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Can Ralph Lauren (RL) Manage an Earnings Surprise in Q4?


Ralph Lauren Corporation RL is slated to report fourth-quarter fiscal 2017 results on May 18. The big question facing investors is whether this premium lifestyle retailer will be able to deliver a positive earnings surprise in the quarter to be reported.

Last quarter, the company delivered a positive earnings surprise of 13.4%. In fact, the company has outperformed the Zacks Consensus Estimate by an average of 12.6% in the trailing four quarters. Let’s see how things are shaping up for this announcement.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

Ralph Lauren Corporation Price, Consensus and EPS Surprise | Ralph Lauren Corporation Quote

Factors Influencing This Quarter

While Ralph Lauren has a strong earnings surprise history, it provided a soft sales and margins outlook for fourth-quarter fiscal 2017 with its last reported results. Further, the company reiterated the previously provided dismal fiscal 2017 guidance. Apart from adverse currency headwinds, revenue growth for both periods is anticipated to be impacted by the company’s actions to improve the quality of sales, lower inventory buys, store closures, price management and other initiatives.

Additionally, the recent departure of CEO and President, Stefan Larsson, has been hurting the stock. The conflict between Stefan and the company’s Executive Chairman and Chief Creative Officer, Ralph Lauren, on the development of creative and consumer-facing parts of the business led to the decision.

Consequently, the company has had a bearish run in the market recently. Shares of Ralph Lauren have declined 15.5% year to date, wider than the Zacks categorized Textile–Apparel industry’s fall of 6.2%.

While the company’s estimates have been stable in the last 30 days, the current Zacks Consensus Estimate of 79 cents per share for fourth-quarter fiscal 2017 reflects 9.9% decline from the prior-year quarter. Analysts polled by Zacks expect revenues of $1.59 billion for the fiscal fourth quarter, reflecting nearly 14.9% fall from the year-ago quarter. These factors make us skeptical of its performance in the upcoming quarter.

However, we remain confident of the company’s solid brand portfolio, healthy financial status and constant initiatives of focusing on profitable areas. Further, the company is on track to achieve cost saving goals under its Way Forward plan, providing visibility into its future results.

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 #1, 2 or 3 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 -3.80%. This is because the Most Accurate estimate of 76 cents is pegged below the Zacks Consensus Estimate of 79 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Ralph Lauren’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

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

Stocks that Warrant a Look

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

Home Depot Inc HD, slated to release earnings on May 16, currently has an Earnings ESP of +0.62% and a Zacks Rank #2 (Buy).

Wal-Mart Stores Inc. WMT, scheduled to release earnings on May 18, currently has an Earnings ESP of +1.04% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Best Buy Co. Inc. BBY, scheduled to release earnings on May 25, currently has an Earnings ESP of +10.00% and a Zacks Rank #2.

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