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Inside Ralph Lauren’s New Plan and Outlook

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Price movement of Ralph Lauren

Ralph Lauren (RL) has a market capitalization of $7.8 billion. It fell by 2.4% to close at $94.06 per share on June 7, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -0.29%, 4.4%, and -15.2%, respectively, as of the same day.

This means that RL is trading 2.9% above its 20-day moving average, 1.1% above its 50-day moving average, and 9.9% below its 200-day moving average.

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Related ETFs and peers

The SPDR S&P 500 Growth ETF (SPYG) invests 0.04% of its holdings in Ralph Lauren. SPYG tracks an index of primarily large-cap growth stocks and selects companies from the S&P 500 Index based on three growth factors. The YTD price movement of SPYG was 1.9% as of June 7, 2016.

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

  • VF Corporation (VFC)—$26.2 billion
  • HanesBrands (HBI)—$10.2 billion
  • PVH Corporation (PVH)—$7.9 billion

Performance of Ralph Lauren in 4Q16 and 2016

Ralph Lauren reported fiscal 4Q16 net revenues of $1.9 billion, a fall of 0.74% as compared to net sales of $1.9 billion in fiscal 4Q15. The company’s cost of goods sold as a percentage of net revenues rose by 2.7%. Its operating income fell by 64.7% in fiscal 4Q16 over 4Q15.

RL’s net income and EPS (earnings per share) fell to $41 million and $0.49, respectively, in fiscal 4Q16, as compared to $124 million and $1.41, respectively, in fiscal 4Q15.

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Fiscal 2016 results

In fiscal 2016, RL reported net revenues of $7.4 billion, a fall of 2.8% YoY (year-over-year). Its net income and EPS fell to $396 million and $4.62, respectively, in fiscal 2016, as compared to $702 million and $7.88, respectively, in fiscal 2015.

Ralph Lauren’s cash and cash equivalents fell by 8.8%, and its inventories rose by 8.0% in fiscal 2016. Its current ratio fell to 2.5x, and its debt-to-equity ratio rose to 0.66x in fiscal 2016, as compared to a current ratio and a debt-to-equity ratio of 2.8x and 0.57x, respectively, in fiscal 2015.

Ralph Lauren’s way forward plan

In a press release on June 7, 2016, the company stated the following: “Ralph Lauren will evolve its product, marketing and shopping experience to increase desirability. It will right size the cost structure and implement and ROI (return on investment)-driven financial model to free up resources to invest in the brand and drive high-quality sales. It will also evolve its operating model for sustainable, profitable sales growth by reducing supply chain lead times, and execute a disciplined multi-channel distribution and expansion strategy.”

It expects to stabilize performance in fiscal 2018 and pivot to growth off of a smaller, more profitable base in fiscal 2019, due to its new plan. It also expects market share growth and a mid-teens operating margin for fiscal 2020.

Projection

The company has made the following projections for fiscal 1Q17:

  • consolidated net revenues to fall at a mid-single digit rate
  • tax rate of ~29%
  • operating margin to fall ~1.1-1.6% compared to the prior year period

The company has made the following projections for fiscal 2017:

  • consolidated net revenues to fall at a low-double-digit rate, which includes a proactive pullback in inventory receipts, store closures, pricing harmonization and other sale initiatives, and the weak retail environment in the US
  • operating margin of ~10%
  • tax rate of ~29%
  • capital expenditures of ~$375 million
  • share repurchases totaling ~$200 million

Now let’s take a look at Nike (NKE).

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