Ralph Lauren (RL)

Fashion brand Ralph Lauren (NYSE:RL) announced better-than-expected revenue in Q4 CY2025, with sales up 12.2% year on year to $2.41 billion. Its non-GAAP profit of $6.22 per share was 7.1% 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 sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Ralph Lauren grew its sales at a 12.3% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Ralph Lauren’s recent performance shows its demand has slowed as its annualized revenue growth of 8.9% 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 8.5% 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 12.2%, and its $2.41 billion of revenue exceeded Wall Street’s estimates by 3.7%.

Looking ahead, sell-side analysts expect revenue to grow 4% 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 see some demand headwinds.

Ralph Lauren’s operating margin has risen over the last 12 months and averaged 13.7% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.

In Q4, Ralph Lauren generated an operating margin profit margin of 19.6%, up 1.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Ralph Lauren’s EPS grew at an astounding 92.3% compounded annual growth rate over the last five years, higher than its 12.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q4, Ralph Lauren reported adjusted EPS of $6.22, up from $4.82 in the same quarter last year. This print beat analysts’ estimates by 7.1%. Over the next 12 months, Wall Street expects Ralph Lauren’s full-year EPS of $16.05 to grow 4.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Ralph Lauren has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 11.9%, lousy for a consumer discretionary business.

Ralph Lauren’s free cash flow clocked in at $704 million in Q4, equivalent to a 29.3% margin. The company’s cash profitability regressed as it was 2.3 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

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).

Ralph Lauren historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 32.7%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

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. Ralph Lauren’s ROIC has increased significantly over the last few years. This is a good sign, and we hope the company can continue improving.

Ralph Lauren reported $2.25 billion of cash and $2.84 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 $1.45 billion of EBITDA over the last 12 months, we view Ralph Lauren’s 0.4× net-debt-to-EBITDA ratio as safe. We also see its $11.4 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 happy its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The market seemed to be hoping for more, and the stock traded down 7.6% to $327.87 immediately following the results.

Updated: February 5, 2026 at 8:20 AM EST

Before investing in or passing on Ralph Lauren, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Ralph Lauren falls short of our quality standards. First off, 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 astounding 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 21.2x. 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 $393.68 on the company (compared to the current share price of $327.87).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.