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Can Ralph Lauren's (RL) Strategies Help Gain Lost Momentum?

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Premium lifestyle retailer, Ralph Lauren Corp. (RL - Free Report) seems to be losing sheen due to the soft outlook and the departure of CEO and President, Stefan Larsson. The conflict between Stefan and the company’s Executive Chairman and Chief Creative Officer, Ralph Lauren, on the development of creative and consumer-facing parts of the business led to the decision.

The impact of these developments is evident from the stock’s bearish run year to date. Shares of Ralph Lauren have declined 9.9% year to date, wider than the Zacks Categorized Textile–Apparel industry’s fall of 6.4%.



Further, the company’s estimates have declined in the last 30 days. The Zacks Consensus Estimate for fiscal 2017 fell by 2 cents to $5.62 per share while estimate for fiscal 2018 declined by 4 cents to $5.14 per share. Further, the current Zacks Consensus Estimate of 79 cents per share for the fourth quarter fiscal 2017 reflects 9.8% decline from the prior-year quarter. Analysts polled by Zacks expect revenues of $1.59 billion for the fiscal fourth quarter, reflecting nearly 14.9% fall from the year-ago quarter.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

 

Ralph Lauren Corporation Price, Consensus and EPS Surprise | Ralph Lauren Corporation Quote

Let’s Find Out Why

Though the company’s third-quarter fiscal 2017 earnings marked its eighth consecutive beat, both the top line and bottom line declined year over year. Moreover, the company reiterated the dismal fiscal 2017 guidance and provided a bleak outlook for the fourth quarter. Apart from adverse currency headwinds, revenue growth for both periods is anticipated to be impacted by the company’s actions to improve the quality of sales, lowered inventory buys, store closures, price management and other initiatives.

Further, sales calculations for the fiscal fourth quarter will be impacted by the inclusion of an additional 53rd week in fourth-quarter fiscal 2016. Moreover, the company’s margins are expected to bear impacts from rise in new store expenses, negative currency impacts, infrastructure investments and fixed expense deleverage, mitigated by synergies from cost-saving actions.

Additionally, the company estimates currency headwinds to reduce revenue growth by nearly 100 basis points (bps) and gross margin rate by about 70 bps in the fiscal fourth quarter. Also, currency headwinds will constitute nearly 100 bps impact on fourth-quarter operating margin.

Is There a Ray of Hope?

However, Ralph Lauren remains on track with its Way Forward Plan that was announced in Jun 2016. In a nutshell, the plan is all about refocusing on the core business, strengthening the brands and returning the company to profitable growth in the long term. Ralph Lauren targets generating annualized cost savings worth $180–$220 million, on the back of fiscal 2017 restructuring activities.

While the company’s outlook is disappointing, we remain confident of the company’s solid brand portfolio and healthy financial status, which along with these constant growth initiatives should drive long-term profitability.

Zacks Rank & Key Picks

Ralph Lauren currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same industry is Coach Inc. carrying a Zacks Rank #2 (Buy). Other well-ranked stocks in the broader consumer discretionary sector include Masonite International Corporation (DOOR - Free Report) and SodaStream International Ltd. , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Coach, with a long-term EPS growth rate of 10.6%, has witnessed a solid 16% growth year to date.

Masonite International has an average positive earnings surprise of 18.1% in the trailing four quarters. Moreover, the stock has jumped 19.2% year to date.

SodaStream has a long-term EPS growth rate of 7.5%. Further, shares of the company have gained solid 29.4% year to date.

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