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Why Ralph Lauren Stock Fell as Much as 10% Today

By Reuben Gregg Brewer - Updated May 20, 2021 at 1:51PM

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Shares of the fashion retailer got hit despite what appeared to be good earnings news. Here's a quick review of the situation.

What happened

Shares of Ralph Lauren (RL 3.77%) fell just shy of 10% at one point in morning trading on May 20. The retailer, which controls multiple brands, reported fiscal fourth-quarter 2021 earnings today. Although the news was actually fairly upbeat, investors sold the stock.

So what

Ralph Lauren brought in $1.29 billion in the quarter, up a touch from $1.27 billion in the same quarter of the previous fiscal year. Constant-currency sales in North America and Europe were down 10% and 4%, respectively, with a 28% sales jump in Asia offsetting the weakness. Analysts had been looking for overall revenue of $1.21 billion. On the bottom line the company posted adjusted earnings per share of $0.38 compared to a $0.68 loss in the previous year and analyst projections of a $0.73 loss. Ralph Lauren also reinstated its dividend at its pre-coronavirus level of $0.69 per share.

Two people with shopping bags standing in a mall.

Image source: Getty Images.

For the most part the earnings story was good news, but investors appear to have been looking for something more. Management did note that top-line weakness in some markets is likely to linger into the first quarter of fiscal 2022 thanks to ongoing coronavirus impacts. That said, it still sees a 20% to 25% year-over-year revenue increase in the cards for all of fiscal 2022. However, the bigger problem today might be related to the stock's roughly 75% price gain since October (including today's drop), with a peak at close to 100% just a few short days ago. That number baked in a lot of good news.  

Now what

Today's price decline could be because Ralph Lauren didn't live up to the lofty turnaround expectations built into its stock price over the past few months. Or it could be a matter of investors simply preferring to take some profits now that the quarterly earnings news is out. Either way, it appears increasingly likely that, with the stock price back to its pre-pandemic levels, investors will be taking a show-me attitude from here.  

Reuben Gregg Brewer 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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