Ralph Lauren’s Stock Up 27% Over Last Six Months. What’s Next?

RL: Ralph Lauren logo
Ralph Lauren

Note: Ralph Lauren’s fiscal year 2022 ended on April 2, 2022.

After a 27% increase over the last six months, at the current price of around $113 per share, we believe Ralph Lauren’s stock (NYSE: RL), a company engaged in the design, marketing, and distribution of premium lifestyle products, including apparel, accessories, fragrances, and home furnishings, could see a further rise. RL stock has increased from around $89 to $113 in the last six months, outperforming the broader indices, with the S&P growing about 7% over the same period. Despite anxiety over a potential recession, soaring inflation, and increasing manufacturing and transport costs, Ralph Lauren has shown stable demand in past earnings updates in the fiscal year 2023. While foreign currency fluctuations could be a drag for RL on a short-term basis, the company’s stock could see a higher upside in the longer term.

In the first nine months of FY 2o23, Ralph Lauren’s revenues grew 4% year-over-year (y-o-y) to $4.9 billion. All the regions positively contributed to RL’s performances. The North American and European revenue increased by 3% and 5%, respectively. Also, operating profit in the first three quarters declined and the margin stood at 13.5% compared to the last year’s result of 16.2%. Consequently, the retailer’s net income fell 15% y-o-y to $490 million. 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 at 69 million (nine months ended on Dec 31), down from 75 million at the same point in fiscal 2022. In addition, to support its stock price development while investing in strategic growth initiatives, the company returned approximately $560 million in the form of dividends and share repurchases year-to-date.

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It is worth mentioning that RL’s inventory grew faster than sales in the recent third quarter. Ralph Lauren’s inventory level stood at $1.3 billion, up 33% in Q3 2023 compared to the prior year. This surge compares to just a 0.9% increase in third-quarter sales. Unlike Target or Walmart, the company mentioned that they deliberately shifted inventory receipts earlier to mitigate global supply chain disruptions as a precaution for the holidays. RL focuses on premium lifestyle products insulating them from the consumer demand shifts that other retailers have been witnessing in recent months. Thus, this subtly suggests that RL’s risky move of increasing inventory could be rewarded if consumers snap up the fall and winter products it has secured.

For the full year 2023, RL continues to expect constant currency revenues to increase by about 8% on a 52-week comparable basis. In addition, the gross margin is expected to be about flat in constant currency y-o-y, and an operating margin of approximately 13.5% to 14% in constant currency compared to its prior outlook of about 14%. Management also trimmed capital expenditure forecasts for the year to $240 million to $250 million, down from a prior guide of $290 to $310 million.

We have revised RL’s Valuation to $126 per share, based on an $8.09 expected EPS and a 15.5x P/E multiple for the fiscal year 2023 – almost 13% higher than the current market price. We forecast RL’s Revenues to be $6.4 billion for the fiscal year 2023, up 3% y-o-y. In light of rising interest rates and the threat of recession, the market at the moment is uncertain, but any decline in the company’s stock could be used as an opportunity to buy.

It is also helpful to see how its peers stack up. Check out how Ralph Lauren’s Peers fare on metrics that matter. You will find other valuable 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 Mar 2023
MTD [1]
YTD [1]
Total [2]
 RL Return -5% 7% 25%
 S&P 500 Return 0% 4% 78%
 Trefis Multi-Strategy Portfolio -3% 4% 228%

[1] Month-to-date and year-to-date as of 3/28/2023
[2] Cumulative total returns since the end of 2016

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