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Ralph Lauren (RL) Jumps 7% in Past Month: 3 Reasons Why

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Ralph Lauren Corporation (RL - Free Report) is gaining momentum driven by robust growth strategies, solid earnings surprise trend, favorable forward outlook, uptrend in estimates and a VGM Score of A. This premium lifestyle retailer particularly has witnessed significant growth in share price since reporting robust first-quarter fiscal 2018 earnings on Aug 8.

Notably, the stock has improved 7% in the past month, outperforming the industry’s growth of 4.5%. Moreover, it has surged a solid 16.3% since the last earnings release. That said, let’s find out the reasons behind the upsurge in the stock price.



Robust Earnings Trend & Outlook Aid Performance

As mentioned earlier, Ralph Lauren’s robust earnings trend is one of the key reasons for the stock momentum. The company flaunts a solid earnings history, with positive earnings surprises delivered in 15 out of the last 16 quarters. Notably, first-quarter fiscal 2018 marked its 10th consecutive earnings beat. Further, the bottom line grew year over year and gross profit margin continued to expand — thanks to favorable geographic and channel mix shifts along with lower promotions and cost-controls. Further, the company curtailed operating expenses, which in turn drove operating margin expansion.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

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

Looking ahead, management remains confident of Ralph Lauren’s performance based on its efforts related to global brand reorganization, constant infrastructural investments and e-commerce enhancements. Further, the company’s efforts to evolve product and marketing bode well. Additionally, management lowered effective tax rate forecast for fiscal 2018, which we believe should benefit the bottom line.

Estimates Trend Up

The company’s positive outlook and momentum have resulted in an uptrend in estimates. These factors led to an uptrend in the Zacks Consensus Estimates in the last seven days. The Zacks Consensus Estimate for fiscal 2018 continues to witness upside on earnings momentum and the favorable outlook. Estimate for the fiscal has improved nearly 1% to $5.34 per share in the last seven days. Additionally, estimates for fiscal 2019 have risen to $5.20 per share from $5.05 in the last 30 days.

Strategic Plan on Track — Q1 Performance Reflects Progress

Ralph Lauren remains on track to deliver goals under its Way Forward Plan that was announced in June 2016. Divided in two parts, the plan is all about refocusing on the core, strengthening the brands and returning the company to profitable growth in the long term.

During the fiscal first quarter, the company enhanced quality of sales by reducing promotions and markdowns, alongside reducing Stock Keeping Units (SKUs) count to drive productivity. Further, the company improved inventory turns by curtailing inventory levels by 31% year over year and also achieved cost savings by lowering operating costs. Additionally, the company is keen on optimizing wholesale distribution by shutting down underperforming points of distribution.

Closing Underperforming Stores

As part of its Way Forward Plan, the company is also keen on identifying and closing underperforming stores. In fiscal 2017, the company shuttered down 54 underperforming stores, as a part of its restructuring plans. Further, the company intends to shut 20-25% of its domestic department store points of distribution by the end of fiscal 2018. We believe the closing of underperforming stores will not only aid the company lower operating costs but also reflect in its top and bottom-line performances.

Possible Deterrents

While all is well with this New York-based company, its sales continued to be soft due to weak demand, brand exits and efforts to drive quality of sales. This marked the company’s second consecutive sales miss.

Additionally, Ralph Lauren continues to be exposed to foreign currency headwinds due to its international operations. Evidently, the company’s top-line and margins for the first quarter continued to be hurt by the adverse foreign currency movements. Further, it anticipates currency headwinds to continue to hurt second-quarter revenue growth and operating margin by nearly 40 basis points, each.

Conclusion

Despite the soft top-line trends and lingering currency impacts, we believe the company is well positioned to grow driven by its strategic actions. Further, its expected long-term EPS growth rate of 15%, reflects potential. Aptly, the company currently carries a Zacks Rank #3 (Hold).

Looking for Some Trending Picks? Look at These

Better-ranked stocks in the same industry include Crocs, Inc. (CROX - Free Report) , Guess?, Inc. (GES - Free Report) and Lululemon Athletica, Inc. (LULU - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Crocs has a long-term EPS growth rate of 15%. Further, the stock has returned 25.5% in the last three months.

Guess? has grown 29.3% year to date. Moreover, it has a long-term earnings growth rate of 17.5%.

Lululemon has improved 14.4% in the last three months. Further, the company has a long term EPS growth rate of 13.2%.

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