What To Expect From Ralph Lauren’s Q3 After Stock Up 40% Since 2023?

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RL: Ralph Lauren logo
RL
Ralph Lauren

Note: Ralph Lauren’s FY’23 ended on April 1, 2023                    

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 8. We expect Ralph Lauren stock to likely trade lower with both revenues and earnings missing expectations marginally. For Fiscal 2024, the company continues to expect revenues to increase approximately low single-digits compared to last year. For the third quarter, the company expects revenue to be up approximately 1% to 2% from last year in constant currency. Foreign currency is expected to negatively impact revenue growth by approximately 30 basis points. In addition, the retailer’s operating margin for Q3 is expected to be roughly flat in constant currency, with about 10 basis points of foreign currency benefit. 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.

RL stock has shown strong gains of 40% from levels of $105 in early January 2021 to around current levels, vs. an increase of about 30% for the S&P 500 over this roughly 3-year period. However, the increase in RL stock has been far from consistent. Returns for the stock were 15% in 2021, -11% in 2022, and 36% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that RL underperformed the S&P in 2021. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could RL face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that RL’s valuation is $137 per share, which is 7% lower than the current market price. Look at our interactive dashboard analysis on RL Earnings Preview: What To Expect in Q3 for more details.

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(1) Revenues to be slightly below the consensus estimates

Trefis estimates RL’s Q3 2024 revenues to be around $1.85 Bil, marginally below the consensus estimate. For its fiscal 2024 second quarter, the luxury retailer saw revenue grow 3% year-over-year (y-o-y) to $1.6 billion. Growth in Asia Pacific sales alongside a rise in European sales helped to offset declining North American sales trends. It should be noted that RL’s inventory rose to $1.2 billion, up only 1% from the prior year period, due to increases in Asia and Europe to support growth initiatives largely offset by a decline in North America. On the balance sheet, RL ended Q2 with roughly $1.4 billion in cash and short-term investments and around $1.1 billion in long-term debt. We now forecast Ralph Lauren’s Revenues to be $6.6 billion for the full year 2024, up 2% y-o-y.

2) EPS expected to be marginally below consensus estimates

RL’s Q3 2024 earnings per share (EPS) is expected to be $3.51 per Trefis analysis, slightly missing the consensus estimate. In Q2, the retailer reported net income of $147 million or $2.19 per share compared to $2.18 per share a year ago. Its adjusted gross margin improved 80 basis points from a year ago to land at 65.4% of sales in Q2 2024. The company’s margins were driven higher by strong average unit retail growth across all regions, lower freight, and favorable channel and geographic mix shifts, more than offsetting continued pressure from raw material costs.

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

Going by our Ralph Lauren’s Valuation, with an EPS estimate of around $9.38 and a P/E multiple of 14.7x in fiscal 2024, this translates into a price of $137, which is 7% 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.

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 RL Return 3% 40% 63%
 S&P 500 Return 2% 29% 121%
 Trefis Reinforced Value Portfolio 0% 38% 608%

[1] Returns as of 2/5/2024
[2] Cumulative total returns since the end of 2016

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