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Ralph Lauren (RL) Q1 Earnings Beat, Higher Comps Aid Revenues
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Ralph Lauren Corporation (RL - Free Report) has posted impressive first-quarter fiscal 2025 results, wherein the bottom and top lines beat the Zacks Consensus Estimate. Results have gained from robust demand and brand strength. The company has been on track with its Next Great Chapter: Accelerate plan.
RL has reported adjusted earnings per share of $2.70, which surpassed the consensus estimate of $2.45. Also, the bottom line increased from earnings of $2.34 per share in the year-earlier quarter.
Net revenues grew 1% year over year to $1,512.2 million and beat the Zacks Consensus Estimate of $1,488 million. On a constant-currency (cc) basis, revenues were up 3% from the year-ago quarter. The top line witnessed growth across all regions except for North America, driven by brand strength, pricing efforts and continued strategic investments. Global direct-to-consumer comparable store sales jumped 5%, backed by continued brand elevation, double-digit increases in average unit retail ("AUR") and positive retail comps at all regions. However, the top line witnessed the negative impacts of 170 basis points (bps) from foreign currency rates.
Shares of this Zacks Rank #3 (Hold) company have gained 2.4% in the past three months against the industry’s 14.3% decline.
Segmental Details
North America: The segment’s revenues were down 4% year over year to $608 million, lower than our estimate of $624.8 million. Comparable store sales (comps) for North America’s retail channel rose 1% year over year wherein the same for brick-and-mortar stores moved up 3%. Digital commerce fell 4%. Revenues from the North America wholesale business declined 13% year over year.
Europe: The segment’s revenues rose 6% year over year to $479 million while the metric was up 7% on a currency-neutral basis. The figure beat our estimate of $450 million. Comps for the retail channel in Europe were up 8% whereas brick-and-mortar stores grew 7% year over year. Digital sales witnessed a 14% rise. Revenues for the segment’s wholesale business were up 5% on both reported basis and a cc basis.
Asia: The segment’s revenues increased 4% year over year to $391 million on a reported basis and 9% on a currency-neutral basis. The metric beat our estimate of $386.2 million. Comps in Asia were up 9%, backed by 7% growth in brick-and-mortar stores and a 21% increase in the digital business.
Margins
Ralph Lauren's adjusted gross profit margin expanded 170 bps year over year to 70.5%. This was mainly driven by lower cotton costs, positive product, channel and geographic mix shifts, and AUR growth in all regions. We expected an adjusted gross profit margin of 69.8%, up 100 bps year over year.
Adjusted operating expenses rose 2% from the year-ago period to $849.9 million. Adjusted operating expenses, as a percentage of sales, expanded 70 bps to 56.2%, thanks to increased marketing investments owing to the planned timing of key campaigns. Excluding marketing expenses, the adjusted operating expense rate fell 30 bps year over year.
The company’s adjusted operating income was $215.9 million, up 7.9% from $200.1 million in the year-earlier quarter. The adjusted operating margin increased 90 bps year over year to 14.3%.
Financials
Ralph Lauren ended the quarter with cash and short-term investments of $1.8 billion, a total debt of $1.1 billion and total shareholders’ equity of $2.4 billion. Inventory fell 13% year over year to $1 billion.
The company repurchased Class A shares for about $176 million and paid a regular quarterly cash dividend of 82.50 cents per share in the fiscal first quarter. It returned nearly $225 million to shareholders via dividends and share repurchases.
The company incurred $33.4 million in capital expenditures compared with $39.6 million in the year-ago period. Management still expects capital expenditure to be in the range of $300-$325 million for fiscal 2025.
Store Update
As of Jun 29, 2024, Ralph Lauren had 565 directly operated stores and 697 concession shops globally. The directly operated stores included 235 Ralph Lauren and 330 Outlet stores. The company operated 101 licensed partner stores globally as of the same date.
Outlook
For fiscal 2025, RL continues to anticipate year-over-year revenue growth (at cc) in the low-single digits, revolving around 2-3%. This includes 150 bps of adverse impacts of currency. Management still expects the operating margin to grow in the range of 100-120 bps at cc on higher gross margin and operating cost leverage. The gross margin is likely to increase in the band of 50-100 bps in cc. Foreign currency is anticipated to hurt gross and operating margins by about 40 bps. The fiscal tax rate is likely to be in the range of 23-24%.
For the fiscal second quarter, the company anticipates revenues to grow nearly low-to-mid single digits on a cc basis, in the band of 3-4%. This includes nearly 160 bps of negative foreign currency impacts. Operating margin is likely to expand around 80-120 bps in cc on higher gross margins. The gross margin is expected to grow in the range of 110-130 bps, more than offsetting increased planned operating costs. Excluding marketing expenses, operating costs are forecast to dip slightly as a percentage of sales year over year. Foreign currency is likely to hurt the gross and operating margins by 40 bps and 50 bps, respectively.
Key Picks
We have highlighted three better-ranked stocks, namely, G-III Apparel Group (GIII - Free Report) , Gildan Activewear (GIL - Free Report) and Royal Caribbean (RCL - Free Report) .
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
GIII Apparel has a trailing four-quarter earnings surprise of 571.8%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.
Gildan Activewear, a manufacturer of premium quality branded basic activewear, currently carries a Zacks Rank #2 (Buy). GIL has a trailing four-quarter earnings surprise of 5.2%, on average.
The consensus estimate for Gildan Activewear’s current financial-year earnings per share indicates growth of 14% from the year-ago corresponding figure.
Royal Caribbean carries a Zacks Rank of 2 at present. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.
The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share indicates an increase of 17.8% and 67.8%, respectively, from the year-ago reported levels.
