Post Earnings Coverage as Ralph Lauren Outperformed Market Expectations

Upcoming AWS Coverage on Kate Spade Post-Earnings Results

LONDON, UK / ACCESSWIRE / November 18, 2016 / Active Wall St. announces its post-earnings coverage on Ralph Lauren Corp. (NYSE: RL). The company released its financial results for second quarter fiscal 2017 (Q2 FY17) on November 10, 2016. The apparel maker’s earnings declined sharply on weaker sales and expenses related to restructuring plans. Register with us now for your free membership at: http://www.activewallst.com/register/.

One of Ralph Lauren’s competitors within the Textile – Apparel Clothing space, Kate Spade & Co. (NYSE: KATE), announced on November 02, 2016, its results for the third quarter ended October 1, 2016. AWS will be initiating a research report on Kate Spade in the coming days.

Today, AWS is promoting its earnings coverage on RL; touching on KATE. Get our free coverage by signing up to:

http://www.activewallst.com/registration-3/?symbol=RL

http://www.activewallst.com/registration-3/?symbol=KATE

Earnings Reviewed

For the three months ended on October 1st, 2016, Ralph Lauren’s earnings came in at $45 million, or $0.55 per share, compared to earnings of $160 million, or $1.86 per share, in the same period a year ago. Excluding restructuring and other related charges recorded in connection with the Company’s Way Forward plan, Ralph Lauren reported adjusted earnings of $1.90 per share, above the FactSet consensus of $1.71. Revenue for Q2 FY17 declined to $1.82 billion from $1.92 billion; however revenue numbers topped analysts’ forecasts of $1.81 billion, as better-than-expected retail revenue offset less-than-expected wholesale and licensing revenue.

Operating Metrics

Ralph Lauren’s gross profit for Q2 FY17 was $954 million on a reported basis, including $81 million in non-cash inventory-related charges. On an adjusted basis, gross profit totaled $1.0 billion and gross profit margin was 56.9%, down 40 basis points on y-o-y basis, excluding non-cash inventory related charges from both periods. Operating income in Q2 FY17 was $76 million and operating margin was 4.2% on a reported basis, including restructuring and other related charges of $150 million. On an adjusted basis, operating income was $226 million and operating margin was 12.4%, 110 basis points below last year.

The Way Forward Plan

Ralph Lauren expects its FY17 restructuring activities to result in approximately $180 million-$220 million of annualized expense savings related to its initiatives to streamline the organizational structure and right-size its cost structure and real estate portfolio. The Company expects to incur restructuring charges of about $400 million as a result of the FY17 restructuring activities and about $150 million inventory charge associated with the Company’s Way Forward plan. These charges are expected to be substantially realized by the end of Fiscal 2017. In Q2 FY17, the Company recorded $150 million in restructuring, related impairment, and inventory charges.

Segment Results

During Q2 FY17, Ralph Lauren’s revenue from the wholesale segment decreased 10% on both a reported and a constant currency basis to $831 million, driven by a decline in North America, as shipments were strategically reduced as part of the Way Forward plan. This was partially offset by an increase in Europe. The Wholesale operating income in Q2 FY17 was $203 million and wholesale operating margin was 24.5% on a reported basis, including $15 million in restructuring and other related charges. On an adjusted basis, wholesale operating income in the reported quarter was $218 million and wholesale operating margin was 26.4%, down 40 basis points from Q2 FY16.

The company reported a 5% decline on a reported basis in sales through its Retail segment to $942 million in the reported quarter, and was down 6% on a constant currency basis, both driven by a comparable store sales decline. Consolidated comparable store sales decreased 8% on a reported basis and 9% in constant currency in Q2 FY17 hampered by traffic declines, only partially offset by moderated markdown levels. Ralph Lauren’s Retail operating income for Q2 FY17 was $19 million and retail operating margin was 2.0% on a reported basis, including $93 million in restructuring and other related charges. On an adjusted basis, retail operating income was $112 million and retail operating margin was 11.8%, down 100 basis points on a y-o-y basis.

During Q2 FY17, Ralph Lauren’s licensing segment revenue totaled $48 million, which was higher by 2% on a reported basis and was slightly flat compared to the prior year’s period on a constant currency basis. Licensing operating income was $44 million in Q2 FY17, higher by 5% compared to the prior year’s period on a reported basis.

Outlook

For FY17, Ralph Lauren is expecting consolidated net revenue to decrease at a low-double digit rate consistent with the Way Forward. The Company continues to expect operating margin for FY17 to be approximately 10%, as cost savings are expected to be offset by growth in new store expenses, unfavorable foreign currency impacts in gross margin, infrastructure investments, and fixed expense deleverage.

For Q3 FY17, Ralph Lauren projects consolidated net revenues to be down low-double digits to down low-teens on a reported basis, with continued execution of quality of sales initiatives, inventory receipt reductions, and fleet optimization consistent with the Way Forward plan. Operating margin for Q3 FY17 is expected to be down approximately 200 to 225 basis points compared to the prior year’s period.

Stock Performance

On Thursday, the stock closed the trading session at $113.57, climbing 1.47% from its previous closing price of $111.92. A total volume of 858.58 thousand shares have exchanged hands, which was higher than the 3-month average volume of 735.75 thousand shares. Ralph Lauren’s stock price advanced 14.74% in the last month, 4.80% in the past three months, and 25.29% in the previous six months. The stock is trading at a PE ratio of 31.37 and has a dividend yield of 1.76%.

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