RL Q3 Earnings Beat, Stock Up on Strong Holiday Result & FY25 View

Ralph Lauren Corporation (RL Quick QuoteRL – Free Report) posted impressive third-quarter fiscal 2025 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. The third quarter results put an emphasis on better-than-expected holiday sales as the key driver behind higher revenue growth and provide a more optimistic FY25 view.

RL reported adjusted earnings per share of $4.82, which surpassed the consensus estimate of $4.48. Also, the bottom line increased 16% from $4.17 per share in the year-earlier quarter.

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Net revenues grew 11% year over year to $2,144 million and beat the Zacks Consensus Estimate of $2,012 million. On a constant-currency (cc) basis, revenues were up 11% from the year-ago quarter. The top line witnessed growth across all regions, driven by brand strength, pricing efforts and continued strategic investments.

Global direct-to-consumer comparable store sales (comps) jumped 12%, backed by continued brand elevation, double-digit increases in average unit retail (AUR) and positive retail comps at all regions and channels. The top line was negatively impacted by 40 basis points (bps) from foreign currency rates.

Ralph Lauren’s shares have gained more than 10% in the pre-trading session today on impressive quarterly performance, robust holiday performance and raised outlook for fiscal 2025. The company has raised the revenue and adjusted operating margin view for the current fiscal year, backed by strong year-to-date performance. Shares of this Zacks Rank #3 (Hold) company have gained 26.6% in the past three months, outpacing the industry’s growth of 9.4%.

RL Stock’s Performance in Past Three Months

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Ralph Lauren’s Segmental Details

North America: The segment’s revenues were up 7% year over year to $998 million. Comps for North America’s retail channel rose 8% year over year, while the same for brick-and-mortar stores and digital commerce moved up 10% and 3%, respectively. Revenues from the North America wholesale business rose 6% year over year.

Europe: The segment’s revenues rose 16% year over year to $604 million. The metric was up 16% on a currency-neutral basis. Comps for the retail channel in Europe were up 17%, while brick-and-mortar stores grew 18% year over year. Digital sales witnessed a 14% rise. Revenues for the segment’s wholesale business increased 15% on a reported basis and rose 14% on a cc basis.

Asia: The segment’s revenues increased 14% year over year to $507 million on a reported basis and 15% on a currency-neutral basis. Comps in Asia were up 14%, backed by 13% growth in brick-and-mortar stores and a 29% increase in the digital business.

A Look at RL’s Margins & Costs

Ralph Lauren’s adjusted gross profit margin expanded 200 bps year over year to 68.4%. This was mainly driven by positive product, channel and geographic mix shifts, reduced cotton costs and AUR growth effectively offsetting higher freight and other product expenses.

Adjusted operating expenses rose 10% from the year-ago period to $1.1 billion. Adjusted operating expenses, as a percentage of sales, contracted 30 bps to 49.7%.

The company’s adjusted operating income was $402 million, up 26.4% from the year-earlier quarter. The adjusted operating margin increased 230 bps year over year to 18.7%.

Ralph Lauren’s Financials

Ralph Lauren ended the quarter with cash and short-term investments of $2.1 billion, total debt of $1.1 million and total shareholders’ equity of $2.5 billion. Inventory fell 5% year over year to $1 billion at the end of the quarter.

The company repurchased nearly $74 million of Class A common stock in the quarter. RL returned about $500 million to its shareholders via dividends and repurchases of Class A common stock. It paid a regular quarterly cash dividend of 82.50 cents per share in the fiscal third quarter, totaling $150.1 million in the first nine months.

Ralph Lauren’s Store Update

As of Dec. 28, 2024, Ralph Lauren had 579 directly operated stores and 679 concession shops globally. The directly operated stores included 248 Ralph Lauren and 331 Outlet stores. The company operated 115 licensed partner stores globally as of the same date.

RL’s Outlook for Q4 & FY25

For fiscal 2025, RL continues to anticipate year-over-year revenue growth (at cc) in the band of 6-7% compared with the prior range of 3-4%. This includes 100-150 bps of adverse impacts of currency.

Management now expects the operating margin to grow in the range of 120-160 bps at cc driven by gross margin expansion of 130-170 bps. Earlier, management had predicted the operating margin to increase in the band of 110-130 bps. Foreign currency is anticipated to hurt gross and operating margins by about 30-50 bps. The fiscal tax rate is likely to be in the range of 22-23%.

For the fiscal fourth quarter, management anticipates revenues to grow nearly 6-7% on a cc basis. This includes nearly 300 bps of negative foreign currency impacts. Operating margin is likely to expand around 120-140 bps in cc driven by gross margin expansion of 80-120 bps and slight operating expense leverage. Foreign currency is anticipated to hurt gross and operating margins by about 60-80 bps. The quarterly tax rate is likely to be 24-25%.

Management expects capital expenditure to be in the range of $200-$250 million for fiscal 2025.

Key Picks

We have highlighted three better-ranked stocks, namely, G-III Apparel Group (GIII Quick QuoteGIII – Free Report) , Wolverine World Wide (WWW Quick QuoteWWW – Free Report) and lululemon athletica (LULU Quick QuoteLULU – Free Report) .

G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

GIII Apparel has a trailing four-quarter earnings surprise of 113.4%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 1.7% from the year-ago figure.

Wolverine World Wide designs, manufactures and distributes a wide variety of casual and active apparel and footwear. The company sports a Zacks Rank #1 at present.

The Zacks Consensus Estimate for WWW’s current financial-year sales indicates a decline of almost 22% from the year-ago reported figures. The consensus mark for EPS reflects significant growth to 90 cents from 5 cents reported in the prior year. WWW has a trailing four-quarter earnings surprise of 17.03%, on average.

lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 (Buy) at present.

The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS indicates growth of 9.7% and 12.5%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 6.7%, on average.