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Why Ralph Lauren Stock Jumped Today

By Jeremy Bowman – Feb 4, 2020 at 3:46PM

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A better-than-expected earnings report sent the apparel retailer higher.

What happened

Shares of Ralph Lauren (RL -0.52%) were gaining after the preppy apparel brand posted better-than-expected results in its third-quarter earnings report. Though revenue growth was sluggish, the company saw solid comparable-sales momentum and strong growth on the bottom line.

As of 2:35 p.m. EST, the stock was up 10.1%. 

Women shopping in a mall, shown from the chest down.

Image source: Getty Images.

So what

Ralph Lauren has struggled with many of the same challenges as other retailers in recent years as key distribution partners like department stores have lost market share and shuttered locations, but its third-quarter earnings report showed its recent efforts to refresh its brand were paying off.  

Overall revenue rose 1.5% (2% in constant currency) to $1.75 billion, which topped estimates of $1.72 billion. Overall, comparable sales were up 2%, while they grew 4% in North America, the company's biggest market, a sign that the brand is resonating with customers as its investments in marketing and updating its product line delivered results. 

The comparable sales growth helped deliver margin expansion, and adjusted earnings per share jumped from $2.32 to $2.86 with the help of aggressive share buybacks. That was better than estimates of $2.45.

"We continue to make strong progress on our Next Great Chapter plan amid a volatile backdrop, with third quarter results ahead of our overall expectations, including better than expected revenues, operating margin, and double-digit EPS growth," CEO Patrice Louvet said. 

Now what

The retailer is facing some challenges in Asia due to the recent protests in Hong Kong and now the coronavirus outbreak, which has forced the closure of half of its stores in China. However, management raised its full-year outlook, saying it expected revenue growth of 2% to 3% after previously guiding toward the low end of that range, though that does not include any impact from the coronavirus outbreak. The company didn't give earnings-per-share guidance, but it did say it expected operating margin to rise slightly for the full year. 

While wholesale revenue continues to decline, investors should be encouraged by the comparable sales growth during the key holiday season. It's not a surprise to see shares rising today.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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