Ralph Lauren (RL) to Post Q2 Earnings: What's in the Offing?

Ralph Lauren Corporation RL is slated to release second-quarter fiscal 2019 results on Nov 6, before the opening bell.

The company has an impressive earnings surprise history, having outpaced estimates for the last 14 quarters. Also, it delivered an average four-quarter positive earnings surprise of 7.2%.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

Ralph Lauren Corporation Price, Consensus and EPS Surprise | Ralph Lauren Corporation Quote

The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.16, reflecting 8.5% growth year over year. Notably, the consensus mark remained stable over the last 30 days.

Let’s see how things are shaping up prior to the earnings announcement.

Factors at Play

Ralph Lauren has been benefiting from strategic initiatives, including focus on core business, improvement in product assortments and delivery of better quality sales. Moreover, its progress on the Way Forward Plan, with stringent focus on digital and international growth is commendable. As part of its focus on the core business, management is keen on improving assortments by discontinuing unproductive styles. Further, Ralph Lauren is on track to reduce its supply chain lead times to improve the quality of sales and curtail markdowns. It is also focused on lowering inventories to keep it on par with demand.

These apart, Ralph Lauren is well on track with its restructuring plan, which is likely to generate savings of roughly $140 million by the end of fiscal 2019. These restructuring activities include rightsizing the portfolio and cost-structure alongside streamlining the structure of the organization.

On the international front, Ralph Lauren is bolstering its presence by continually broadening its base in underpenetrated markets with new and highly productive small-format stores. In first-quarter fiscal 2019, the company’s constant-currency revenues in China grew more than 25%, with over 40% of growth coming from Mainland China. Further, expansion of digital platforms remains a key catalyst behind Ralph Lauren’s global growth strategy. Also, its digital wholesale business has been performing well.

 

Backed by these robust growth strategies, the stock has surged 29.5% year to date, outperforming the industry’s 17.4% rally.

However, the company’s North America business remains a headwind since the last few quarters. At this segment, revenues dipped 2% on both reported and constant-currency basis in first-quarter fiscal 2019. On a currency-neutral basis, comparable store sales at North America’s retail channel declined 3%, due to a 3% fall in brick and mortar comps and a 2% drop in digital comps. In-store comps at the unit were mainly impacted by the timing of Easter in the fiscal first quarter.

Further, management projects net revenues in a band of flat to down slightly on a constant-currency basis for the fiscal second quarter. Foreign currency is expected to mar revenue growth by approximately 30-50 basis points (bps). The Zacks Consensus Estimate for revenues stands at $1.66 billion, down 0.3% from the year-ago figure.

Nevertheless, operating margin is anticipated to grow around 30 bps in constant currency and expected to be slightly benefited by foreign currency in the fiscal second quarter. Additionally, the aforementioned growth initiatives make us optimistic about Ralph Lauren’s second-quarter fiscal 2019 results.

Zacks Model
 
Our proven model conclusively shows that Ralph Lauren is likely to beat earnings estimates in the fiscal second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ralph Lauren has an Earnings ESP of +0.08% and Zacks Rank #2, which makes us reasonably confident of earnings beat.

Other Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

lululemon athletica inc. LULU has an Earnings ESP of +5.89% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +9.76% and a Zacks Rank #3.

PVH Corp PVH has an Earnings ESP of +0.46% and a Zacks Rank #3.

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