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Ralph Lauren (RL) Tops on Q2 Earnings & Revenues, Ups View
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Ralph Lauren Corp. (RL - Free Report) has posted solid second-quarter fiscal 2022 results, wherein the top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. Results gained from solid performance across all regions, mainly Europe and North America. The Asia region also contributed to quarterly growth, driven by strength in China and Korea, which more than offset the COVID-19 impacts in Japan. Robust performance in casual bottoms, sweaters and fleece along with high potential in underdeveloped categories, particularly denim, accessories and home bode well. Encouragingly, management raised the fiscal 2022 top-line view.
Shares of this Zacks Rank #3 (Hold) company have gained 22.4% year to date compared with the industry’s growth of 21.2%.
Q2 Highlights
Ralph Lauren has reported adjusted earnings per share of $2.62 in the fiscal second quarter, surpassing the Zacks Consensus Estimate of $1.99. The bottom line surged 81.9% from the prior-year quarter’s figure of $1.44.
Net revenues grew 26% year over year to $1,504.1 million and beat the Zacks Consensus Estimate of $1,462 million. On a constant-currency basis, revenues were up 25% from the prior-year quarter. The uptick was attributable to double-digit growth across all regions. The top line also reflected gains of 100 basis points (bps) from favorable currency.
Even as people are returning to physical stores, the global digital business continued to witness growth of 45%, while owned digital e-commerce rose more than 35% year over year.
Image Source: Zacks Investment Research
Segmental Details
North America: In the fiscal second quarter, the segment’s revenues advanced 30% from the year-ago quarter to $703 million. The retail channel in the region witnessed 31% growth in comparable store sales (comps), including a 32% rise in digital commerce and a 31% increase in brick-and-mortar stores. Revenues from the North America wholesale business grew 23% year over year.
Europe: The segment’s revenues grew 38% year over year to $496 million, with a 36% rise in currency-neutral revenues. Comps at retail stores in Europe rose 27%, owing to a 28% increase in brick-and-mortar stores and 24% growth in digital sales. Revenues for the segment’s wholesale business rallied 44% on a reported basis and 42% at constant currency.
Asia: The segment’s revenues increased 14% year over year to $270 million on a reported and 13% on a currency-neutral basis. Comps in Asia were up 7%, backed by a 4% rise in brick-and-mortar stores and a 69% surge in the digital business.
Margins
Ralph Lauren's adjusted gross profit margin expanded 80 bps year over year to 67.3%. The same expanded 50 bps on a constant-currency basis. The uptick can be attributable to improved pricing and promotions along with better product mix, which more than offset higher freight costs and unusual COVID-19 mix benefits. The metric also expanded 580 bps from second-quarter fiscal 2020, owing to solid AUR growth.
Adjusted operating expenses increased 17% from the year-ago period to $755 million in the fiscal second quarter, driven by compensation and higher marketing investments. Adjusted operating expenses, as a percentage of sales, decreased from 53.9% to 50.2% in the reported quarter.
The company reported an adjusted operating income of $256.6 million skyrocketed more than 70% from $150.9 million in the year-ago quarter. The adjusted operating margin expanded 450 bps year over year to 17.1%.
Financials
Ralph Lauren ended the quarter with cash and short-term investments of $3,061 million, total debt of $1,135.5 million, and total shareholders’ equity of $2,862.8 million. Inventory at the end of the quarter grew 4.6% year over year to $928.2 million. Capital expenditure for the six months ended Sep 25, 2021, was $63.4 million. In the quarter, the board approved a quarterly dividend of 68.75 cents. Management also noted that it is likely to resume share-repurchase activities from the second half of fiscal 2022.
Store Update
As of Sep 25, 2021, Ralph Lauren had 493 directly operated stores and 658 concession shops globally. The directly operated stores included 164 Ralph Lauren and 329 Polo factory stores. The company operated 141 licensed stores globally.
