Ralph Lauren (RL - Free Report) is a Zacks Rank #5 (Strong Sell) that is a major designer, marketer and distributor of premium lifestyle products. The company offers apparel, accessories and home products and sells its products in department stores, specialty stores, golf shops, retail stores and digital commerce sites.
The company has obviously been hurt by the lockdowns and closing of the stores it sells its products in. While the company operates online, the foot traffic in stores is what drives overall revenues. The question investors have is how will the company bounce back when economies reopen.
In mid-march the company was forced to close all of its stores in North America.
At the end of March, the company gave investors their plans on how they will survive the pandemic and store closings. They decided to draw down on $475 million from their credit facility, halted share repurchase and reduced cap-ex. They essentially raised some cash and halted all their plans.
At the beginning of April, Moody’s and S&P cut the company’s outlook to negative from stable.
Earnings and Estimates
Obviously, traders were expecting a bad number from RL this week when they reported EPS. However, things came in much worse than expected.
The company reported Q4 of -$0.68 vs the -$0.05 expected and revenues missed. RL also suspended its outlook and dividend. On the positive side, the company reopened 2/3rds of the stores in Europe and half in North America. However, there will be higher costs to put in social distancing measures and we don’t know how quickly the customers will walk through the doors when allowed.
Estimates have been plummeting due to the pandemic. Over the last 90 days, we have seen the current year fall from $8.64 to $4.02, a drop of 53%.
The chart has shown strong support at the $60 level and the stock is up about 30% from 2020 lows. Current levels around $80 a share are above both the 50 and 21-day moving averages, but below the 200-day at $96. Considering the fundamental view, it will be challenging to get up to the 200-day and I would look for those levels below to be tested again.
There are plenty of better stocks to choose from that are working, so why buy one that has cut its dividend and reduced its outlook drastically. Ralph Lauren, as well as many other retail specialty stocks, will have to prove themselves post-COVID before investors will pile in.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>