Ralph Lauren's Brand Appeal Will Propel Growth Amid Gains From Expansion In Underpenetrated Categories: Analyst

Telsey Advisory Group analyst Dana Telsey reiterated Outperform rating on Ralph Lauren Corporation RL, raising the price target to $155 from $140.

RL will report Q1 earnings on Thursday, August 10, before the market opens.

Ahead of the earnings, the analyst continues to look for EPS of $2.09 compared to the consensus of $2.14 and $1.88 in the prior year period. 

RL's recent string of results demonstrates that key opportunities continue to gain traction, both by category and region, emphasizing the brand's broad appeal and its potential, notes Telsey.

On the top line, Telsey expects net revenue to be down 0.5% Y/Y to $1.48 billion, reflecting a 5% decline in North America and a 3% decline in Europe, offset by 12% growth in Asia. 

The analyst applauds RL's recent developments, including wins in crucial cities and expansion in underpenetrated categories. These will deliver accelerated topline growth off a stronger foundation while generating expense leverage and expanding operating margins.

Below the top line, the analyst estimates 50 bps of gross margin expansion Y/Y to 68.5%, vs. the consensus of 68.1% (up 10 bps), benefiting from lower freight costs, positive AUR growth, and lower wholesale penetration, offset by higher product costs.

The analyst's SG&A forecast anticipates 50 bps of deleverage to 55.7%, vs. the consensus of 57.5% (up 230 bps). 

Telsey expects a flat operating margin of 12.7%, roughly in-line with the consensus of 12.8% (up ten bps).

Looking at FY24, management believes AUR gains will continue, as APAC's pricing will cover inflation while benefiting from channel and mix, notes Telsey.

Price Action: RL shares are trading higher by 0.82% to $133.30 on the last check Friday.