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Low Expectations For Ralph Lauren Make For An Easy Beat

Ralph Lauren Corp RL delivered a 1Q17 beat against relatively low expectations. While full-year guidance appears achievable, there is limited visibility into the company’s revenue growth beyond FY17, Brean Capital’s Eric Tracy said in a report. He maintained a Hold rating on Ralph Lauren, saying that the risk/reward seemed “relatively balanced at current levels.”

Beating Low Expectations

Ralph Lauren reported its 1Q17 EPS at $1.06 ahead of the Brean Capital and consensus estimate of $0.89. The company recorded a revenue decline of 4 percent, better than the expected 6 percent decline. Operating margin contracted only 50bps, versus the expected 110bps contraction, helped by lower inventory reserves, progress on inventory management and lower product costs, Tracy noted.

FY17 And Beyond

Ralph Lauren’s revenue guidance for FY17 seems achievable and could even prove conservative, the analyst stated. The EPS estimates for 2Q and FY17 have been raised from $1.65 to $1.78 and from $5.30 to $5.62, respectively.

Tracy expressed concern, however, regarding the company’s performance in FY18 and beyond.

Initiatives such as lower sell-ins to wholesale, store closures, lower promos and pricing harmonization could make Ralph Lauren “a more attractive partner to wholesalers (even relative to itself).” However, headwinds would likely continue over the medium term, “with channel evolution remaining critical,” especially considering the growth of, Inc. AMZN, the analyst commented.

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Aug 2016Goldman SachsMaintainsBuy
Aug 2016CitigroupMaintainsBuy
Aug 2016Brean CapitalMaintainsHold

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