Ralph Lauren Corporation Price, Consensus and EPS Surprise
Despite the ongoing uncertainty related to COVID-19, the potential for further outbreaks in several regions and global supply-chain disruptions, management raised its fiscal 2022 view on impressive quarterly results and signs of recovery across all markets.
The company expects constant-currency revenues to grow 34-36%, up from the earlier mentioned 25-30%. Favorable currency is likely to hurt the top line by 20 bps. The operating margin is anticipated to be 12-12.5% compared to 4.8% and 10.3% reported in fiscal 2021 and 2020, respectively. The gross margin is still envisioned to expand 50-70 bps, driven by average unit retail growth and positive product mix, which more than offset higher freight costs. Operating expenses are likely to be higher in the second half of fiscal 2022 due to increased marketing and other investments.
For third-quarter fiscal 2022, revenues are anticipated to rise 14-16% year over year at constant currency, with a favorable currency impact of 140 basis points. The operating margin is forecast to be 13-13.5%, with a slight expansion in the gross margin. This is mainly due to the shift in the timing of investment from the fiscal second quarter to the third, higher freight costs, normalizing channel mix shift, and foreign-currency headwinds of 30 bps.
Business Developments
In the fiscal second quarter, the company, in association with Zepeto, launched its first digital apparel collection. It also introduced the exclusive Next Generation-focused capsules for Urban Outfitters (URBN - Free Report) and ASOS as well as a new Ralph's Club fragrance.
Moving on, Ralph Lauren started its second digital-forward Emblematic retail concept in Shanghai. It also completed the transition of Chaps to a licensed business, thus, concluding its portfolio realignment announced last year. The move will likely enable it to focus on its core brands as part of the Next Great Chapter elevation strategy.
Image: Bigstock
Ralph Lauren (RL) Tops on Q2 Earnings & Revenues, Ups View
Ralph Lauren Corp. (RL - Free Report) has posted solid second-quarter fiscal 2022 results, wherein the top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. Results gained from solid performance across all regions, mainly Europe and North America. The Asia region also contributed to quarterly growth, driven by strength in China and Korea, which more than offset the COVID-19 impacts in Japan. Robust performance in casual bottoms, sweaters and fleece along with high potential in underdeveloped categories, particularly denim, accessories and home bode well. Encouragingly, management raised the fiscal 2022 top-line view.
Shares of this Zacks Rank #3 (Hold) company have gained 22.4% year to date compared with the industry’s growth of 21.2%.
Q2 Highlights
Ralph Lauren has reported adjusted earnings per share of $2.62 in the fiscal second quarter, surpassing the Zacks Consensus Estimate of $1.99. The bottom line surged 81.9% from the prior-year quarter’s figure of $1.44.
Net revenues grew 26% year over year to $1,504.1 million and beat the Zacks Consensus Estimate of $1,462 million. On a constant-currency basis, revenues were up 25% from the prior-year quarter. The uptick was attributable to double-digit growth across all regions. The top line also reflected gains of 100 basis points (bps) from favorable currency.
Even as people are returning to physical stores, the global digital business continued to witness growth of 45%, while owned digital e-commerce rose more than 35% year over year.
Segmental Details
North America: In the fiscal second quarter, the segment’s revenues advanced 30% from the year-ago quarter to $703 million. The retail channel in the region witnessed 31% growth in comparable store sales (comps), including a 32% rise in digital commerce and a 31% increase in brick-and-mortar stores. Revenues from the North America wholesale business grew 23% year over year.
Europe: The segment’s revenues grew 38% year over year to $496 million, with a 36% rise in currency-neutral revenues. Comps at retail stores in Europe rose 27%, owing to a 28% increase in brick-and-mortar stores and 24% growth in digital sales. Revenues for the segment’s wholesale business rallied 44% on a reported basis and 42% at constant currency.
