Will Ralph Lauren (RL) Break Its Earnings Beat Trend In Q1?

Ralph Lauren Corporation (NYSE:RL) is scheduled to release first-quarter fiscal 2017 results on Aug 10. In the previous quarter, this premium lifestyle merchandise retailer reported a positive earnings surprise of 6%.

Additionally, the company delivered an average positive earnings surprise of 7.5% over the trailing four quarters, with a beat recorded in each quarter. 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.

However, the company has been suffering from weak year-over-year comparisons for profit and sales for over three years. Recently, the company’s new CEO Stefan Larsson rose to the occasion and identified key problems in its operations, which included too many brands and retail stores, huge dependence on department stores, high cost structure and inefficient inventory systems.

Also, Larsson put forward a comeback plan that will focus on revival of the company’s three core brands, as well as right-sizing its cost structure and retail stores by closing nearly 50 high-end stores and eliminating 1,000 jobs. While these efforts will bring cost-savings of about $180–$220 million in fiscal 2017, the company provided a bleak outlook for the first quarter and the fiscal year. The company expects fiscal first-quarter sales to decline in the mid single-digit range, while the operating margin is likely to contract nearly 110–160 basis points year over year.

While the aforementioned restructuring plan will help the company return to profitable growth in the long run, we remain slightly skeptical about the upcoming results. Thus, we are unsure if the company will be able to retain its earnings beat trend in the first 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 +2.25%. This is because the Most Accurate estimate of 91 cents is above the Zacks Consensus Estimate of 89 cents.

Zacks Rank: Ralph Lauren carries a Zacks Rank #5 (Strong Sell). 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:

Nordstrom Inc. (NYSE:JWN) , scheduled to report earnings on Aug 11, has an Earnings ESP of +1.82% and a Zacks Rank #2 (Buy).

Macy’s Inc. (NYSE:M) , scheduled to report earnings on Aug 11, has an Earnings ESP of +31.71% and a Zacks Rank #2.

Lowe’s Companies Inc. (NYSE:LOW) , scheduled to report earnings on Aug 17, has an Earnings ESP of +2.84% and a Zacks Rank #2.