Ralph Lauren (RL)

Fashion brand Ralph Lauren (NYSE:RL) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 8.3% year on year to $1.70 billion. Guidance for next quarter’s revenue was optimistic at $1.63 billion at the midpoint, 2.3% above analysts’ estimates. Its non-GAAP profit of $2.27 per share was 11.3% 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 the best consistently grow over the long haul. Unfortunately, Ralph Lauren’s 2.8% annualized revenue growth over the last five years was weak. This fell short of our benchmarks and is a rough starting point for our analysis.

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 annualized revenue growth of 4.8% over the last two years is above its five-year trend, but we were still disappointed by the results.

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 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 8.3%, and its $1.70 billion of revenue exceeded Wall Street’s estimates by 3.2%. Company management is currently guiding for a 7.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Ralph Lauren’s operating margin has been trending up over the last 12 months and averaged 12.3% over the last two years. Its profitability was higher than the broader consumer discretionary sector, showing it did a decent job managing its expenses.

This quarter, Ralph Lauren generated an operating profit margin of 9.1%, up 2.3 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 a solid 13.7% compounded annual growth rate over the last five years, higher than its 2.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Ralph Lauren reported EPS at $2.27, up from $1.71 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Ralph Lauren’s full-year EPS of $12.33 to grow 9.2%.

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 impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 14% over the last two years, better than the broader consumer discretionary sector.

Ralph Lauren’s free cash flow clocked in at $42.3 million in Q1, equivalent to a 2.5% margin. The company’s cash profitability regressed as it was 2.7 percentage points lower than 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.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Ralph Lauren hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 23.7%, 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 we hope the company can keep improving.

Ralph Lauren reported $2.08 billion of cash and $2.65 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 $1.19 billion of EBITDA over the last 12 months, we view Ralph Lauren’s 0.5× net-debt-to-EBITDA ratio as safe. We also see its $13.9 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 enjoyed seeing Ralph Lauren beat analysts’ constant currency revenue expectations this quarter. We were also glad its revenue guidance for next quarter exceeded Wall Street’s estimates. On the other hand, its EBITDA missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 3.1% to $283 immediately after reporting.

Updated: May 22, 2025 at 10:46 PM EDT

Before deciding whether to buy Ralph Lauren or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Ralph Lauren isn’t a terrible business, but it isn’t one of our picks. First off, its revenue growth was weak over the last five years. And while Ralph Lauren’s stellar ROIC suggests it has been a well-run company historically, its constant currency sales performance has disappointed.

Ralph Lauren’s P/E ratio based on the next 12 months is 20.6x. This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $273.33 on the company (compared to the current share price of $277.42).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.