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Ralph Lauren Corp RL

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Narrow-Moat Ralph Lauren Is Managing Through the Uncertainty of the Pandemic; Shares Overvalued

David Swartz Equity Analyst

Analyst Note

| David Swartz |

Narrow-moat Ralph Lauren’s third quarter of fiscal 2021 was in line with our expectations. However, the near-term outlook is clouded by the resurgence of the virus, especially in Europe and Japan. Ralph Lauren now expects a sales decline in the mid- to high single digits in the fourth quarter, below our prior forecast of a 10% increase, as its stores in Japan, Germany, the United Kingdom, and other regions are currently closed. Moreover, Ralph Lauren expects higher operating expenses in the fourth quarter due to a 50% increase in marketing, whereas we had forecast a decline. Regardless, as the virus is a short-term issue, we still expect Ralph Lauren to produce long-term gross and operating margins of about 63% and 10%, respectively, on annual sales growth of about 2%. Thus, we do not expect to make any material change to our fair value estimate of $93 on its shares, which we view as overvalued.

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Company Profile

Business Description

Founded in 1967 by Ralph Lauren, Ralph Lauren Corp. designs, markets, and distributes lifestyle products in North America, Europe, and Asia. Its products include apparel, footwear, eyewear, jewelry, leather goods, home products, and fragrances. The company's brands include Polo Ralph Lauren, Lauren Ralph Lauren, Chaps, Double RL, and Club Monaco. Distribution channels for Ralph Lauren include wholesale (including department stores and specialty stores), retail (including company-owned retail stores and e-commerce), and licensing.

650 Madison Avenue
New York, NY, 10022
T +1 212 318-7000
Sector Consumer Cyclical
Industry Apparel Manufacturing
Most Recent Earnings Dec 31, 2020
Fiscal Year End Mar 30, 2021
Stock Type Distressed
Employees 24,900