It’s A Good Time To Own Ralph Lauren (NYSE: RL)

After sliding close to 40% in value since February, shares of fashion kingpin Ralph Lauren (NYSE: RL) were in need of some good news, and this week they got it. The company reported its fiscal Q4 numbers at the start of Tuesday’s session, and right off the bat, they looked good. EPS for the quarter came in at $0.49, 20% higher than what analysts had been expecting, while revenue also beat and showed year-on-year growth of 18%. 

In terms of forward guidance, the company said that for Q1 they expect revenue growth will be in a range centered around 8% in constant currency compared to last year. Operating margin is expected to be in a range centered around 13.5% in constant currency, while gross margin is expected to be down slightly to last year in constant currency with continued AUR growth offset by industry-wide increases in freight and product costs. 

Bullish Comments

But overall, the company was happy. Ralph Lauren, Executive Chairman and Chief Creative Officer, summed up the sense of positivity in the company by saying "from our latest fashion show to the launch of our powerful Morehouse and Spelman colleges collection, we continue to inspire people all over the world to dream. Whether it’s our clothes or how we think about our impact on the planet, we imprint all we do with a spirit of optimism and timelessness that gives people a sense of possibility."

CEO Patrice Louvet followed up from a more strategic viewpoint, saying that “our teams around the world executed exceptionally well to deliver fourth-quarter and full-year results that exceeded our expectations as we continued to progress on our long-term strategic commitments. We have laid the groundwork for healthy sustainable growth and value creation in Fiscal 2023. As we continue to navigate a highly dynamic global macroeconomic environment, our growth will be supported by the strength of our brand and multiple engines — from recruiting new high-value consumers to developing high-potential product categories and geographic and channel expansion." 

Louvet and his team felt good enough about the results and the company’s near-term prospects to raise the dividend, which is one of the most bullish signals management can give to investors. It tells them that they have enough faith in the company’s momentum and potential growth to justify an increased payout, which is especially notable given the current economic climate. 

It’s solid stuff for both investors and would-be investors to be hearing, and it’s no surprise that Ralph Lauren shares are up 12% from this week’s previous low already. They have a ways to go yet before they can definitively say they’ve broken the multi-month downtrend but this is a good start. Interestingly, however, this isn’t a sentiment shared by all on Wall Street. 

Considering A Position

Early Wednesday morning, the team at Wells Fargo cut their price target on Ralph Lauren stock in response to Tuesday’s report. Analyst Ike Boruchow and his team said they saw good progress from Ralph Lauren during the quarter, but macro headwinds remain at the top of their minds. In a note to client, Boruchow said "while we commend Ralph Lauren for significantly improving their model over the past 18 months - cleaning up North America wholesale, enhancing digital capabilities and increasing AURs - building cost pressures and inflated GMs (400bps+ above pre-pandemic levels) are likely to keep investors at bay as we continue to move through a highly uncertain macro."

It could well be the case that Wells Fargo isn’t bullish on any retailer right now, but for those of us with a long enough time horizon, there are more things to like about Ralph Lauren than dislike, especially when shares are trading down at these levels. Their price-to-earnings ratio of 14 makes it very hard for anyone to call them expensive, and they’re managing to grow revenue by 18% year on year during one of the biggest cost of living crises in decades. That’s impressive, and if management can keep that kind of momentum going throughout the summer, there’s every reason to think Ralph Lauren shares will be back trading in the triple digits before too long.