA Composition Change In The Next 3 Years?
• What Is Ralph Lauren’s Fundamental Value Based On Expected 2016 Results?
• Ralph Lauren: Year 2015 In Review

Notes: