Stock Story -
Fashion brand Ralph Lauren (NYSE:RL) beat analysts' expectations in Q2 CY2024, with revenue up 1% year on year to $1.51 billion. It made a non-GAAP profit of $2.70 per share, improving from its profit of $2.34 per share in the same quarter last year.
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Ralph Lauren (RL) Q2 CY2024 Highlights:
- Revenue: $1.51 billion vs analyst estimates of $1.49 billion (1.5% beat)
- EPS (non-GAAP): $2.70 vs analyst estimates of $2.47 (9.4% beat)
- EBITDA Margin: 17.4%, in line with the same quarter last year
- Free Cash Flow of $243.9 million, up from $81.1 million in the previous quarter
- Constant Currency Revenue rose 3% year on year (1.2% in the same quarter last year)
- Market Capitalization: $10.33 billion
Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.
Apparel, Accessories and Luxury GoodsWithin apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Ralph Lauren's sales were flat. This shows demand was soft and is a tough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Ralph Lauren's annualized revenue growth of 2.5% over the last two years is above its five-year trend, but we were still disappointed by the results.
We can dig further into the company's sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 4.8% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Ralph Lauren.
This quarter, Ralph Lauren reported reasonable year-on-year revenue growth of 1%, and its $1.51 billion of revenue topped Wall Street's estimates by 1.5%. Looking ahead, Wall Street expects sales to grow 3.1% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Ralph Lauren has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company's free cash flow margin averaged 10.2% over the last two years, slightly better than the broader consumer discretionary sector.
Ralph Lauren's free cash flow clocked in at $243.9 million in Q2, equivalent to a 16.1% margin. This quarter's cash profitability was in line with the comparable period last year and above its two-year average.
Over the next year, analysts predict Ralph Lauren's cash conversion will fall. Their consensus estimates imply its free cash flow margin of 13.8% for the last 12 months will decrease to 10.9%.
Key Takeaways from Ralph Lauren's Q2 ResultsWe enjoyed seeing Ralph Lauren exceed analysts' constant currency revenue expectations this quarter. We were also glad its EPS outperformed Wall Street's estimates. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 3.1% to $170.25 immediately following the results.
