Company Reports

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed underperforming stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other efforts have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 76% of sales in fiscal 2033 from 63% in fiscal 2023, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Ralph Lauren’s shares soared 17% on Feb. 8 after it reported fiscal 2024 third-quarter sales and earnings above our expectations. We attribute the solid results in a difficult apparel market to the power of the company’s brand, the source of our narrow-moat rating. We expect to lift our $132 fair value estimate by a mid-single-digit percentage, but now rate Ralph Lauren’s shares as overvalued after their sharp rise over the past three months.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other efforts have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 74% of sales in fiscal 2033 from 63% in fiscal 2023, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Ralph Lauren overcame a 7% sales decline in North America wholesale to post fiscal 2024 second-quarter sales and earnings above our forecast. The firm’s average unit retail in its direct-to-consumer channels rose 10% on top of an 18% increase last year. We believe Ralph Lauren’s ability to lift prices and margins in a difficult demand environment supports our narrow-moat rating based on a brand intangible asset. We expect to lift our $131 fair value estimate by a low-single-digit percentage, leaving shares undervalued.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 74% of sales in fiscal 2033 from 63% in fiscal 2023, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Ralph Lauren overcame challenged consumer spending on apparel in North America to beat our sales and EPS estimates in its (June-ended) fiscal 2024 first quarter. Although the near-term outlook for the North America market remains dim, the firm held to its full-year guidance for low-single-digit sales growth and an adjusted operating margin of about 12%. As our estimates align with this outlook, we do not expect to make any material change to our $131 fair value estimate and view Ralph Lauren’s shares as fully valued.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 74% of sales in fiscal 2033 from 63% in fiscal 2023, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Narrow-moat Ralph Lauren closed its March-ended fiscal 2023 with sales and profitability above our expectations. While the near-term outlook is clouded by slowing demand for apparel in Europe and North America, we believe we have adequately incorporated the impact into our model. Our medium-term estimates for 3%-4% annual sales growth and 13%-14% operating margins are lower than the mid- to high-single-digit and 15% respective targets that Ralph Lauren laid out at its analyst event last year. Thus, given the fiscal 2023 outperformance, we are comfortable raising our $127 fair value estimate by a mid-single-digit percentage and view the shares as undervalued, even after they jumped about 6% on the earnings report. We believe Ralph Lauren has made great strides in lifting its average unit retail pricing (up about 77% over the past five years) and profitability (gross margins now in the mid-60s, up from the high 50s a decade ago). In addition, it offers a solid balance sheet, having closed fiscal 2023 with about $6.30 per share in net cash despite more than $650 million in combined dividends and share repurchases in the year.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 72% of sales in fiscal 2032 from 63% in fiscal 2022, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Overcoming unfavorable currency movement and a soft North American apparel market that was characterized by bloated inventories and discounting, narrow-moat Ralph Lauren posted (December-ended) fiscal 2023 third-quarter results that surpassed our expectations. Moreover, the company’s guidance for 1%-2% constant-currency sales growth in the fourth quarter is solid considering that industry challenges have persisted and that it faces a tough comparison with last year. We believe Ralph Lauren’s recent consistency in its results as compared with some peers affirms that its brand elevation plans have been successful. We expect to lift our per-share $124 fair value estimate by a low-single-digit percentage, leaving shares slightly undervalued.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 73% of sales in fiscal 2032 from 63% in fiscal 2022, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Ralph Lauren outperformed our expectations in its (September-ended) fiscal 2023 second quarter despite the strong U.S. dollar, virus restrictions in China, and inflation. We do not expect to make any material change to our $122 fair value estimate and view Ralph Lauren's shares as undervalued. We have noticed in recent quarters that apparel and accessories brands that cater to wealthier consumers are performing better than some peers, and Ralph Lauren appears to be benefiting from this trend.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates the extraordinary challenge of the COVID-19 pandemic. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 72% of sales by fiscal 2032 from 63% in fiscal 2022, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Overcoming virus-related store closures in China and inflation’s impact on consumer spending, Ralph Lauren reported results for its fiscal 2023 first quarter (June-ended) that largely surpassed our expectations. We think these results provide further evidence that its efforts to elevate its product and pricing have bolstered its brand intangible asset, the source of our narrow-moat rating. The company marginally lowered sales and margin guidance for the rest of the fiscal year (perhaps explaining the mid-single-digit drop in its share price), but the cut was due solely to the stronger U.S. dollar. We plan no material change to our per-share $122 fair value estimate on Ralph Lauren and view it as very attractive at current levels.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates the extraordinary challenge of the COVID-19 pandemic. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in strong gross margin increases. Although sales have declined in North America from peak levels, we believe the restructuring, including new merchandise and better pricing for core products, has positioned Ralph Lauren for low-single-digit sales growth and mid-60s gross margins. Further, we forecast advertising support as a percentage of sales in the mid-single digits in the long term and anticipate its direct-to-consumer sales will rise to 73% of sales by fiscal 2032 from 63% in fiscal 2022, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Ralph Lauren overcame inflation, a stronger dollar, low international tourism, China lockdowns, and logistical pressures to post solid results for its (March-ended) fiscal-year 2022 fourth quarter. We expect to lift our $120 fair value estimate by a low-single-digit percentage.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates the extraordinary challenge of the COVID-19 pandemic. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in steady improvements in gross margins. Although sales have declined in North America, we believe the restructuring has positioned Ralph Lauren for sustained growth and margin levels in fiscal 2022 and beyond. We expect the firm to stabilize its North America sales and operating margins with new merchandise and better pricing on core products. Further, we forecast advertising support as a percentage of sales to hold around 5% in the long term (five-year historical average of 4.4%) and anticipate its direct-to-consumer sales will rise to 70% of sales by fiscal 2031 from 63% in fiscal 2021, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

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.

In our view, narrow-moat Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates the extraordinary challenge of the COVID-19 pandemic. In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times. These and other changes have resulted in steady improvements in gross margins. Although sales have declined in North America, we believe the restructuring has positioned Ralph Lauren for sustained growth and margin levels in fiscal 2022 and beyond. We expect the firm to stabilize its North America sales and operating margins with new merchandise and better pricing on core products. Further, we forecast advertising support as a percentage of sales to increase to 5.0% by fiscal 2023 (five-year historical average of 4.4%) and anticipate its direct-to-consumer sales will rise to 70% of sales by fiscal 2031 from 63% in fiscal 2021, thereby reducing the brand’s dependence on U.S. physical retail and providing better control over pricing and positioning. We view an increasing direct-to-consumer business as essential as customer visitation is declining in many retail stores and malls.

Ralph Lauren outperformed our margin expectations in fiscal 2022’s second quarter, but fears of higher costs and supply chain problems led to a 9% drop in its share price. We expect to lift our fair value estimate of $108 per share by a mid-single-digit percentage but view its shares as fully valued.