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Why Ralph Lauren Stock Gained 23% in May

Demitrios Kalogeropoulos, The Motley Fool

What happened

Premium retailer Ralph Lauren (NYSE: RL) trounced the market last month, rising 23% compared to a 2% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

^SPX Chart

^SPX data by YCharts.

The increase pushed shares further into sharply positive territory over the past 12 months, but the stock is still underperforming the market over longer 3-year and 5-year periods.

So what

Investors responded positively to Ralph Lauren's earnings report last month. Sales declined as the company reduced its reliance on price cuts and on the heavy promotions it had been running in its e-commerce channel.

Yet as a result of those moves, adjusted gross margin improved by 4.4 percentage points last quarter, to 59.8% of sales. "We delivered on our commitments for the fourth quarter and the full year," CEO Patrice Louvet said in a press release.

A man holding shopping bags.

Image source: Getty Images.

Now what

Louvet and his executive team are predicting continued revenue declines in the year ahead, with sales dropping at a low single-digit rate. That would mark a modest improvement over fiscal 2018's 8% decline. Profitability is expected to rebound, too, with operating margin inching higher for the second straight year.

Neither of these top- and bottom-line forecasts is particularly impressive, but they both support management's claim that the business has turned a corner toward sustainable sales and earnings growth starting perhaps as early as fiscal 2020.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.