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Investors will get a glimpse into consumer spending when Ralph Lauren RL reports its fiscal Q2 earnings on Thursday, November 10. Trading 30% from its highs, retailer or consumer discretionary earnings like Ralph Lauren will give a preview and alternative perspective on the effects a slowing economy is having on consumers with big retailers like Walmart WMT and Target TGT reporting next week.
Overview
Ralph Lauren’s earnings will show consumer demand and economic strength or weakness on an international level with the company being a major designer, marketer, and distributor of premium lifestyle products in North America, Europe, and Asia.
RL has seen a large decline over the last year despite its diversified offerings in apparel, footwear, accessories, home furnishings, and other licensed product categories. We can see from the nearby chart that a large leg of RL’s plummet came earlier in the year as inflation concerns began to cripple the broader market.
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For Ralph Lauren, a strong earnings report with better than expected guidance will be crucial for its stock going forward. Last quarter RL beat earnings expectations by 9% at $1.88 per share, with a short-lived rally afterward. The company’s outlook is most crucial at this juncture with an economic downturn still expected by most amid challenging operating environments.
Outlook
The Zacks Consensus Estimate for RL’s fiscal Q2 earnings is $2.07 per share, which would be a decline of -21%. Earnings estimates for the period have gone down from $2.46 at the beginning of the quarter. Sales are expected to be up 3% at $1.56 billion. This is an indication that operation costs are still weighing on Ralph Lauren’s bottom line.
Year over year, RL earnings are now expected to decline -6% but rise 14% in FY24 at $8.91 per share. Top line growth is expected, with sales projected to be up 2% in fiscal 2023 and rise another 5% in FY24 to $6.66 billion.
Performance & Valuation
Year to date RL is down -20%, near the S&P 500’s -22%. This has outperformed its peer group’s -52% decline that includes notable competitors Lululemon LULU and Hanesbrands HBI. Even better, over the last 20 years, RL is up an impressive +298% to outperform the benchmark and its peer group’s -49% decline.
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Longer-term investors are hoping Ralph Lauren can get back to its stellar past performance with the stock appearing to trade at a discount. Trading around $94 per share, RL has a forward P/E of 12.1. This is near the industry average of 10.6X. Even better, this is well below RL’s own decade-high of 242X and the median of 17.7X.
Bottom Line
Just as important as earnings will be Ralph Lauren’s guidance with inflation and a slowing economy still a concern. Wall Street will want to see if the company is able to give further insight and outlook for FY23 and start to reaffirm what is expected to be a return to growth in fiscal 2024. This will be critical for RL’s stock as increasing competition from Lululemon and younger digital native upstarts in premium apparel may also be a challenge along with a tougher operating environment.
With that being said, Ralph Lauren should continue to be one of the leaders in its industry. RL currently lands a Zacks Rank #3 (Hold) and the stock appears to be trading at a discount relative to its past. Patient investors may be rewarded for holding the stock. RL also offers investors a solid 3.16% annual dividend yield at $3 per share and The Average Zacks Price Target suggests 17% upside from current levels.
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Ralph Lauren Corporation (RL): Free Stock Analysis Report
Target Corporation (TGT): Free Stock Analysis Report
Walmart Inc. (WMT): Free Stock Analysis Report
Hanesbrands Inc. (HBI): Free Stock Analysis Report
lululemon athletica inc. (LULU): Free Stock Analysis Report
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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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