Ralph Lauren (NYSE:RL) is clawing its way back into Wall Street's good graces. The apparel specialist's stock rose last week after the company revealed second-quarter earnings results that edged past expectations even as the sales environment worsened slightly. The numbers put Ralph Lauren on track to meet management's modest goals for the fiscal year, with much still depending on the key holiday shopping period kicking off that kicked off this month.

A man holding shopping bags.

Image source: Getty Images.

A more volatile situation

Ralph Lauren's sales growth worsened, with revenue gains slipping to 2% after adjusting for currency exchange shifts, compared with last quarter's 3% boost. While Ralph Lauren noted strength across all of its geographic markets three months ago, this time the U.S. segment became a drag as tariff rates impacted wholesale demand. The company also saw a sharp drop in activity in Hong Kong, where economic growth has stalled.

Continued growth in Europe and the rest of Asia offset these challenges, though, to land the company ahead of its targets for the first half of fiscal 2019. "We delivered results slightly ahead of our overall expectations," CEO Patrice Louvet said, "including better-than-expected revenues, operating margin, and EPS growth, amid a more challenging operating environment."

Other wins

Shareholders received plenty of good news on the financial front, starting with another uptick in gross profit margin thanks to the combination of higher prices, reduced promotions, and a string of popular product introductions. Ralph Lauren built on those successes by cutting costs in other areas such as marketing.

As a result, the consumer discretionary stock's adjusted operating profit landed at $254 million, or 15% of sales, compared with 14% a year ago. That success allowed net income to again jump by double digits, with earnings per share improving to $2.34 from $2.07.

A steady holiday outlook

Ralph Lauren's outlook updates were generally positive. The company sees sales rising by about 2% in fiscal 2020 versus the 2.5% prediction executives issues back in August. That downgrade includes expected flat sales for the holiday season held back by the economic situation in Hong Kong. 

Meanwhile, the retailer's stronger inventory and pricing position should translate into profitability gains similar to what investors saw this past quarter.

Investors are right to celebrate the fact that Ralph Lauren is gaining share in a more challenging global apparel market. And it is a testament to management's restructuring efforts that it can do so while also reducing the need for promotions and heavy marketing spending.

Now that sales are stabilizing in the core U.S. segment and growing internationally, the next step in the rebound plan is speeding sales gains in direct-to-consumer channels and pressing the retailing advantage through more innovative apparel and lifestyle product releases.

Near-flat global revenue growth shows that Ralph Lauren still isn't winning market share. Nonetheless, the last two quarters contain encouraging signs that such a rebound might be in the cards. It's too early to jump into the stock today hoping to get ahead of that recovery, in my view. Instead, more-cautious investors might want to wait until after the holiday season update to decide whether the company is really back in growth mode.