Ralph Lauren Corp. (NYSE:RL) is on an impressive trajectory, propelled by its robust brand appeal, strong consumer demand, and a diversified presence across all channels. Additionally, the company’s robust online performance and substantial Average Unit Retail (AUR) growth are contributing to its upward momentum. All of these factors are closely aligned with Ralph Lauren’s strategic roadmap, “The Next Great Chapter: Accelerate,” which has been a pivotal driver of its success.
These strengths have translated into an exceptional first-quarter performance for fiscal year 2024, as both revenue and earnings exceeded the Zacks Estimate and displayed YoY Notably, RL reported its 12th consecutive earnings beat and its 10th successive revenue surprise for Q1.
Adjusted earnings per share surged to $2.34, marking a remarkable 24.5% increase from the previous year’s $1.88. Net revenues demonstrated steady growth, rising 0.4% year over year to reach $1,496.5 million. When accounting for constant currency adjustments, revenues grew by an even more impressive 1% compared to the prior-year quarter.
The continuous double-digit growth of AUR in Q1 of fiscal 2024, marking its 25th consecutive rise, can be attributed to a strategic blend of product mix enhancements, reduced freight expenses, and a favorable channel mix. Ralph’s commitment to product refinement, personalized and targeted marketing, prudent inventory management, and optimizing channel and geographic positioning is expected to underpin long-term AUR growth.
As a result, management anticipates low-single-digit revenue growth for fiscal year 2024, along with a 100-basis-point expansion in gross margin on a constant-currency basis. This growth is primarily driven by solid AUR, a favorable geographic mix, and cost-effective logistics, which effectively counterbalance ongoing product cost inflation.
For the upcoming fiscal Q2, the company foresees revenue remaining stable to slightly increasing on a constant-currency basis, inclusive of a positive foreign currency impact of approximately 100 basis points. Operating margins are projected to range from 9.5% to 10% on a reported basis and 9% to 9.5% on a constant-currency basis, while gross margins are expected to expand by 40 to 60 basis points, more than offsetting the increase in operating expenses.
In light of these accomplishments, Ralph Lauren stock has soared by an impressive 35.2% in the past year, significantly outperforming the industry’s modest 4.8% growth.
Diving Deeper into the Success
Ralph Lauren is making substantial strides in enhancing its digital and omni-channel capabilities by investing in mobile technology, omni-channel experiences, and efficient fulfillment processes. In the fiscal first quarter, the company’s digital business experienced growth, primarily driven by international markets, which compensated for a slower North American performance. Starting in June, there were observable improvements in the company’s North American digital segment.
The company achieved a significant milestone by amassing 53.5 million social media followers worldwide, marking a high-single-digit increase compared to the previous year. This was largely fueled by Ralph Lauren’s popularity on platforms such as Instagram, Line, TikTok, WeChat, and others. Ralph Lauren’s online search trends consistently outpaced industry peers globally, attributed to its appealing spring collections and accessory offerings.
From a regional perspective, digital sales in Europe increased by 8%, while Asia experienced an 11% rise. For fiscal 2024, Ralph Lauren is committed to providing enriched digital content and personalized customer experiences. This commitment includes further investments in digital technology to enhance user experiences and capitalize on AI and data-driven strategies to serve consumers more effectively.
Ralph Lauren has been progressively expanding its connected retail capabilities, featuring virtual selling appointments, “buy online, pick up in store” options, and an extended product availability known as the “endless aisle.” During the previous holiday season, the company successfully launched its first comprehensive Ralph Lauren mobile app, capitalizing on its connected retail capabilities to offer a highly personalized and content-rich platform.
The company remains steadfast in its pursuit of surpassing its fiscal targets outlined in the “Next Great Chapter” plan introduced in June 2018. This plan’s core objectives include streamlining the global organizational structure and deploying advanced technological capabilities. As part of this strategy, the company transitioned Chaps into a licensed business, thereby finalizing its portfolio realignment announced the previous year. This strategic move positions Ralph Lauren to focus squarely on its core brands as it continues to elevate its offerings within “The Next Great Chapter” framework.
Obstacles on the Horizon
Despite these impressive strides, Ralph Lauren has grappled with persistently rising product costs and elevated compensation expenses. In the first quarter of fiscal 2024, adjusted operating expenses increased by 1% compared to the previous year, reaching $830 million. This uptick was driven by higher compensation costs and increased rent and occupancy expenses, partially offset by reduced marketing expenditures. As a result, adjusted operating expenses as a percentage of sales expanded by 30 basis points, reaching 56%. Ralph Lauren anticipates higher marketing expenses and additional investments in its ecosystem for the fiscal second quarter.
The company has faced macroeconomic inflationary challenges, particularly in North America, which impacted its first-quarter performance in the region. The North America segment experienced a decline of 10% in revenue compared to the same period the previous year, falling short of the estimated $635 million.
Comparable store sales for North America’s retail channel decreased by 6% year over year, with brick-and-mortar stores witnessing an 8% decline and digital commerce decreasing by 5%. On the positive side, revenues from the North America wholesale business grew by 16% year over year. For fiscal 2024, management anticipates a low-single-digit decline in North America.
In Conclusion
Market analysts express optimism regarding Ralph Lauren’s future. The Zacks Estimate for fiscal 2024 predicts sales of $6.6 billion and earnings per share of $9.48, reflecting growth rates of 2.5% and 13.7%, respectively, when compared to the previous year. Moreover, the Zacks Estimate for fiscal 2024 earnings has witnessed a 0.7% increase in the past 30 days.
In summary, Ralph Lauren’s impressive performance is expected to continue, fueled by its strategic initiatives and strong foundation. Notably, a VGM Score of A and a long-term earnings growth rate of 13.4% underscore the company’s promising prospects.
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