Stock market reaction
Ralph Lauren (RL) stock faced a massive blow after the news of CEO (chief executive officer) Stefan Larsson’s departure broke. The company’s stock price touched a six-year low on February 2, closing at $76.61, or 12.3% below the previous day’s closing price.
RL is currently trading 48% below its 52-week-high price and has fallen 15% YTD (year-to-date). By comparison, apparel and accessory peers Coach (COH) and Hanesbrands (HBI) have gained 5.6% and 5.3%, respectively, YTD, while rivals PVH Corporation (PVH) and VF Corporation (VFC) have stayed in the red.
Notably, the S&P 500 Apparel and Accessories Index, a seven-company index based on Ralph Lauren, Hanesbrands, VF Corporation, Coach, PVH Corporation, Michael Kors (KORS), and Under Armor (UA), has fallen 6% YTD.
Inside RL’s valuations
Ralph Lauren is currently trading at a one-year forward PE (price-to-earnings ratio of 14.3x. It has a TTM (trailing-12-month PE ratio of 33x. The difference between the TTM PE and the one-year forward PE reflects a weaker earnings outlook for the company.
RL’s management is expecting a low-double-digit rate fall in fiscal 2017 revenue, with an operating margin of ~10%. Wall Street has predicted a 13% fall in the company’s EPS (earnings per share) in fiscal 2017. But fiscal 2018 is likely to bring the company back to growth because its EPS is expected to rise ~0.7%.
Ralph Lauren’s valuation as compared to peers
At 14.3x, RL is trading at a premium as compared to peers PVH and HBI, which are trading at 12.5x and 10.8x, respectively. The company was, however, cheaper than VFC and Kate Spade (KATE) on February 2, 2017.
Notably, the iShares Morningstar Mid-Cap Value ETF (JKI) invests 0.29% of its total holdings in Ralph Lauren.