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Miller Tabak Rates Ralph Lauren as a ‘Buy’

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Apr. 11 2016, Published 6:01 p.m. ET

Ralph Lauren’s price movement

Ralph Lauren (RL) has a market cap of $7.6 billion. RL fell by 3.5% to close at $91.24 per share on April 8, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -6.2%, -5.6%, and -17.7%, respectively, on the same day. This means that RL is trading 5.2% below its 20-day moving average, 4.1% below its 50-day moving average, and 18.0% below its 200-day moving average.

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A related ETF and peers

The First Trust Large Cap Value AlphaDex ETF (FTA) invests 0.62% of its holdings in Ralph Lauren. The ETF tracks an index that selects and weighs value stocks from the S&P 500 Value Index using fundamental factors including sales, book value, and cash flows. The YTD price movement of FTA was 2.8% on April 7, 2016.

The market caps of Ralph Lauren’s competitors are as follows:

  • VF Corporation (VFC) – $26.3 billion
  • Hanesbrands (HBI) – $10.5 billion
  • PVH (PVH) – $7.5 billion

Miller Tabak has initiated the coverage of Ralph Lauren with a “buy” rating and set the price target at $115 per share.

Performance in fiscal 3Q16

Ralph Lauren reported fiscal 3Q16 net revenue of $1.9 million—a fall of 4.3% from the net revenue of $2.0 billion in fiscal 3Q15. Between fiscals 3Q15 and 3Q16, the revenue of the wholesale and retail segments fell by 6.1% and 3.1%, respectively. The company’s cost of goods sold as a percentage of net revenue rose by 2.3% and its operating income fell by 40.0%.

Its net income and earnings per share fell to $131 million and $1.54, respectively, in fiscal 3Q16, compared with $215 million and $2.41, respectively, in fiscal 3Q15.

Between fiscals 3Q16 and 4Q15, Ralph Lauren’s cash and cash equivalents and inventories rose by 5.4% and 22.0%, respectively. Its current ratio and debt-to-equity ratio rose to 2.8x and 0.67x, respectively, compared with 2.8x and 0.57x, respectively, in fiscal 4Q15.

Projections

The company has made several projections for fiscal 4Q16.

  • It expects the net revenue to be between flat and down by 2% on a reported basis. Based on the current exchange rates, it expects foreign currency to have a -1.5% impact on the revenue growth.
  • It expects the operating margin to be ~4.0%–4.5% below the margin in the same period of last year due to infrastructure investments, negative foreign exchange, and actions to clear the end-of-season inventories.
  • The tax rate will be 32%.

The company has also made projections for fiscal 2016.

  • It expects the net revenue to rise ~1% in constant currency and fall ~3% on a reported basis.
  • The operating margin is expected to be 2.9%–3.2% due to negative foreign currency effects. This guidance doesn’t include restructuring and other charges that are associated with the global brand reorganization and a pending custom audit charge.
  • The tax rate will be 28%.

In the next part of this series, we’ll take a look at Coach.

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