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Will Ralph Lauren (RL) Retain Robust Earnings Trend in Q4?


Ralph Lauren Corporation RL is slated to release fourth-quarter fiscal 2018 results on May 23, before the market opens. The company posted positive earnings surprise of 8.6% in the last reported quarter.

Moreover, the company delivered positive earnings surprises in the trailing four quarters, with an average beat of 10.4%. Let’s see how things are shaping up prior to this announcement.

What to Expect

The question lingering in investors’ minds is whether this designer, marketer and distributor of premium lifestyle products will be able to deliver a positive earnings surprise in the quarter to be reported. The company’s Zacks Consensus Estimate for the quarter under review is pegged at 86 cents, reflecting a year-over-year decline of 3.4%. We note that earnings estimates for the current quarter have been stable in the last 30 days. Moreover, analysts polled by Zacks expect revenues of $1.49 billion, down about 4.7% from the year-ago quarter.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

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

Ralph Lauren has outperformed the industry in the past year, driven by its positive earnings trend. The company’s shares have surged 53.2%, compared with industry’s gain of 39.1%.

Factors at Play

Ralph Lauren has a robust surprise trend with positive earnings surprises delivered in 12 straight quarters. The company has been gaining from favorable geographic and channel-mix shifts along with lower promotions and reduced product costs. Additionally, results in the recent quarters have been gaining from foreign currency tailwinds.

The company adjusted fiscal 2018 outlook to account positive currency rates, which are likely to aid revenues and operating margins. Further, the outlook for fiscal fourth-quarter reflects optimism. The company expects fiscal fourth-quarter reported revenues to be down 8-10%, excluding currency impact. The company anticipates foreign currency to aid revenue growth by nearly 330 basis points (bps). Though it expects operating margin to decline 240-260 bps on a currency-neutral basis, foreign currency is likely to boost operating margin by about 90 bps in the fiscal fourth quarter.

Including ASU 2016-09, the tax rate is expected to be nearly 3% in the quarter under review, driven by lower U.S. federal statutory income tax, owing to the new tax reform.

Furthermore, Ralph Lauren remains focused to deliver goals under its Way Forward Plan while bolstering digital and international presence. Additionally, it is well on track with its restructuring plan, which is likely to generate savings of roughly $140 million by the end of fiscal 2019. These restructuring activities include rightsizing the portfolio and cost-structure alongside streamlining the organizational structure. All these factors make us optimistic about Ralph Lauren’s upcoming results.

However, the company’s North America business continues to suffer due to distribution and brand exits, a planned reduction in shipments and promotions to enhance the quality of sales, and lower customer demand.

What the Zacks Model Unveils

Our proven model does not conclusively show that Ralph Lauren is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ralph Lauren currently has a Zacks Rank #2 and an Earnings ESP of 0.00%. The combination of the company’s Zacks Rank and Earnings ESP makes surprise prediction difficult.

Stocks With Favorable Combination

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

Michael Kors Holdings Limited KORS has an Earnings ESP of +6.82% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, LTD. GIII has an Earnings ESP of +11.11% and a Zacks Rank #2.

PVH Corp. PVH has an Earnings ESP of +1.22% and a Zacks Rank #3.

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