Ralph Lauren (RL) Q3 Earnings & Revenues Surpass Estimates

Ralph Lauren Corporation RL has posted impressive third-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Results have gained from robust demand and brand strength. The company has been on track with its Next Great Chapter: Accelerate plan.

RL has reported adjusted earnings per share of $4.17 for the fiscal third quarter, surpassing the Zacks Consensus Estimate of $3.53. Also, the bottom line increased 24% year over year.

Net revenues grew 6% year over year to $1,934 million and beat the Zacks Consensus Estimate of $1,865 million. On a constant-currency (cc) basis, revenues were up 5% from the year-ago quarter. The top line witnessed the positive impacts of 90 basis points (bps) from foreign currency rates. Also, the top line witnessed growth across all regions, driven by brand strength, pricing efforts and continued strategic investments.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

 

Ralph Lauren Corporation Price, Consensus and EPS Surprise

Ralph Lauren Corporation price-consensus-eps-surprise-chart | Ralph Lauren Corporation Quote

 

Shares of this Zacks Rank #3 (Hold) company have gained 26.2% in the past three months compared with the industry’s 13.3% rise.

Segmental Details

North America: In the fiscal third quarter, the segment’s revenues were flat year over year at $933 million and came ahead of our estimate of $927.3 million. Comparable store sales (comps) for North America’s retail channel rose 5% year over year, wherein the same for brick-and-mortar stores moved up 6%, while digital commerce increased 4%. Revenues from the North America wholesale business fell 15% year over year.

Europe: The segment’s revenues rose 11% year over year to $522 million, while the metric grew 6% on a currency-neutral basis. The metric beat our estimate of $471.6 million. Comps for the retail channel in Europe were up 11%, whereas brick-and-mortar stores grew 10% year over year and digital sales witnessed a 12% rise. Revenues for the segment’s wholesale business were flat on a cc basis, while the same jumped 5% on a reported basis.

Asia: The segment’s revenues increased 16% year over year to $446 million on a reported basis and 17% on a currency-neutral basis. The metric beat our estimate of $426.8 million. Comps in Asia were up 14%, backed by 13% growth in brick-and-mortar stores and a 25% increase in the digital business.

Margins

Ralph Lauren's adjusted gross profit margin expanded 120 bps year over year to 66.4%. This was mainly driven by lower freight costs, positive channel and geographic mix shifts, and AUR growth in all regions. The growth more than offset pressures from raw material costs. Recent pressures from cotton inflation are likely to abate starting in spring 2024 depending on moderating cotton costs.

Adjusted operating expenses rose 7% from the year-ago period to $968 million in the fiscal third quarter, driven by higher compensation, and rent & occupancy costs, and elevated marketing investments. Adjusted operating expenses, as a percentage of sales, expanded 80 bps to 50% in the reported quarter.

The company’s adjusted operating income was $318 million, up 12.6% year over year. The adjusted operating margin increased 40 bps year over year to 16.4%.

Financials

Ralph Lauren ended the quarter with cash and short-term investments of $1.9 billion, a total debt of $1.1 billion and total shareholders’ equity of $2.6 billion. Inventory fell 15% year over year to $1.1 billion.

The company repurchased Class A shares for about $103 million in the fiscal third quarter.

As of Dec 30, 2023, capital expenditure was $124.9 million. Management expects a capital expenditure of $200-$225 million for fiscal 2024.

Store Update

As of Dec 30, 2023, Ralph Lauren had 570 directly operated stores and 707 concession shops globally. The directly operated stores included 227 Ralph Lauren and 343 Polo factory stores. The company operated 194 licensed stores globally as of the same date.

Outlook

For fiscal 2024, RL anticipates year-over-year revenue growth (at cc) in the low-single digits. This includes 10 bps of positive impacts of currency.

The gross margin is still forecast to expand 140-180 bps, on a constant-currency basis, driven by solid AUR, a favorable channel and geographic mix, and lower freight costs, which more than offset continued product cost inflation. The metric includes 20 bps of adverse impacts of foreign currency. The operating margin is still predicted to expand 30-50 bps to 12.3-12.5% on the back of gross margin expansion, with neutral currency impacts. The fiscal 2024 tax rate is likely to be 19-20% compared with the previously stated 22-23%.

For the fiscal fourth quarter, the company anticipated revenue growth of 2% on a constant-currency basis. This includes approximately 160 bps of negative foreign currency impact.

The operating margin is predicted to grow 350-400 bps on a constant-currency basis, including a 40 bps negative impact of foreign currency. The gross margin is likely to witness 50 bps of adverse currency impacts. Also, the tax rate is estimated to be 22-23%.

Eye These Solid Picks

Some better-ranked companies are Royal Caribbean RCL, Deckers DECK and lululemon athletica LULU.

Royal Caribbean sports a Zacks Rank #1 (Strong Buy), at present. RCL has a trailing four-quarter earnings surprise of 28.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share (EPS) indicates increases of 13.7% and 38.1%, respectively, from the year-ago period’s reported levels.

Deckers, a footwear and accessories dealer, sports a Zacks Rank of 1 at present. DECK has a trailing four-quarter earnings surprise of 32.1%, on average.

The Zacks Consensus Estimate for Deckers’ current financial-year sales and EPS suggests growth of 15.3% and 37.3%, respectively, from the year-ago corresponding figures.

lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank #2 (Buy), at present.

The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 18% and 23.7%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 9.2%, on average.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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