Narrow-Moat Ralph Lauren Overcomes Macro Challenges to Post Solid Q3 Results; Shares Fairly Valued

Ralph Lauren surpassed our sales and profitability estimates in its December-ended fiscal 2022 third quarter despite supply chain delays and costs, rising input costs, and negative currency effects. We view these results as evidence that its strategic initiatives, including its marketing and merchandising efforts, are supporting its brand strength, the source of our narrow moat rating. Indeed, in company-owned channels, Ralph Lauren reported an 18% increase in average unit retail pricing on top of a 19% increase last year. Thus, while cost pressures are likely to continue into fiscal 2023 and discounting in the industry may rise to normal levels, we think the firm is on track to hold its gross margins in the mid-60s, as we have modeled. We expect to lift our $112 fair value estimate by a mid-single-digit percentage to account for the results and the reversal of our prior expectation of a higher U.S. tax rate, but we still view Ralph Lauren as fully valued.