Ralph Lauren (NYSE: RL), a company specializing in the design, marketing and distribution of high-end lifestyle products including apparel, accessories, fragrance and home furnishings, is expected to report results of the fourth fiscal quarter on Tuesday, May 24. We expect shares of Ralph Lauren to trade lower on weak fourth quarter 2022 fiscal results, with revenue as well as earnings falling slightly short of consensus. Ralph Lauren experienced an impressive recovery in revenue and cash flow in the last nine months of fiscal 2022. However, soaring inflation and rising manufacturing and transportation costs, which have compounded by the geopolitical situation in Ukraine, could have a negative impact on the company’s bottom and front lines in the fourth quarter. That said, almost 40% of Ralph Lauren’s production takes place in China and Vietnam, which could also lead to higher costs in the coming quarters (given the lockdown in China).
Our forecast indicates that the valuation of RL is $93 per share, which is the current market price. Watch our interactive dashboard analysis at RL revenue overview: What to expect in the fourth trimester? for more details.
(1) Revenues slightly below consensus estimates
Trefis estimates RL’s fourth-quarter 2022 revenue at around $1.44 billion, slightly below the consensus estimate of $1.46 billion. In the third quarter, the retailer’s revenue rose 27% year-over-year to $1.8 billion, thanks to the impressive 30% growth in the North American market during this period. There is no doubt that a significant percentage of this growth is due to a recovery in sales from the previous decline caused by the Covid-19 lockdowns. Therefore, it is reasonable to expect future growth rates to be more moderate. We now expect Ralph Lauren’s full-year 2022 revenue to be $6.2 billion, up 41% year-over-year.
(2) EPS expected to slightly miss consensus estimates
Earnings per share for RL in the fourth quarter of 2022 are expected to be 37 cents according to Trefis analysis, below the consensus estimate of 38 cents. Despite higher marketing costs in the third quarter of the fiscal year, Ralph Lauren managed to increase its gross profit margin, with price increases offsetting higher expenses. Additionally, the company’s operating margin also jumped 4 percentage points in the quarter. This helped EPS rise to $2.98 from $1.63 a year ago.
(3) Estimation of stock price in line with current market price
Passing through our Ralph Lauren’s assessmentwith an estimated EPS of around $8.25 and a P/E multiple of 11.2x for FY2022, this translates to a price of $93, which is in line with the current market price.
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