It has been about a month since the last earnings report for Ralph Lauren (RL - Free Report) . Shares have added about 4.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ralph Lauren due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Ralph Lauren Q1 Earnings & Revenues Beat Estimates
Ralph Lauren reported first-quarter fiscal 2019 adjusted earnings of $1.54 per share, beating the Zacks Consensus Estimate of $1.39. The bottom-line figure also increased by 38.7% from the prior-year quarter. Notably, this marked the company’s 14th straight quarter of earnings beat.
On a GAAP basis, Ralph Lauren posted earnings per share of $1.31, surging 82% from the year-ago figure of 72 cents. Reported earnings for the quarter primarily included restructuring and other charges associated with the company’s Way Forward plan and impairment of assets as well as inventory related charges.
Ralph Lauren’s net revenues increased 3% year over year to 1,390.6 million. However, the top-line figure surpassed the Zacks Consensus Estimate of $1,365 million. On constant-currency basis, revenues were up 1% on the back of Asia and Europe. Management had earlier projected revenues in the range of flat to down slightly, on a currency-neutral basis.
During the quarter under review, foreign currency aided revenue growth by nearly 210 basis points (bps). This was above the company’s guidance of 20-40 bps positive impact.
North America: During the first quarter, revenues at this segment slumped 2% on both reported and constant-currency basis, to $698 million. This downturn can be attributed to efforts undertaken to improve quality of sales and exits from lower quality distribution. On a currency-neutral basis, comparable store sales at North America’s retail channel was down 3%, owing to a 3% fall in brick and mortar stores and a 2% dip at ralphlauren.com.
Europe: Revenues for this segment rose 8% year over year to $351 million, while currency-neutral revenues grew 2%. Currency-neutral comps dropped 8%, including 9% fall in brick and mortar stores. This was somewhat offset by 2% rise in e-commerce.
Asia: Revenues at this segment were up 19% to $248 million and 16% in constant currency. The upside was driven by strong retail and wholesale sales. Comps rose 6% on a currency-neutral basis, courtesy of both brick and mortar, and e-commerce operations.
Ralph Lauren's adjusted gross profit margins expanded 120 bps to 64.4%, backed by efforts to enhance quality of sales through lower promotions, better pricing and favorable product mix. Additionally, foreign currency aided gross margins by 10 bps.
However, adjusted operating income margin expanded 90 bps to 11.1%. Further, foreign currency benefited operating margins by 20 bps.
Ralph Lauren ended the quarter with cash and short-term investments of $532.3 million, total debt of $288 million and total shareholders’ equity of $3,421 million. Inventory jumped to 3.5% to $890 million at the end of first-quarter fiscal 2019. This increase was driven by the investments made to support store expansions.
Moreover, the company incurred capital expenditures of $42.3 million in the quarter. For fiscal 2019, the same is now estimated to be roughly $275 million.
As of Jun 30, 2018, Ralph Lauren had 484 directly-operated stores and 633 concession shops globally. The directly-operated stores included 115 Ralph Lauren, 74 Club Monaco and 295 Polo factory stores.
Additionally, the company’s global licensing partners operated 88 Ralph Lauren stores and 59 Club Monaco stores, bringing the total number of licensed stores to 147. The company also had 132 licensed concession shops in operation.
The company issued guidance for the second quarter and fiscal 2019. It projects net revenues to decline slightly on a constant currency basis. For the fiscal year, operating margin is anticipated to increase 40 to 60 basis points in constant currency, owing to gross margin expansion. Foreign currency is expected to have minimal impact on revenue growth and operating margin.
For the second quarter, management envisions net revenues in a band of flat to down slightly on a constant currency basis. Foreign currency is expected to affect revenue growth by approximately 30 to 50 basis points. Operating margin is anticipated to grow around 30 basis points in constant currency and expected to be slightly benefited by foreign currency in the second quarter.
In fiscal 2019, effective tax rate is anticipated to be approximately 21%, while in the second quarter, tax rate is projected at approximately 22%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.58% due to these changes.
At this time, Ralph Lauren has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Ralph Lauren has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.