Ralph Lauren: Zacks’ Bear of the Day Play

Ralph Lauren Corporation (RLAnalyst Report) had been a darling of stock investors after the Great Recession. But this Zacks Rank #5 (Strong Sell) finally ran out of luck as it recently missed the Zacks Consensus for the first time in five years.

Ralph Lauren is a specialty retailer in apparel, home, accessories and fragrances. It operates numerous well-known brands including Polo Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren Collection, Black Label, Lauren by Ralph Lauren, Denim & Supply Ralph Lauren, American Living, Chaps and Club Monaco.

It operates 470 company-owned stores and has licensing partners on over 200 more around the world.

First Miss in 5 Years

Ralph Lauren has been so consistent on its earnings beats that many investors probably got complacent.

But on Feb 4, global issues, including currency headwinds and slowing economies in some countries, finally resulted in the company’s first earnings miss in 5 years. International revenues are around a third of total revenues.

Ralph Lauren missed by $0.11 on the fiscal third quarter, reporting $2.41 compared to the Zacks Consensus of $2.52.

Comparable store sales fell by 2% year over year. Wholesale sales were in line with the prior year’s third quarter at $837 million.

Lowered Sales Guidance

In addition to continuing currency headwinds, higher operating costs due to the launch of Polo for women as well as infrastructure upgrades will also hit in fiscal fourth quarter so Ralph Lauren lowered its sales outlook.

It now expects revenue growth of about 4%, down from its previous guidance of 5% to 7%.

Given the lowered revenue guidance, the analysts universally lowered earnings guidance for both fiscal 2015 and fiscal 2016.

10 estimates were cut in the last week for fiscal 2015 pushing the Zacks Consensus Estimate down to $7.82 form $8.47. That is an earnings decline of 7% from last year.

Analysts don’t seem any more bullish about next fiscal year either as 9 estimates were also sliced for fiscal 2016. Earnings are expected to drop another 4% year over year.

Shares Sink

Ralph Lauren had been a big high flier after the recession but investors bailed out after this earnings report.

Shares plunged to new 52-week lows.

Does that make Ralph Lauren a deal?

Not really. Shares are still trading with a forward P/E of 17.2. Sure, that’s cheaper than the stock has been over the last year. But the S&P 500 is trading with an average P/E of 17.4.

Ralph Lauren isn’t exactly a value stock even at these levels.

If you really want to own a retailer, you might want to consider Under Armour (UAAnalyst Report) instead. It’s a Zacks Rank #3 (Hold) but it’s expected to grow earnings by 16% this year.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.


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