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Currency & Soft Traffic May Hit Ralph Lauren (RL) Q1 Earnings

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Ralph Lauren Corporation (RL - Free Report) is slated to release first-quarter fiscal 2018 results on Aug 8. The question lingering in investors’ minds is whether this designer, marketer and distributor of premium lifestyle products will be able to deliver a positive earnings surprise in the quarter to be reported. The company has delivered positive earnings surprises consistently in the trailing four quarters, with an average beat of 14.2%. Let’s see how things are shaping up prior to this announcement.

Ralph Lauren Corporation Price and EPS Surprise
 

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

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 97 cents, reflecting year-over-year decline of 8.5%. Further, we noted that our earnings estimate has dipped by a notch over the last 30 days. Moreover, analysts polled by Zacks expect revenues of $1.4 billion, down about 13.1% from the year-ago quarter.

Ralph Laurenforms part of the Consumer Discretionarysector. Per the latest Earnings Trends, the Consumer Discretionary sector’s earnings are expected to climb 2.3% year over year while revenues are projected to grow 8.1%.

Factors at Play

Despite a solid earnings surprise history, Ralph Lauren’s shares have lost 15.8% year to date, underperforming the industry’s 0.5% growth. The company continues to battle foreign currency headwinds, which is expected to hurt margins and sales in the first quarter and fiscal 2018. Moreover, Ralph Lauren is reeling under soft traffic trends, which weighed upon its top line in the last reported quarter and remains a deterrent for the upcoming quarter as well. All these factors have caused management to issue a drab sales view for the first quarter and fiscal 2018, when it reported its last quarterly outcome.



Evidently, the company expects fiscal first-quarter reported revenues to be down low-double digits, excluding currency impact. Operating margin for the fiscal first quarter is expected to be 9.5–10%. The company expects currency headwinds to reduce revenues growth by nearly 225 bps and operating margin rate by about 75 bps. For fiscal 2018, the company expects revenue to decline 8–9%, excluding currency. Operating margin is estimated to be 9–10.5% on a currency-neutral basis. Foreign currency is anticipated to pull down revenues by 150 bps and operating margins by 50–75 bps in fiscal 2018.

Moreover, the company announced plans to adopt the Accounting Standard Update (ASU) 2016-09 for the accounting of employee share-based payments (in fiscal 2018), which was recently issued by the Financial Accounting Standards Board (FASB). This is likely to impact effective tax rate, with the first and the second quarter bearing the maximum brunt. Consequently, effective tax rate for fiscal first-quarter is anticipated to be 33%. All these factors make us apprehensive about Ralph Lauren’s upcoming results.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Ralph Laurenis likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ralph Lauren has an Earnings ESP of -2.06% as the Most Accurate estimate of 95 cents is below the Zacks Consensus Estimate of 97 cents. Further, the company currently carries a Zacks Rank #4 (Sell). Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions. The combination of Ralph Lauren’s unfavorable Zacks Rank and a negative Earnings ESP indicates that the stock is unlikely to beat estimates.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +0.93% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +0.50% and a Zacks Rank #3.

Nordstrom, Inc. (JWN - Free Report) has an Earnings ESP of +3.28% and a Zacks Rank #3.

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