uploads///rl pm

Standpoint Research Downgrades Ralph Lauren to ‘Hold’

By

Aug. 12 2016, Published 1:36 p.m. ET

Price movement

Ralph Lauren (RL) has a market cap of $9.0 billion. It rose by 5.4% to close at $108.70 per share on August 11, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 15.3%, 10.3%, and -1.4%, respectively, on the same day. RL is trading 11.1% above its 20-day moving average, 14.3% above its 50-day moving average, and 8.5% above its 200-day moving average.

Article continues below advertisement

Related ETF and peers

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 10.1% on August 11.

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

  • VF (VFC) — $26.6 billion
  • HanesBrands (HBI) — $10.4 billion
  • PVH (PVH) — $8.3 billion

Ralph Lauren’s ratings

Standpoint Research has downgraded Ralph Lauren’s rating to “hold” from “buy.”

Article continues below advertisement

Performance of Ralph Lauren in fiscal 1Q17

Ralph Lauren reported fiscal 1Q17 net revenues of $1.55 billion, a fall of 4.1% from the 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, between fiscals 1Q16 and 1Q17. The company’s gross profit margin fell by 3.4%.

Its net income and EPS (earnings per share) fell to -$22.0 million and -$0.27, respectively, in fiscal 1Q17, compared with $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, between fiscals 4Q16 and 1Q17. Its current ratio fell to 2.3x and its debt-to-equity ratio rose to 0.72x in fiscal 1Q17, compared with 2.5x and 0.66x, respectively, in fiscal 4Q16.

Projections

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% from 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 a weak retail and high promotional environment in the United States
  • operating margin of ~10%
  • tax rate of ~29%
  • annualized expense savings of $180 million–$220 million from restructuring activities related to changes in the organizational structure and rightsizing its cost structure and real estate portfolio

In the next part, we’ll take a look at Under Armour.

Advertisement

More From Market Realist