Shares of Ralph Lauren (RL) jumped after the company topped estimates with its third quarter earnings report.
Q3 RESULTS AND GUIDANCE: Ralph Lauren said on Tuesday morning that adjusted earnings per share for the third quarter were $2.32, exceeding analysts' estimates of $2.14. Revenue of $1.73B was also better than the $1.66B consensus. In North America, revenue was $909M, an increase of 3%, Europe revenue was $415M, an increase of 10% on a reported basis and 13% in constant currency, and Asia revenue was $275M, an increase of 10% on a reported basis and 11% in constant currency. In retail, the company said North America comparable store sales were up 4% in Q3, including flat comps in brick and mortar stores and a 21% increase in digital commerce, while Europe SSS were up 4% on a constant currency basis, driven by a 3% increase in brick and mortar store comps and a 13% increase in digital commerce. Asia comps gained 4% in constant currency.
Looking ahead, Ralph Lauren forecast fourth quarter net revenue down "slightly" in constant currency, compared to the $1.48B consensus, due to the planned reduction in off-price sales. Foreign currency is expected to pressure revenue growth by about 300 basis points and about operating margin by about 60 basis points. Net revenue for fiscal 2019 is expected to be up slightly on a constant currency basis, against the $6.24B consensus. It said foreign currency is expected to have a negative impact on revenue growth of about 80-90bps. The company previously forecast FY19 revenue "about flat" to up slightly and said in November that it expected about 75bps of negative impact on revenue growth from foreign currency.
EXECUTIVE COMMENTARY: In the company's earnings statement, President and Chief Executive Officer Patrice Louvet said the company's Q3 results "give us confidence that our strategic investments in brand-building, product, digital, and global expansion are on the right track, while the strength of our balance sheet will continue to be a competitive advantage as we manage through an increasingly volatile global environment." He echoed that statement on the company's earnings call, saying Ralph Lauren is "on track" to achieve its full year plans and is "intensely focused" on driving operating efficiencies. The company said it will continue to monitor the trade environment closely, but believes its teams are prepared for multiple scenarios.
WHAT'S NOTABLE: Ralph Lauren reported a disappointing holiday quarter in the year-ago period, saying its North American comp sales fell 10% in constant currency. The company unveiled a turnaround plan in 2016 called "The Way Forward" in an effort to improve the company's efficiency and increase sales. It has spent the last few years streamlining and cutting costs. In a recent analyst note, Telsey Advisory analyst Dana Telsey said Ralph Lauren is executing well against its strategic initiatives and said she views the company's valuation as "relatively attractive" at current share levels. While Needham analyst Rick Patel said last month that he expects 2019 to be a year of "decelerating growth for many retailers and global brands," he sees Ralph Lauren "bucking that trend."
PRICE ACTION: In morning trading, shares of Ralph Lauren are up 11.5% to $127.67.
Ralph Lauren
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