Ralph Lauren (RL)

Fashion brand Ralph Lauren (NYSE:RL) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 16.5% year on year to $2.01 billion. Its non-GAAP profit of $3.79 per share was 10% above analysts’ consensus estimates.

Company Overview

Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Ralph Lauren’s main domestic competitors are PVH Corp (NYSE:PVH), Tapestry (NYSE:TPR), and private company Stuart Weitzman. International competitors include Kering (OTCMKTS:PPRUY) which owns Gucci, Yves Saint Laurent, and Bottega Veneta, and LVMH (OTCMKTS:LVMUY) which owns Louis Vuitton, Dior, and Givenchy.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Ralph Lauren’s 10% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the consumer discretionary sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Ralph Lauren’s recent performance shows its demand has slowed as its annualized revenue growth of 7.9% over the last two years was below its five-year trend.

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 7.9% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that Ralph Lauren has properly hedged its foreign currency exposure.

This quarter, Ralph Lauren reported year-on-year revenue growth of 16.5%, and its $2.01 billion of revenue exceeded Wall Street’s estimates by 6.5%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Ralph Lauren’s operating margin has been trending up over the last 12 months and averaged 13.1% over the last two years. Its solid profitability for a consumer discretionary business shows it’s an efficient company that manages its expenses effectively.

This quarter, Ralph Lauren generated an operating margin profit margin of 12.2%, up 1.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Ralph Lauren’s EPS grew at an astounding 52.1% compounded annual growth rate over the last five years, higher than its 10% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q3, Ralph Lauren reported adjusted EPS of $3.79, up from $2.54 in the same quarter last year. This print beat analysts’ estimates by 10%. Over the next 12 months, Wall Street expects Ralph Lauren’s full-year EPS of $14.65 to grow 4.5%.

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.

Ralph Lauren has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.3% over the last two years, slightly better than the broader consumer discretionary sector.

Ralph Lauren burned through $40.6 million of cash in Q3, equivalent to a negative 2% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Ralph Lauren’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 8.8% for the last 12 months will increase to 13.5%, giving it more flexibility for investments, share buybacks, and dividends.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Ralph Lauren hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 29.4%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Ralph Lauren’s ROIC has increased significantly over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Ralph Lauren reported $1.65 billion of cash and $2.85 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.31 billion of EBITDA over the last 12 months, we view Ralph Lauren’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $18.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Ralph Lauren blew past analysts’ constant currency revenue expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $318 immediately after reporting.

Updated: December 3, 2025 at 10:04 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Ralph Lauren.

Ralph Lauren doesn’t pass our quality test. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its constant currency sales performance has disappointed. On top of that, its projected EPS for the next year is lacking.

Ralph Lauren’s P/E ratio based on the next 12 months is 22.6x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $366.75 on the company (compared to the current share price of $360.56).