Analyst Note| David Swartz |
Narrow-moat Ralph Lauren suffered a stunning decline in sales in its (June-ending) first quarter of fiscal 2021, as the temporary closures of its stores and those of its wholesale partners in all regions took a huge toll. The firm’s sales decline of 66% was even worse than our forecast of 57%. Most notably, North America wholesale sales dwindled to practically nothing, falling a whopping 93%. Yet, Ralph’s Lauren’s net loss was not much worse than our forecast, as its gross margin outperformed and expense control was good. While the firm provided no specific guidance, we anticipate that the first quarter was the bottom for sales as nearly all stores worldwide have opened. Store traffic, though, is slow in most regions. Shares dropped about 8% on the report, and Ralph Lauren trades well below our fair value estimate of $93, which we do not expect to materially change. We view it as a firm that will emerge from the crisis in better shape than many of its peers because of its brand strength and liquidity.