Ralph Lauren
certainly had a merry holiday season. The luxury retailer handily beat fiscal-third-quarter estimates, giving the stock a jolt Thursday.
Ralph Lauren
reported quarterly adjusted earnings per share of $4.17, well ahead of the consensus estimate for $3.57, according to FactSet. Revenue rose 6% year over year to $1.9 billion, ahead of the estimate for $1.87 billion.
“We delivered a strong holiday, with continued progress on our Next
Great Chapter: Accelerate plan and third quarter results that exceeded
our expectations led by continued momentum in our direct-to-consumer channels,” said CEO Patrice Louvet in the earnings release.
Strength was particularly evident across Asia, with sales in mainland China jumping more than 30% compared with the year-ago quarter. While China only represents about 6% of Ralph Lauren’s total business, the company hopes to keep scaling its presence in the country.
“We believe that it can be much more significant portion of our business,” said Jane Nielsen, chief financial officer, on a call with Barron’s.
In fact, North America—the company’s biggest market—was also its softest this quarter, with sales flat compared with the previous year, largely because wholesale revenue fell 15%. That said, wholesale has been a nagging challenge for almost every brand that sells through the channel, notes Wedbush analyst Tom Nikic.
“There really aren’t many holes to poke here, and it’s extremely impressive that management has been able to navigate the current macro environment so adeptly,” he added. Yet with a Neutral rating on the shares and a 45% gain in the stock over the past three months, his biggest concern is that he’s missed the rally.
The Street doesn’t seem to think so. Ralph Lauren stock jumped 14% to $168.38 on Thursday—on track for its highest close since 2015—while the
S&P 500
was down 0.1%. The shares have risen 17% this year.
Part of the rally comes from the company’s better outlook for the fiscal year. Given the strength of the third quarter, Ralph Lauren slightly increased guidance for the fiscal year. Revenue will increase in the low-single digits, with the midpoint hovering at around 2% growth—a moderate improvement from previous guidance for a 1% to 2% rise.
Fiscal-year gross margins will rise 1.4 to 1.8 percentage points, Ralph Lauren said. Previous guidance called for an increase of 1.2 to 1.7 percentage points. In the third quarter, adjusted gross margin was 66.4%, 1.2 percentage points higher than a year ago. The improvements to profitability came from lower freight costs as well as better demand trends across the company’s markets, Ralph Lauren said.
The company has been a strong performer over the past couple of years as its brand benefited from several cultural zeitgeists, including the “quiet luxury” fashion trend, which emphasizes the purchase of high-quality, durable staple clothes over ephemeral trendiness.
“We were able to pull back a bit on the seasonal buy and lean into core and replenishment styles, which are really the styles that people associate with Ralph Lauren, and from a profitability standpoint, are our most profitable aspects of our portfolio,”
To top it all off, the brand even got an endorsement from Taylor Swift, who donned head-to-toe Ralph Lauren in her Time Person of the Year cover story.
“Maybe if we realized Taylor Swift wore RL on the cover of Time, we would have been more bullish!” Nikic wrote. “As a parent of two full-fledged ‘Swifties,’ we know very well the marketing power of Ms. Swift.”
Write to Sabrina Escobar at [email protected]
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