What happened

Shares of Ralph Lauren (RL -0.01%) fell by as much as 8% by midday before recovering to close down 3.7% on Tuesday despite the company reporting better-than-expected earnings. Investors brushed off the quarterly beat and instead focused on the apparel company's conservative outlook and a Wall Street analyst's report naming Ralph Lauren one of the retailers most vulnerable to a U.S.-China trade war.

So what

Ralph Lauren reported fiscal fourth-quarter adjusted earnings of $1.07 per share on revenue of $1.51 billion, outpacing analyst expectations for earnings of $0.89 per share on sales of $1.47 billion. Same-store sales were up 1% in the quarter, with strong European and Asian results offsetting a 4% North American same-store sales decline.

Asia in particular has been an area of focus for the company.

A group of women with shopping bags walk down the street.

Image source: Getty Images.

But the revenue was down 1.3% year over year, and company chief operating officer and CFO Jane Nielsen, on a post-earning call with investors, said Ralph Lauren is "taking a more cautious approach to inventories, especially in light of the dynamic trading environment."

The tariffs enacted so far, according to Nielsen, "have a limited impact on our business, but our teams are prepared for multiple scenarios and have accelerated the diversification of our supply chain to mitigate the long-term impact of any potential tariff outcomes."

On Tuesday, Cowen analyst John Kernan predicted the tariff impact would grow. Noting that about 70% of footwear imported into the U.S. comes from China, the analyst said he believes the proposed 25% tariff on apparel and footwear will cause a "major disruption" at a time when companies are already facing a tough competitive environment.

Kernan put Ralph Lauren on the list of companies with the most risk from the tariffs due to its limited ability to raise prices enough to absorb the hit.

Now what

Ralph Lauren management might be cautious, but they gave no indication the sky was falling. The company sees fiscal first-quarter net revenue up 3% to 5% on a constant currency basis. Ralph Lauren also raised its quarterly dividend by 10% to $0.6875 per share, and its board authorized a $600 million addition to the company's stock repurchase program.

Even after Tuesday's declines, the stock is still up 10% year to date. Given the current geopolitical instability, expect shares of Ralph Lauren to remain volatile until a tariff-avoiding trade deal is secured.