Ralph Lauren (NYSE: RL) Struggles To Keep Recovery Going

It’s been a rollercoaster few weeks for investors of high-end fashion name Ralph Lauren (NYSE: RL) even in the context of COVID-19. Since April, shares have had multiple single week rallies of more than 20% that have been followed by almost as many 20% plus weekly declines. With the latest pullback from post coronavirus highs, reached earlier this month, shares are now trading back at March levels and close to three-year lows.

This is endemic of many non-tech or e-commerce stocks in the aftermath of the first COVID-19 wave. Even as pretty much every equity name saw heavy selling in the initial few weeks during February and March, investors quickly caught onto the growing opportunity for stocks that could capitalize on shelter-in-place orders and the shutting down of non-essential, brick and mortar stores. We’ve seen numerous stocks hit all-time highs during the pandemic as Wall Street has learned to tell a COVID-19 friendly stock from COVID-19 unfriendly stock.

Tough Going

Unfortunately for Ralph Lauren, it’s firmly in the latter camp as high-end retail is always going to be one of the first casualties when consumer spending plummets and unemployment rises. To that point, news broke on Monday that almost half of the US population is currently unemployed, a staggering headline even after months of rising unemployment claims. Any hopes of a quick bounce back are being quickly put to bed as states like Florida, California, Arizona and Texas continue to announce huge daily jumps in new cases that far surpass the numbers reported in March.

Ralph Lauren investors are surely starting to think if the stock couldn’t bounce back from the first wave, even as the S&P 500 index came back to within 5% of its all-time highs, what hope does it have when this second wave hits and fresh restrictions are rolled back out?

The company’s fiscal Q4 earnings, released at the end of May, painted a grim picture that will give little hope to those still holding the stock. Analysts were expecting a negative EPS print of -$0.19 but instead got a print of -$3.38 while revenue also missed and showed a contraction of 16% year on year. While management tried to focus on what results would have been like if COVID-19 hadn’t happened, there was no getting away from the fact that it did. With topline and bottom-line results like that, it was going to be an uphill battle.

Lipstick on a Pig?

CEO Patrcie Louvet said with the release, “reflecting on our performance prior to the crisis, our underlying progress was strong, as our AUR and overall brand elevation journey continued across every region, exceeding our expectations for both the quarter and year.” In fairness, there were some positives to focus on at the time, such as the reopening of two-thirds of their European stores and about half of their North American stores. But as we’ve seen in recent weeks with the likes of Disney (NYSE: DIS) and Apple (NASDAQ: AAPL), many big names aren’t taking any chances with the second wave and are closing their brick and mortar stores once again.

As Ralph Lauren shares languish near the lows, it’s clear that investors are expecting similar action to be taken in the coming days and weeks. Unfortunately for the consumer retail industry, especially non-discount retail names, any time the economy sneezes they tend to catch cold.

For investors on the sidelines and considering getting involved, if shares retest their Q1 lows there’s possibly an argument for dipping a toe in the water as the price will reflect the market’s absolute worst fears. As we saw for periods in April and May, even Ralph Lauren shares can rally hard, albeit briefly compared to what other stocks can do.

That being said, nearly half the US population is currently out of work. Is a company that sells $9,000 coats really one that you want in your portfolio right now?