How Did Ralph Lauren’s 1Q17 Earnings Turn Out?

Ralph Lauren Corporation (RL) has a market cap of $8.5 billion. It rose by 8.5% to close at $103.14 per share on August 10, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 11.1%, 4.6%, and -6.5%, respectively, on the same day.

RL is trading 5.6% above its 20-day moving average, 8.6% above its 50-day moving average, and 3.0% above its 200-day moving average.

The First Trust Large Cap Value AlphaDex ETF (FTA) invests 0.73% of its holdings in Ralph Lauren. The ETF tracks an index that selects and weights 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 8.9% on August 10.

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

• V.F. Corporation (VFC) — $25.7 billion
• HanesBrands (HBI) — $10.1 billion
• PVH Corporation (PVH) — $7.9 billion

Ralph Lauren reported fiscal 1Q17 net revenues of $1.55 billion, a fall of 4.1% compared to net sales of $1.62 billion in fiscal 1Q16. Revenue from its Wholesale, Retail, and Licensing segments fell by 5.5%, 3.0%, and 7.3%, respectively, in fiscal 1Q17 compared to fiscal 1Q16. The company’s gross profit margin fell by 3.4% in fiscal 1Q17 compared to fiscal 1Q16.

Its net income and EPS (earnings per share) fell to -$22.0 million and -$0.27, respectively, in fiscal 1Q17 compared to $64.0 million and $0.73, respectively, in fiscal 1Q16. It reported adjusted EPS of $1.06 in fiscal 1Q17.

Ralph Lauren’s cash and cash equivalents and inventories rose by 0.22% and 10.4%, respectively, in fiscal 1Q17 compared to fiscal 4Q16. Its current ratio fell to 2.3x, and its debt-to-equity ratio rose to 0.72x in fiscal 1Q17, compared to a current ratio and a debt-to-equity ratio of 2.5x and 0.66x, respectively, in fiscal 4Q16.

Ralph Lauren (RL) has made the following projections for 2Q17 and 2017:

Fiscal 2Q17

• consolidated net revenues to fall to mid-to-high single digits
• tax rate of ~29%
• operating margin to fall ~2.0%–2.5% compared to fiscal 2Q16

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 weak retail and high promotional environment in the US
• operating margin of ~10%
• tax rate of ~29%
• It expects annualized expense savings of $180 million–$220 million from restructuring activities related to changes in the organizational structure and right-size its cost structure and real estate portfolio.

In the next part, we’ll take a look at Philip Morris International.