Ralph Lauren Stock To Trade Lower Post Fiscal Q3 Results?

Ralph Lauren (NYSE: RL), a company engaged in the design, marketing, and distribution of premium lifestyle products, including apparel, accessories, fragrances, and home furnishings, is scheduled to report its fiscal third-quarter results on Thursday, February 4. We expect Ralph Lauren to trade lower due to weak fiscal Q3 2021 results with revenues as well as earnings missing consensus. While the digital transition and cost-cutting initiatives are looking good for the upscale retailer’s margins, the top-line declines remain a key issue in the near term.

Our forecast indicates that Ralph Lauren’s valuation is around $99 a share, which is 2% lower than the current market price of around $101. Look at our interactive dashboard analysis on Ralph Lauren’s Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be below consensus estimates

Trefis estimates RL’s Q3 2021 revenues to be around $1.30 Bil, 12% below the consensus estimate of $1.47 Bil. In the fiscal first half of 2021, the company’s revenues declined 46% year-over-year (y-o-y). By geography, North America led the decline at -56% y-o-y, Europe at -43% y-o-y, and Asia at -21% y-o-y. However, the company saw improvement through digital channels, as digital comparable sales grew 12% during the fiscal first half, whereas store comp sales declined 49%. Going forward, we expect longer-term traffic declines across malls, along with continued challenges in the North American wholesale channel to continue to pressure Ralph Lauren’s revenues in the upcoming Q3.

2) EPS also likely to be below consensus estimates

RL’s Q3 2021 earnings per share (EPS) is expected to be $1.39 per Trefis analysis, almost 16% below the consensus estimate of $1.65. It should be noted that a higher percentage of sales in digital hurts the company’s bottom line as it still has to pay for its under-utilized retail locations along with the added cost of shipping online.

For the full-year, we expect Ralph Lauren’s net margin to decline 320 basis points y-o-y to 3.0% in fiscal 2021. This coupled with a 24% y-o-y fall in Ralph Lauren’s revenues, could lead to a decline of almost $250 million y-o-y in net income to $136 million in fiscal 2021. This could result in a possible EPS slip from $4.98 in FY 2020 to around $1.76 in FY 2021 (year ending Feb 2021).

(3) Stock price estimate lower than the current market price

Going by our Ralph Lauren’s Valuation, with an EPS estimate of around $1.76 and P/E multiple of 56x in fiscal 2021, this translates into a price of $99, which is 2% lower than the current market price of around $101.

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Earnings for the full year

While RL stock may not be attractive now, 2020 has created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Amazon vs Etsy. 

See all Trefis Price Estimates and Download Trefis Data here

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