Will Ralph Lauren Stock Trade Lower Post Fiscal Q3?

RL: Ralph Lauren logo
Ralph Lauren

Note: Ralph Lauren’s FY’22 ended on April 2, 2022

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 9. We expect Ralph Lauren stock to likely trade lower with both revenues and earnings missing expectations marginally. We expect soaring inflation and increasing manufacturing and transport costs to continue to negatively impact the company’s bottom line in Q3. That said, almost 40% of Ralph Lauren’s production takes place in China and Vietnam – which could lead to costs rising over the coming quarters as well.

But still, Ralph Lauren backed guidance for high single-digit growth in FY’23 from the prior year despite a whopping 730 basis point negative impact from currency fluctuations. The gross margin is still expected to increase by approximately 30 to 50 basis points despite persistent inflationary effects. The company also set long-term sales and margin growth and presented a strategic growth plan titled “Next Great Chapter: Accelerate.” The company’s three-year financial outlook projects mid-to-high single-digit revenue compounded annual growth.

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Our forecast indicates that RL’s valuation is $115 per share, which is 6% lower than the current market price. Look at our interactive dashboard analysis on RL Earnings Preview: What To Expect in Q4? for more details.

(1) Revenues to be slightly below the consensus estimates

Trefis estimates RL’s Q3 2023 revenues to be around $1.7 Bil, marginally below the consensus estimate. For its fiscal 2023 second quarter, the luxury retailer saw revenue grow 5% year-over-year (y-o-y) to $1.6 billion. A  strong rebound in Asia Pacific sales alongside a modest rise in North American revenue helped to offset flat European sales trends. It should be noted that RL’s inventory rose to $1.3 billion, up 36% from the prior year period, due to higher increases in goods-in-transit as part of RL’s efforts to mitigate global supply chain delays and meet strong consumer demand along with continued elevation in product mix. We now forecast Ralph Lauren’s Revenues to be $6.3 billion for the full year 2023, up 0.9% y-o-y.

2) EPS expected to marginally miss consensus estimates

RL’s Q3 2023 earnings per share (EPS) is expected to be $2.87 per Trefis analysis, slightly missing the consensus estimate. In Q2, the retailer reported adjusted earnings per share of $2.23, down 15% y-o-y. Trying to offset the effect of lower net income as a result of increased expenses, the company has been buying back shares. That’s something that peers have been doing as well. Ralph Lauren’s share count ended fiscal Q2 at 69 million, down from 75.3 million at the same point in fiscal 2022.

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

Going by our Ralph Lauren’s Valuation, with an EPS estimate of around $7.74 and a P/E multiple of 14.9x in fiscal 2023, this translates into a price of $115, which is 6% lower than the current market price.

It is helpful to see how its peers stack up. RL Peers shows how Ralph Lauren compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.
Returns Feb 2023
MTD [1]
YTD [1]
Total [2]
 RL Return -1% 16% 35%
 S&P 500 Return 2% 8% 86%
 Trefis Multi-Strategy Portfolio 3% 14% 260%

[1] Month-to-date and year-to-date as of 2/8/2023
[2] Cumulative total returns since the end of 2016

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