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Ralph Lauren Shares Fall on Coronavirus-Related Downgrade

By John Rosevear – Apr 3, 2020 at 2:16PM

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The Polo titan is still in good shape, but the next few quarters will be tough.

What happened

Shares of Ralph Lauren (RL -3.35%) were trading down on Friday after an RBC Capital analyst downgraded the stock on concerns related to the impact of the coronavirus pandemic.

As of 1:45 p.m. EDT, Ralph Lauren's shares were down about 8.4% from Thursday's closing price.

So what

In a note on Friday morning, RBC Capital analyst Kate Fitzsimons cut Ralph Lauren to sector perform from outperform and reduced her price target for the stock to $65 from $136.

A sign outside a Ralph Lauren store in Paris.

Image source: Ralph Lauren.

Fitzsimons said that while Ralph Lauren's near-term sales and margins will obviously be impacted by the ongoing store closures in North America and Europe, her longer-term concern is with industrywide issues that may impede the company's recovery after the COVID-19 outbreak fades. 

Specifically, she's concerned about "misalignment" in inventories across the industry as well as the effects of likely cuts in marketing spending that could impede efforts to draw new consumers to the brand.

Ralph Lauren closed all of its stores in North America on March 17. 

Now what

While things are extremely tough right now for all retailers with a significant brick-and-mortar presence, investors should keep in mind that Ralph Lauren is in better shape than most. The company has about $2.4 billion in liquidity available and a strong investment-grade credit rating in place should it need to borrow more. (Moody's Investors Service reaffirmed the company's A2 rating on Thursday, albeit with a negative outlook.)

In addition, for now at least, the company's dividend payments will continue. We'll learn more about the state of the business and what might lie ahead when Ralph Lauren reports earnings next month. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Moody's. The Motley Fool has a disclosure policy.

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Ralph Lauren Corporation Stock Quote
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$85.43 (-3.35%) $-2.96
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