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Ralph Lauren Stock Rises on ‘Buy’ Rating

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Price movement

Ralph Lauren (RL) has a market cap of $8.2 billion. It rose 1.8% to close at $99.65 per share on September 29, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.2%, -4.2%, and -9.2%, respectively, on the same day. RL is trading 0.50% below its 20-day moving average, 1.5% below its 50-day moving average, and 2.7% above its 200-day moving average.

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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 flow. The YTD price movement of FTA was 9.3% on September 29.

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

  • V.F. Corporation (VFC) — $23.0 billion
  • HanesBrands (HBI) — $9.5 billion
  • PVH (PVH) — $8.6 billion

Ralph Lauren’s rating

CLSA has initiated the coverage of Ralph Lauren with a “buy” rating and set the stock’s price target at $125 per share.

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Performance of Ralph Lauren in fiscal 1Q17

Ralph Lauren reported fiscal 1Q17 net revenues of $1.6 billion, a fall of 4.1% from the net sales of $1.6 billion in fiscal 1Q16. Revenue from the wholesale, retail, and licensing segments fell 5.5%, 3.0%, and 7.3%, respectively, between fiscal 1Q16 and fiscal 1Q17. The company’s gross profit margin fell 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 0.22% and 10.4%, respectively, between fiscal 4Q16 and fiscal 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.

Quarterly dividend

Ralph Lauren has declared a regular quarterly dividend of $0.50 per share on its common stock. The dividend will be paid on October 14, 2016, to shareholders of record at the close of business on September 30, 2016.

Projections

Ralph Lauren has made the following projections for 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% year-over-year

The company has made the following projections for fiscal 2017:

  • consolidated net revenues to fall at a low-double-digit rate, including 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 right-sizing its cost structure and real estate portfolio.

Next, we’ll look at G-III Apparel Group (GIII).

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