Ralph Lauren's (RL) Q4 Outlook Bleak: Will Earnings Beat?

Ralph Lauren Corporation (NYSE:RL) is scheduled to release fourth-quarter fiscal 2016 results on May 12. In the previous quarter, this premium lifestyle merchandise retailer reported a positive earnings surprise of 7.6%.

Additionally, the company delivered average positive earnings surprises of 7.7% in the trailing four quarters. Let’s see how things are shaping up for this announcement.

Factors Affecting This Quarter

Ralph Lauren's growth story looks compelling as it possesses a strong portfolio of globally recognized brands and a healthy financial status. This, along with constant initiatives focused on profitable areas, should boost growth.

Though Ralph Lauren posted a better-than-expected bottom line for the third quarter of fiscal 2016, sales fell short of expectations. Following the dismal sales performance in the third quarter, the company lowered its sales and operating margin forecasts for fiscal 2016 and provided a bleak outlook for the fiscal fourth quarter. It also expects the ongoing foreign currency headwinds to hurt sales in the fourth quarter and fiscal 2016.

The company expects net revenue to be flat to down 2% year over year in the fiscal fourth quarter, including a negative impact of nearly 150-basis points (bps) from currency translations. Operating margin is anticipated to contract 400–450 bps year over year. The effective tax rate for the fiscal fourth quarter is projected at 32%. These factors tone down our expectations for the upcoming quarter.

Earnings Whispers

Our proven model does not conclusively show that Ralph Lauren is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Ralph Lauren currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 83 cents per share.

Zacks Rank: Ralph Lauren carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

The TJX Companies Inc. (NYSE:TJX) , scheduled to report earnings on May 17, has an Earnings ESP of +1.43% and a Zacks Rank #2.

L Brands Inc. (NYSE:LB) , scheduled to report earnings on May 18, has an Earnings ESP of +1.75% and a Zacks Rank #3.

ULTA Salon, Cosmetics & Fragrance Inc. (NASDAQ:ULTA) , scheduled to report earnings on May 26, has an Earnings ESP of +0.78% and a Zacks Rank #1.