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Ralph Lauren (RL) Q1 Earnings Beat, Higher Comps Aid Revenues
Ralph Lauren Corporation (RL - Free Report) has posted impressive first-quarter fiscal 2025 results, wherein the bottom and top lines beat the Zacks Consensus Estimate. Results have gained from robust demand and brand strength. The company has been on track with its Next Great Chapter: Accelerate plan.
RL has reported adjusted earnings per share of $2.70, which surpassed the consensus estimate of $2.45. Also, the bottom line increased from earnings of $2.34 per share in the year-earlier quarter.
Net revenues grew 1% year over year to $1,512.2 million and beat the Zacks Consensus Estimate of $1,488 million. On a constant-currency (cc) basis, revenues were up 3% from the year-ago quarter. The top line witnessed growth across all regions except for North America, driven by brand strength, pricing efforts and continued strategic investments. Global direct-to-consumer comparable store sales jumped 5%, backed by continued brand elevation, double-digit increases in average unit retail ("AUR") and positive retail comps at all regions. However, the top line witnessed the negative impacts of 170 basis points (bps) from foreign currency rates.
Shares of this Zacks Rank #3 (Hold) company have gained 2.4% in the past three months against the industry’s 14.3% decline.
Segmental Details
North America: The segment’s revenues were down 4% year over year to $608 million, lower than our estimate of $624.8 million. Comparable store sales (comps) for North America’s retail channel rose 1% year over year wherein the same for brick-and-mortar stores moved up 3%. Digital commerce fell 4%. Revenues from the North America wholesale business declined 13% year over year.
Europe: The segment’s revenues rose 6% year over year to $479 million while the metric was up 7% on a currency-neutral basis. The figure beat our estimate of $450 million. Comps for the retail channel in Europe were up 8% whereas brick-and-mortar stores grew 7% year over year. Digital sales witnessed a 14% rise. Revenues for the segment’s wholesale business were up 5% on both reported basis and a cc basis.
Asia: The segment’s revenues increased 4% year over year to $391 million on a reported basis and 9% on a currency-neutral basis. The metric beat our estimate of $386.2 million. Comps in Asia were up 9%, backed by 7% growth in brick-and-mortar stores and a 21% increase in the digital business.
Margins
Ralph Lauren's adjusted gross profit margin expanded 170 bps year over year to 70.5%. This was mainly driven by lower cotton costs, positive product, channel and geographic mix shifts, and AUR growth in all regions. We expected an adjusted gross profit margin of 69.8%, up 100 bps year over year.
Adjusted operating expenses rose 2% from the year-ago period to $849.9 million. Adjusted operating expenses, as a percentage of sales, expanded 70 bps to 56.2%, thanks to increased marketing investments owing to the planned timing of key campaigns. Excluding marketing expenses, the adjusted operating expense rate fell 30 bps year over year.
The company’s adjusted operating income was $215.9 million, up 7.9% from $200.1 million in the year-earlier quarter. The adjusted operating margin increased 90 bps year over year to 14.3%.
Financials
Ralph Lauren ended the quarter with cash and short-term investments of $1.8 billion, a total debt of $1.1 billion and total shareholders’ equity of $2.4 billion. Inventory fell 13% year over year to $1 billion.
The company repurchased Class A shares for about $176 million and paid a regular quarterly cash dividend of 82.50 cents per share in the fiscal first quarter. It returned nearly $225 million to shareholders via dividends and share repurchases.
The company incurred $33.4 million in capital expenditures compared with $39.6 million in the year-ago period. Management still expects capital expenditure to be in the range of $300-$325 million for fiscal 2025.
Store Update
As of Jun 29, 2024, Ralph Lauren had 565 directly operated stores and 697 concession shops globally. The directly operated stores included 235 Ralph Lauren and 330 Outlet stores. The company operated 101 licensed partner stores globally as of the same date.
Outlook
For fiscal 2025, RL continues to anticipate year-over-year revenue growth (at cc) in the low-single digits, revolving around 2-3%. This includes 150 bps of adverse impacts of currency. Management still expects the operating margin to grow in the range of 100-120 bps at cc on higher gross margin and operating cost leverage. The gross margin is likely to increase in the band of 50-100 bps in cc. Foreign currency is anticipated to hurt gross and operating margins by about 40 bps. The fiscal tax rate is likely to be in the range of 23-24%.
For the fiscal second quarter, the company anticipates revenues to grow nearly low-to-mid single digits on a cc basis, in the band of 3-4%. This includes nearly 160 bps of negative foreign currency impacts. Operating margin is likely to expand around 80-120 bps in cc on higher gross margins. The gross margin is expected to grow in the range of 110-130 bps, more than offsetting increased planned operating costs. Excluding marketing expenses, operating costs are forecast to dip slightly as a percentage of sales year over year. Foreign currency is likely to hurt the gross and operating margins by 40 bps and 50 bps, respectively.
Key Picks
We have highlighted three better-ranked stocks, namely, G-III Apparel Group (GIII - Free Report) , Gildan Activewear (GIL - Free Report) and Royal Caribbean (RCL - Free Report) .
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
GIII Apparel has a trailing four-quarter earnings surprise of 571.8%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.
Gildan Activewear, a manufacturer of premium quality branded basic activewear, currently carries a Zacks Rank #2 (Buy). GIL has a trailing four-quarter earnings surprise of 5.2%, on average.
The consensus estimate for Gildan Activewear’s current financial-year earnings per share indicates growth of 14% from the year-ago corresponding figure.
Royal Caribbean carries a Zacks Rank of 2 at present. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.
The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share indicates an increase of 17.8% and 67.8%, respectively, from the year-ago reported levels.