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Ralph Lauren's (RL) Q3 Earnings & Revenues Beat Estimates

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Shares of Ralph Lauren Corporation (RL - Free Report) jumped more than 2% before the trading session on Feb 9, following the impressive third-quarter fiscal 2023 results, wherein the top and the bottom lines improved year over year. Results  gained from brand strength and solid growth across all channels and regions.

The company reported adjusted earnings per share of $3.35 for the fiscal third quarter, surpassing the Zacks Consensus Estimate of $2.91 and our estimate of $2.84. Also, the bottom line grew 14% year over year from $2.94 in the year ago quarter.

Net revenues grew 1% year over year to $1,832.3 million and beat the Zacks Consensus Estimate of $1,756 million and our estimate of $1,745.9 million. On a constant-currency (cc) basis, revenues were up 7% from the prior-year quarter. The metric gained from solid growth across all regions. This was partly offset by the impacts of 630 basis points (bps) from adverse currency rates.

The company’s global digital ecosystem witnessed year-over-year high-single-digit revenue growth.

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Image Source: Zacks Investment Research

Shares of this Zacks Rank #2 (Buy) stock have gained 22.7% in the past three months compared with the industry’s 1.7% growth.

Segmental Details

North America: In the fiscal third quarter, the segment’s revenues advanced 1% from the year-ago quarter to $938 million and came ahead of our estimate of $822.5 million. Comparable store sales (comps) for North America’s retail channel grew 2% year over year, wherein brick-and-mortar stores inched down 1%, while digital commerce increased 9%. Revenues from the North American wholesale business fell 2% year over year.

Europe: The segment’s revenues inched up 1% year over year to $469 million, with a 13% improvement in currency-neutral revenues. The metric lagged our estimate of $503.3 million. Comps for the retail channel in Europe were up 11%, whereas brick-and-mortar stores grew 11% year over year and digital sales witnessed a 12% rise. Revenues for the segment’s wholesale business fell 1% on a reported basis while it grew 11% at cc.

Asia: The segment’s revenues increased 1% year over year to $386 million on a reported basis and 16% on a currency-neutral basis. The metric came ahead of our estimate of $376.4 million. Comps in Asia were up 8%, backed by 7% growth in brick-and-mortar stores and a 21% increase in the digital business.


Ralph Lauren's adjusted gross profit margin contracted 80 bps year over year on a reported basis but the metric expanded 80 bps on a cc basis to 65.2%. However, the metric expanded 300 bps on a three-year basis on solid AUR growth, improved pricing, favorable product mix and reduced air freight cost.

Adjusted operating expenses decreased 1% from the year-ago period to $901 million in the fiscal third quarter driven by lower marketing expenses. Adjusted operating expenses, as a percentage of sales, contracted 90 bps to 49.2% in the reported quarter.

The company’s adjusted operating income was $294 million, up 1.6% from $289.2 million in the year-ago quarter. The adjusted operating margin expanded 10 bps year over year to 16%.


Ralph Lauren ended the quarter with cash and short-term investments of $1,566.1 million, total debt of $1,138 million and total shareholders’ equity of $2,467.8 million. Inventory grew 33% year over year to $1,238.4 million. The company repurchased Class A shares for about $28 million in the fiscal third quarter.

For the six months ending on Dec 31, capital expenditure was $155.9 million. Management expects capital expenditure of $240-$250 million for fiscal 2023, down from the aforementioned $250-$275 million.

Store Update

As of Dec 31, 2022, Ralph Lauren had 549 directly operated stores and 728 concession shops globally. The directly operated stores included 204 Ralph Lauren and 345 Polo factory stores. The company operated 104 licensed stores globally as of the same date.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

Ralph Lauren Corporation Price, Consensus and EPS Surprise

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


Management has issued guidance for the third quarter and has updated its fiscal 2023 view based on the ongoing macroeconomic environment, supply-chain condition, inflationary pressures, foreign currency movement, the war in Ukraine, and COVID variants and other COVID-related disruptions.

For fiscal 2023, RL continues to anticipate year-over-year revenue growth (cc) in the high-single digits on a 52-week comparable basis. This includes a 600 bps negative impact of unfavorable currency, down from the prior view of 730 bps of adverse currency impact. On a 53-week comparable basis, the metric is likely to be hurt by an unfavorable currency of 100 bps.

The operating margin is forecast to be 13.5-14%, down from the earlier mentioned 14-14.5% (cc), which includes a negative impact of unfavorable currency of 180 bps. Notably, it reported an operating margin of 13.1% on a 52-week comparable basis and 13.4% on a 53-week basis in the last year.

The gross margin is likely to remain flat year over year at cc on a 52-week comparable basis, down from the earlier guided view of 30-50 bps expansion at cc. This was mainly driven by solid AUR growth and a positive product mix, which is expected to more than offset higher freight and product cost inflation. However, the unfavorable currency is likely to hurt the metric by 150 bps.

For the fourth quarter of fiscal 2023, the company expects year-over-year revenue growth of mid to high-single digits at cc. This includes a 500 bps impact of unfavorable currency. The company anticipates an operating margin of 5.5%. The metric is expected to be hurt by 160 bps of unfavorable currency. Unfavorable currency impacts of 140 bps are likely to dent the gross margin.

The effective tax rate for fiscal 2023 is expected to be 24-25%, down from the earlier guided view of 25-26%. For the fiscal fourth quarter, the metric is likely to be 29%.

Stocks to Consider

Some better-ranked companies are Abercrombie & Fitch (ANF - Free Report) , Oxford Industries (OXM - Free Report) and Urban Outfitters (URBN - Free Report) .

Abercrombie & Fitch, which operates as a specialty retailer, sports a Zacks Rank #1 (Strong Buy) at present. ANF delivered a positive earnings surprise of 107.7% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year revenues suggests a decline of about 1% from the year-ago reported figures.

Oxford Industries currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 18.9%, on average.

The Zacks Consensus Estimate for Oxford Industries’ current financial-year sales and earnings suggests growth of 23.1% and 34.2% from the year-ago period’s reported numbers, respectively.

Urban Outfitters, a leading lifestyle product and services company, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 18%.

The Zacks Consensus Estimate for Urban Outfitters’ current financial-year revenues suggests growth of 5% from the year-ago reported figure.


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