Gaining 16% This Year, Will Ralph Lauren Stock Rally Further After Q4 Results?

-6.22%
Downside
186
Market
175
Trefis
RL: Ralph Lauren logo
RL
Ralph Lauren

Note: Ralph Lauren’s FY’24 ended March 30, 2024                    

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 fourth-quarter results on Thursday, May 23. We expect Ralph Lauren stock to likely see little to no movement with revenues coming ahead but 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 fourth quarter, foreign currency is expected to negatively impact revenue growth by approximately 160 basis points. In addition, the retailer’s operating margin for Q4 is expected to expand approximately 350 to 400 basis points in constant currency, driven largely by gross margin expansion. 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 seen extremely strong gains of 55% from levels of $105 in early January 2021 to around $166 now, vs. an increase of about 40% 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 TM, 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 $175 per share, which is almost in line with the current market price. Look at our interactive dashboard analysis on RL Earnings Preview: What To Expect in Q4 for more details.

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(1) Revenues to likely come in above the consensus estimates

Trefis estimates RL’s Q4 2024 revenues to be around $1.65 Bil, well above the consensus estimate. For its fiscal 2024 third quarter, the luxury retailer saw revenue grow 5.5% year-over-year (y-o-y) to $1.9 billion. Growth in Asia sales (+16%) alongside a rise in European sales (+11% y-o-y) helped to offset flat North American sales trends. It should be noted that RL’s inventory was down 15% from the prior year period to $1.1 billion, with planned declines in North America and Europe more than offsetting a slight increase in Asia to support growth initiatives. On the balance sheet, RL ended Q3 with roughly $1.1 billion in cash and short-term investments and around $1.9 billion in long-term debt. We now forecast Ralph Lauren’s Revenues to be $6.6 billion for the full year 2024, up 3% y-o-y.

2) EPS expected to be marginally below consensus estimates

RL’s Q4 2024 earnings per share (EPS) is expected to be $1.64 per Trefis analysis, slightly missing the consensus estimate. In Q3, the retailer reported earnings of $4.17 per share compared to $3.35 per share a year ago. Its adjusted gross margin improved 120 basis points from a year ago to land at 66.4% of sales in Q3 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 aligns with the current market price

Going by our Ralph Lauren’s Valuation, with an EPS estimate of around $10.25 and a P/E multiple of 17.1x in fiscal 2024, this translates into a price of $175, which is almost in line with 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 May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 RL Return 2% 16% 85%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 7% 7% 657%

[1] Returns as of 5/21/2024
[2] Cumulative total returns since the end of 2016

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