Ralph Lauren: Restructuration Plan Yields Results

The company´s net profit was reduced by more than 70% to $45 million, equivalent to 55 cents per share. Without taking into account the extraordinary expenses, basically derived from its restructuring process, the profit would have been reduced by only 10%, a decrease less than analysts feared.

Revenues, meanwhile, fell 7.6% to $1.82 billion, in line with the company’s forecasts. The poor performance of the North American business continues to weigh on Ralph Lauren: its sales in that region fell 12%, compared to the 2% increase in international business. Comparable sales, which only take into account shops opened at least twelve months, fell by 8%.

For the current quarter, the most important for the company due to the holiday season, its forecasts a fall in revenues from a high single digit or two low digits. However, this is not something that surprises the market, which is much more aware of the scope of the restructuring measures of the group. At the beginning of the year, Ralph Lauren launched a program that included reducing costs, reducing inventories, moderating discount policy, closing unprofitable establishments and a strategic shift to focus on its top brands, Ralph Lauren and Polo. If this plan works, that would mean a real change for the company´s future.

The stock market has welcomed these results with jubilance because investors understand that they suggest that the new strategic plan is paying off, even if the net profit has fallen. The stock is trading at 8-month highs, above $100 per share. It is still far from records, when in early 2015 it was traded at $180 per share. In any case, its current P/E is over 24 times, clearly above the market average. It is not surprising, therefore, that many analysts are neutral to value (70% recommend just “hold”) with a target price of $103, which would leave no potential for revaluation.