Companies
Ralph Lauren flags weaker European shoppers despite earnings beat
Ralph Lauren beat profit estimates and raised its full-year outlook, but softer third-quarter sales guidance and a warning about strained European shoppers pushed the stock lower Thursday.
Quick Read
- Ralph Lauren beat second-quarter profit and revenue estimates and raised its full-year outlook.
- A softer revenue forecast for the third quarter weighed on the stock Thursday.
- Executives said inflation, weaker store traffic and falling confidence are straining European shoppers, especially at outlet stores.
- Asia, led by China, and North America kept growing.
What did Ralph Lauren report?
Ralph Lauren (NYSE: RL) earned $4.64 a share on an adjusted basis in its fiscal second quarter, the company reported Thursday. Wall Street's estimate was $4.26.
Why it matters: Revenue also topped analyst estimates and beat management's own earlier forecast. The company raised its full-year outlook.
Margins widened because average selling prices rose, helped by premium products, selective price increases and fewer discounts. Operating margin, the profit the core business keeps from each dollar of sales, expanded.
Why did the shares fall?
The stock traded lower Thursday despite the beat. Softer revenue guidance for the third quarter, meaning the company's own forecast for its next results, weighed on the shares.
Europe was the weak spot. Revenue there grew modestly, but comparable retail sales, from stores open at least a year, declined 1%.
Chief Financial Officer Justin Picicci said Europe's operating environment was more challenging than expected. He cited weaker store traffic, declining consumer confidence and cost-of-living pressure. The company said inflation is hitting price-sensitive shoppers hardest, especially at outlet stores.
Chief Executive Patrice Louvet said weaker store traffic prompted the company to lower its growth forecast for the region.
Where is the business still growing?
Asia revenue rose 28%, led by China, the company said. North America revenue also increased, helped by stronger retail and wholesale sales.
Sales through the company's own stores and website grew, and its core products posted growth too.
The wider market muddies the picture. The consumer discretionary sector fund (XLY), which holds companies that sell nonessential goods, fell 3.8% on Thursday. That means not all of the stock's drop may trace to the report itself.
What comes next?
What’s next: The open question is whether European strain stays with outlet shoppers or spreads to full-price stores. Ralph Lauren's third-quarter results may show it.
For American shoppers, the University of Michigan's preliminary November consumer survey arrives Friday at 10 a.m. ET. October retail sales follow on Nov. 17 at 8:30 a.m. ET.
For readers
What it could mean for you: If you own Ralph Lauren shares directly, this report reaches you in full, with no other holdings to offset it. The earnings beat and higher full-year outlook sit against softer third-quarter guidance and thinner traffic at European outlet stores. If growth in Asia and North America keeps outrunning Europe's weakness, the raised outlook may hold. If strain spreads beyond price-sensitive shoppers, the company could revisit its forecasts. Its next quarterly report may show which force is larger.
Questions and answers
Why did Ralph Lauren stock fall after beating earnings?
Softer third-quarter revenue guidance weighed on the shares, even though the company beat estimates and raised its full-year outlook. Executives also warned that European shoppers are under pressure.
What did Ralph Lauren say about European shoppers?
CFO Justin Picicci said Europe was more challenging than expected, citing weaker store traffic, declining consumer confidence and cost-of-living pressure. The company said price-sensitive outlet shoppers face the most strain and lowered its growth forecast for the region.
Which regions grew for Ralph Lauren last quarter?
Asia led, driven by China, the company said. North America revenue also increased on stronger retail and wholesale sales.
The numbers
| S&P 500 change | −4.36% |
|---|---|
| 10-year Treasury yield | 4.84% |
Thursday’s close
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