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Here's Why Ralph Lauren (RL) is Poised for Earnings Beat in Q1

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Ralph Lauren Corporation (RL - Free Report) is expected to register growth in the top and bottom lines when it reports first-quarter fiscal 2022 numbers on Aug 3, before the opening bell. The Zacks Consensus Estimate for revenues is pegged at $1.22 billion, which indicates growth of 149.7% from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for earnings is pegged at 87 cents per share, which suggests growth of 147.8% from the year-ago quarter’s reported figure. The consensus mark for earnings has moved up by a penny in the past 30 days.

The apparel and lifestyle products company’s earnings beat the Zacks Consensus Estimate by 152.1% in the last reported quarter. Its earnings outpaced the Zacks Consensus Estimate by 47.4%, on average, in the trailing four quarters.

Ralph Lauren Corporation Price and EPS Surprise


Ralph Lauren Corporation Price and EPS Surprise

Ralph Lauren Corporation price-eps-surprise | Ralph Lauren Corporation Quote

Factors to Note

Ralph Lauren’s fiscal first quarter is expected to have benefited from continued strong performances across Europe and Asia regions, and brand strength. Accelerating digital capabilities, enhanced marketing efforts, cost-saving plans and a reduction in structural woes are also expected to have contributed to quarterly growth.

The company has been expanding digital and omnichannel capabilities through investments in mobile, omni-channel and fulfillment. The investments have been accretive to the company’s top line and margins in the past few quarters. Margins at its owned digital business have been robust and are likely to have been accretive within every region and to the total company margin rate.  Positive impacts of continued digital growth are expected to get reflected in the company’s fiscal first-quarter sales.

The to-be-reported quarter’s bottom line is expected to reflect benefits of improved operating margin and reduced costs. Positive regional and channel mix shifts along with enhanced AUR in all regions are expected to have boosted the margin rate. Growth in AUR is likely to have resulted from the combination of reduced promotional activity, improved full-price selling and price increases.

On the last reported quarter’s earnings call, management predicted first-quarter fiscal 2022 revenue growth of 140-150% on a constant-currency basis, including a favorable currency impact of 250 bps. The fiscal first-quarter view takes into account the operating performance of Club Monaco as the divestiture was scheduled for conclusion at the end of the first quarter. Operating margin is forecast to be 7-7.5%, with lower operating expenses more than offsetting dismal gross margins.

Although Ralph Lauren provided a robust operating margin view, it anticipates gross margin for first-quarter fiscal 2022 to decline 575 bps, owing to higher freight expenses in the quarter as well as the lapping of the last year’s one-time COVID mix benefits due to store closures. The company expects the highly volatile and inflationary input cost environment to continue throughout fiscal 2022.

Marketing expenses are expected to have been elevated in the fiscal first quarter, owing to the reactivation of in-person activities and high-impact digital campaigns and personalization. On the last reported quarter’s earnings call, management predicted that activities to support brand-building initiatives, digital activations and key events like the Olympics, the US Open and Wimbledon are likely to keep marketing expenses high throughout fiscal 2022.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Ralph Lauren this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ralph Lauren has a Zacks Rank #3 and an Earnings ESP of +2.89%.

Other Stocks Poised to Beat Earnings Estimates

Here are some more companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this reporting cycle.

Gildan Activewear, Inc. (GIL - Free Report) presently has an Earnings ESP of +1.41% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wolverine World Wide, Inc. (WWW - Free Report) currently has an Earnings ESP of +3.38% and a Zacks Rank #2.

Under Armour, Inc. (UAA - Free Report) presently has an Earnings ESP of +47.69% and a Zacks Rank #3.