Ralph Lauren Corp. RL has posted solid third-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year. Results gained from robust growth across all regions, with North America rising 30%, Europe up 50% and Asia increasing 20% in constant currency. Management raised the fiscal 2022 view and outlined strong guidance for the fiscal fourth quarter.
Ralph Lauren reported adjusted earnings per share of $2.94 in the fiscal third quarter, surpassing the Zacks Consensus Estimate of $2.17. The bottom line surged 76% from the prior-year quarter’s $1.67.
Net revenues grew 27% year over year to $1,815.4 million and beat the Zacks Consensus Estimate of $1,638 million. On a constant-currency basis, revenues were up 28% from the prior-year quarter. The uptick was attributable to double-digit growth across all regions, driven by a robust holiday season. This was partly offset by impacts of 150 basis points (bps) from adverse currency rates.
The company’s global digital ecosystem continued to witness robust growth, recording year-over-year revenue growth of more than 40%. This was driven by strength across owned and wholesale digital channels globally. Revenues for the company’s owned digital e-commerce business rose more than 30% year over year.
Shares of this Zacks Rank #3 (Hold) company have gained 5.4% in the past year against the industry’s decline of 1.7%.
Segmental Details
North America: In the fiscal third quarter, the segment’s revenues advanced 30% from the year-ago quarter to $929 million. Comparable store sales (comps) for North America’s retail channel improved 38%, including a 40% increase in brick-and-mortar stores and 32% growth in digital commerce. Revenues from the North America wholesale business grew 11% year over year.
Europe: The segment’s revenues grew 47% year over year to $463 million, with a 50% improvement in currency-neutral revenues. Comps for the retail channel in Europe were up 55%, owing to a 68% increase in brick-and-mortar stores and 27% growth in digital sales. Revenues for the segment’s wholesale business rose 45% on a reported basis and 48% at constant currency.
Asia: The segment’s revenues increased 16% year over year to $383 million on a reported and 20% on a currency-neutral basis. Comps in Asia were up 14%, backed by 12% growth in brick-and-mortar stores and a 64% increase in the digital business.
Margins
Ralph Lauren's adjusted gross profit margin expanded 60 bps year over year to 66%. The gross margin improved by 90 bps on a constant-currency basis. The increase was driven by improved pricing and promotions along with a better product mix, which more than offset higher freight costs and unusual COVID-19 mix benefits. The adjusted gross margin expanded 380 bps from third-quarter fiscal 2020, owing to solid AUR growth.
Adjusted operating expenses increased 22% from the year-ago period to $909 million in the fiscal third quarter. The growth was driven by higher marketing investments as well as compensation and selling expenses to aid both near and long-term growth. Adjusted operating expenses, as a percentage of sales, decreased 210 bps to 50.1% in the reported quarter.
The company’s operating income was $289.1 million, both on a reported and adjusted basis, up 69.7% from $170.4 million in the year-ago quarter. The adjusted operating margin expanded 260 bps year over year to 15.9%.
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Financials
Ralph Lauren ended the quarter with cash and short-term investments of $2,987 million, a total debt of $1.6 billion, and total shareholders’ equity of $2,722.9 million. Inventory at the end of the quarter grew 7.3% year over year to $929.1 million.
The company repurchased 2.5 million Class A shares for about $300 million in the fiscal third quarter. This resulted in $280 million available for share repurchase under the company’s existing program. Additionally, the board authorized a $1.5-billion share repurchase program, bringing the total current authorization to $1.78 billion.
Store Update
As of Dec 25, 2021, Ralph Lauren had 505 directly operated stores and 676 concession shops globally. The directly operated stores included 173 Ralph Lauren and 332 Polo factory stores. The company operated 141 licensed stores globally.
Outlook
Despite the ongoing uncertainty related to COVID-19, the potential for further outbreaks in several regions and global supply-chain disruptions, management raised its fiscal 2022 view. It also provided guidance for fourth-quarter fiscal 2022.
The company expects constant-currency revenues to grow 39-41%, up from the earlier mentioned 34-36%. Unfavorable currency is likely to hurt the top line by 70 bps. The operating margin is anticipated to be 13% (on both reported and constant-currency basis) compared with 12-12.5% mentioned earlier. The company reported an operating margin of 4.8% and 10.3% in fiscal 2021 and 2020, respectively.
The gross margin is envisioned to expand 70-90 bps versus 50-70 bps growth stated earlier. Gross margin growth is likely to be driven by stronger average unit retail and a positive product mix, which is expected to more than offset higher freight costs. Operating expenses are likely to be higher in the second half of fiscal 2022, driven by the company’s plans to increase marketing and other investments to support long-term growth.
For fourth-quarter fiscal 2022, revenues are anticipated to rise 17-18% year over year at constant currency, including an unfavorable currency impact of 400 basis points on revenue growth. The operating margin is anticipated to be 4.2% in constant currency, as gross margin expansion is likely to offset increased investments. The operating margin is expected to include negative currency impacts of 120 bps.
The company expects the tax rate to be 21-22% for both the fourth quarter and fiscal 2022. Capital expenditure is likely to be $200-$225 million for fiscal 2022.
Better-Ranked Stocks to Consider
We have highlighted three better-ranked companies in the Consumer Discretionary sector, namely Crocs (NASDAQ:CROX) CROX, GIII Apparel Group GIII and Gildan Activewear (NYSE:GIL) GIL.
Crocs, one of the leading footwear brands that focus on comfort and style, presently flaunts a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 41.6%, on average. Shares of CROX have rallied 38.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Crocs’ sales and EPS for the current financial year suggests respective growth of 66.8% and 150% from the year-ago period’s reported figures. CROX has an expected EPS growth rate of 15% for three to five years.
GIII Apparel, a manufacturer, designer and distributor of apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 173.4%, on average. Shares of GIII have dropped 1.5% in the past year.
The Zacks Consensus Estimate for GIII Apparel’s current-year sales and earnings suggests growth of 34% and 418.1%, respectively, from the year-ago reported figures. GIII has an expected EPS growth rate of 15% for three to five years.
Gildan Activewear, a manufacturer and seller of apparel products, presently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 85%, on average. Shares of GIL have gained 55.1% in the past year.
The Zacks Consensus Estimate for Gildan Activewear’s sales for the current financial year suggests growth of 44.8% from the year-ago period’s reported figure. GIL has an expected EPS growth rate of 9% for three to five years.
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Ralph Lauren Corporation (RL): Free Stock Analysis Report
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