Fashion brand Ralph Lauren (NYSE:RL) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 1.8% year on year to $1.57 billion. It made a non-GAAP profit of $1.71 per share, improving from its profit of $0.90 per share in the same quarter last year.
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Ralph Lauren (RL) Q1 CY2024 Highlights:
- Revenue: $1.57 billion vs analyst estimates of $1.57 billion (small beat)
- EPS (non-GAAP): $1.71 vs analyst estimates of $1.67 (2.6% beat)
- Gross Margin (GAAP): 66.6%, up from 61.8% in the same quarter last year
- Free Cash Flow of $81.1 million, down 85.6% from the previous quarter
- Market Capitalization: $10.5 billion
"Our teams delivered continued progress on our strategic and financial commitments in year two of our Next Great Chapter: Accelerate plan," said Patrice Louvet, President and Chief Executive Officer.
Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.
Apparel, Accessories and Luxury Goods
Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales Growth
A company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. Ralph Lauren's revenue was flat over the last five years.
Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Ralph Lauren's annualized revenue growth of 3.3% over the last two years is above its five-year trend, suggesting some bright spots.
Ralph Lauren also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 6.1% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see that foreign exchange rates have been a headwind for Ralph Lauren.
This quarter, Ralph Lauren grew its revenue by 1.8% year on year, and its $1.57 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 4% over the next 12 months, an acceleration from this quarter.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, Ralph Lauren has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 8.4%, subpar for a consumer discretionary business.
Ralph Lauren's free cash flow came in at $81.1 million in Q1, equivalent to a 5.2% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter. Over the next year, analysts predict Ralph Lauren's cash profitability will fall. Their consensus estimates imply its LTM free cash flow margin of 13.6% will decrease to 6%.
Key Takeaways from Ralph Lauren's Q1 Results
It was encouraging to see Ralph Lauren narrowly top analysts' constant currency revenue and EPS expectations this quarter. On the other hand, its operating margin and full-year revenue guidance fell short of estimates.
Ralph Lauren also named Justin Picicci as its new CFO. Picicci is an RL veteran who has spent 18 years at the company. He will replace Jane Nielsen, former CFO and COO, who will now exclusively focus on the COO role.
Overall, this was a mediocre quarter for Ralph Lauren. The company is down 1.3% on the results and currently trades at $162 per share.
Ralph Lauren may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.