Asia: The segment’s revenues increased 14% year over year to $270 million on a reported and 13% on a currency-neutral basis. Comps in Asia were up 7%, backed by a 4% rise in brick-and-mortar stores and a 69% surge in the digital business.
Margins
Ralph Lauren's adjusted gross profit margin expanded 80 bps year over year to 67.3%. The same expanded 50 bps on a constant-currency basis. The uptick can be attributable to improved pricing and promotions along with better product mix, which more than offset higher freight costs and unusual COVID-19 mix benefits. The metric also expanded 580 bps from second-quarter fiscal 2020, owing to solid AUR growth.
Adjusted operating expenses increased 17% from the year-ago period to $755 million in the fiscal second quarter, driven by compensation and higher marketing investments. Adjusted operating expenses, as a percentage of sales, decreased from 53.9% to 50.2% in the reported quarter.
The company reported an adjusted operating income of $256.6 million skyrocketed more than 70% from $150.9 million in the year-ago quarter. The adjusted operating margin expanded 450 bps year over year to 17.1%.
Financials
Ralph Lauren ended the quarter with cash and short-term investments of $3,061 million, total debt of $1,135.5 million, and total shareholders’ equity of $2,862.8 million. Inventory at the end of the quarter grew 4.6% year over year to $928.2 million. Capital expenditure for the six months ended Sep 25, 2021, was $63.4 million. In the quarter, the board approved a quarterly dividend of 68.75 cents. Management also noted that it is likely to resume share-repurchase activities from the second half of fiscal 2022.
Store Update
As of Sep 25, 2021, Ralph Lauren had 493 directly operated stores and 658 concession shops globally. The directly operated stores included 164 Ralph Lauren and 329 Polo factory stores. The company operated 141 licensed stores globally.
Ralph Lauren Corporation Price, Consensus and EPS Surprise
Ralph Lauren Corporation price-consensus-eps-surprise-chart | Ralph Lauren Corporation Quote
Outlook
Despite the ongoing uncertainty related to COVID-19, the potential for further outbreaks in several regions and global supply-chain disruptions, management raised its fiscal 2022 view on impressive quarterly results and signs of recovery across all markets.
The company expects constant-currency revenues to grow 34-36%, up from the earlier mentioned 25-30%. Favorable currency is likely to hurt the top line by 20 bps. The operating margin is anticipated to be 12-12.5% compared to 4.8% and 10.3% reported in fiscal 2021 and 2020, respectively. The gross margin is still envisioned to expand 50-70 bps, driven by average unit retail growth and positive product mix, which more than offset higher freight costs. Operating expenses are likely to be higher in the second half of fiscal 2022 due to increased marketing and other investments.
For third-quarter fiscal 2022, revenues are anticipated to rise 14-16% year over year at constant currency, with a favorable currency impact of 140 basis points. The operating margin is forecast to be 13-13.5%, with a slight expansion in the gross margin. This is mainly due to the shift in the timing of investment from the fiscal second quarter to the third, higher freight costs, normalizing channel mix shift, and foreign-currency headwinds of 30 bps.
Business Developments
In the fiscal second quarter, the company, in association with Zepeto, launched its first digital apparel collection. It also introduced the exclusive Next Generation-focused capsules for Urban Outfitters (URBN - Free Report) and ASOS as well as a new Ralph's Club fragrance.
Moving on, Ralph Lauren started its second digital-forward Emblematic retail concept in Shanghai. It also completed the transition of Chaps to a licensed business, thus, concluding its portfolio realignment announced last year. The move will likely enable it to focus on its core brands as part of the Next Great Chapter elevation strategy.
2 Better-Ranked Stocks to Consider
PVH Corp (PVH - Free Report) currently sports a Zacks Rank #1 (Strong Buy) and has a long-term earnings growth rate of 59.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hanesbrands (HBI - Free Report) presently has an impressive long-term earnings growth rate of 8.5% and a Zacks Rank #2 (Buy).