Time to pony-up for Ralph Lauren

By guest author Elizabeth Winkler from Wall Street Journal

The luxury lifestyle company exceeded third-quarter estimates, and investors are starting to acknowledge its turnaround

When Ralph Lauren reported quarterly results in November, beating analysts’ estimates, investors responded by sending its shares lower. Now another solid quarter appears to have convinced them that the luxury lifestyle company’s turnaround is taking hold.

On Tuesday, Ralph Lauren reported third-quarter results, including holiday sales that again exceeded estimates. The company reported earnings of USD 2.32 a share, handily exceeding consensus estimates of USD 2.15 a share, and revenue of USD 1.73 billion, above estimates of USD 1.66 billion. That reflects year-over-year revenue growth of 5.1 % and same-store sales growth of 4 %. Ralph Lauren was particularly boosted by sales in Asia and Europe, which each rose by around 10 %. North America sales saw growth, too, rising 2.5 %.

Investors sent the stock up nearly 12 % in morning trading of Tuesday, February 5, 32019. For Ralph Lauren, the restoration of excitement around the brand, not to mention its shares, has been a long time coming. The company has been closing stores, jettisoning labels, cutting promotions, increasing sales of higher-margin items and investing in digital operations. But, its turnaround efforts had largely gone unrewarded. Through the last two months of 2018, the stock shed nearly a quarter of its value.

On Tuesday, February 5, 2019, the company attributed its improved fortunes to winning over a new generation of customers, thanks to an increase in marketing investment. Ralph Lauren raised its full-year sales outlook, expecting net revenue to increase slightly in the current fiscal year. Same-store sales growth should be the highest since at least 2014, when the stock fetched a higher multiple of earnings and revenue.

Management has been playing the long game, steadily restoring the health of the brand and its operations. Investors should give the cynicism a rest.