It has been about a month since the last earnings report for Ralph Lauren (RL - Free Report) . Shares have lost about 12.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ralph Lauren due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ralph Lauren Q4 Loss Wider Than Expected, Sales Miss
Ralph Lauren has reported fourth-quarter fiscal 2020 results, wherein loss per share was wider than expected and sales missed estimates. The results have been primarily marred by the impacts of the ongoing coronavirus outbreak as well as protest-related business disruptions in Hong Kong.
Driven by the coronavirus outbreak across the globe, the company closed nearly all of its stores in North America, Europe and other parts of the world since mid-March. However, it has continued to operate online through capabilities like digital clienteling, Buy Online Ship From Store, Buy Online Pick Up From Store, curbside pickup and other initiatives.
With restrictions easing off, the company has been re-opening stores on a market-by-market basis in coherence with the government guidelines. So far, it has re-opened about two-thirds of its stores in Europe and nearly half of its stores in North America through the last half of May.
However, the company suspended all guidance in light of the unprecedented impacts of the COVID-19 outbreak. It expects results for the coming quarters and fiscal 2021 to reflect impacts from the coronavirus outbreak as there are uncertainties regarding the path of recovery.
Q4 in Detail
Ralph Lauren reported an adjusted loss per share of 68 cents in the fiscal fourth quarter, much wider than the Zacks Consensus Estimate of a loss of 2 cents. The bottom line also compares unfavorably with adjusted earnings of $1.07 reported in the prior-year quarter.
On a reported basis, the company posted a loss of $3.38 per share against earnings of 39 cents in the year-ago quarter. The reported figure primarily included restructuring and other charges.
Net revenues declined 15% year over year to $1,274.1 million and missed the Zacks Consensus Estimate of $1,291.5 million. On a constant-currency basis, revenues were down 14% from the prior-year quarter. Soft revenues have mainly reflected the adverse impacts of the coronavirus outbreak on the company’s results as well as Hong Kong protests-related business disruptions.
North America: During the fiscal fourth quarter, the segment’s revenues declined 11% from the year-ago quarter to $629 million, driven by the impacts of the coronavirus outbreak-related business disruptions across distribution channels. The retail channel in the region delivered a significant decline, with a 13% fall in comparable store sales (comps) and a 7% dip in digital commerce. Revenues from the North America wholesale business declined 12% from the prior-year period.
Europe: The segment’s revenues fell 19% year over year to $353 million, with a 16% decline in currency-neutral revenues. The decline was mainly attributed to the COVID-19 outbreak-related disruptions across all channels. Comps at retail stores in Europe declined 16%, on a constant currency basis, driven by an 18% decrease in brick-and-mortar stores and a 2% fall in digital. Revenues for the segment’s wholesale business fell 21% on a reported basis and 18% in constant currency.
Asia: The segment’s revenues decreased 22% from a year ago to $214 million on a reported basis and fell 21% on a currency-neutral basis. Results reflect the impacts of the coronavirus outbreak as well as protest-related disruptions in Hong Kong. Comps in Asia dropped 23% in constant currency. Notably, a 15% rise in digital operations in the quarter was more than offset by significant declines in brick-and-mortar comps due to store closures in the wake of the coronavirus outbreak.
Ralph Lauren's adjusted gross profit margin contracted 100 basis points (bps) to 62.2%. Currency headwinds impacted gross margin by 20 bps in the fiscal fourth quarter.
Adjusted operating expenses declined 2% from the year-ago period to $796 million in the fiscal fourth quarter. However, adjusted operating expenses, as a percentage of sales, increased 870 bps to 62.5% on fixed expense deleverage.
Driven by a decline in gross margin and higher operating expense rate, the company reported an adjusted operating loss of $43 million against adjusted operating income of $96 million in the prior-year quarter. Further, foreign currency marred operating margin by 40 bps in the fiscal fourth quarter.
Ralph Lauren ended fiscal 2020 with cash and short-term investments of $2,116.3 million, total debt of $1.2 billion, and total shareholders’ equity of $2,693.1 million. Moreover, the company drew down $475 million from Global Credit Facility in the fiscal fourth quarter as part of precautionary measures to preserve cash and strengthen liquidity to navigate through the global pandemic.
Inventory dipped nearly 10% from a year ago to $736.2 million at the end of fiscal 2020. The decline in inventory was mainly attributed to a significant increase in inventory reserves, owing to the COVID-19 outbreak-led business disruptions.
In fiscal 2020, the company incurred capital expenditure of $270 million. Prior to the coronavirus crisis, it repurchased Class A shares worth $152 million in the fiscal fourth quarter, resulting in total buybacks of $650 million for fiscal 2020.
However, the company has taken several measures to preserve cash and liquidity amid the coronavirus crisis, including stringent expense management, reduced capital expenditure and inventory commitments, halting share repurchases, and temporary suspension of quarterly dividends.
As of Mar 28, 2020, Ralph Lauren had 530 directly-operated stores and 654 concession shops globally. The directly-operated stores included 138 Ralph Lauren, 74 Club Monaco and 318 Polo factory. Additionally, the company operated 250 licensed stores globally.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -1103.64% due to these changes.
At this time, Ralph Lauren has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Ralph Lauren has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.