Ralph Lauren Earnings Preview: All Eyes On International Growth Wednesday

As Ralph Lauren (NYSE:RL) is scheduled to announce its Q2 fiscal 2012 financial results on Wednesday, ^[1] investors and analysts will pay special attention to the company’s international performance particularly in Europe and China, two of Ralph Lauren’s biggest international market. While Europe is battling a serious threat of recession as Greek default looms large, China is struggling with inflationary pressures which threaten to slow its economy. Hence the big question ahead of the earnings is whether or not Ralph Lauren will be able to maintain its international growth, which was the primary reason behind its stock’s over 25% surge since last quarter. Ralph Lauren competes with premium apparel and accessories players like Coach (NYSE:COH), Liz Claiborne (NYSE:LIZ), Ann Taylor (NYSE:ANN) and other premium private labels.

Our price estimate of $136 for Ralph Lauren’s stock is nearly 14% below the current market price

See our complete analysis for Ralph Lauren here.

International Growth to Remain Focus of Q2 Earnings

Ralph Lauren’s recorded a  massive 60% in international revenues during the last quarter. Additionally the contribution of international sales to the company’s total revenues stood at 36%, which was a substantial 6 percentage point increase over Q1 last year. While the European operations demonstrated  a strong double digit growth in Q1, China was leading the baton in RL’s Asian surge.

International operations holds a prime importance for Ralph Lauren because most of the international operations are via full-price sell through stores such as Ralph Lauren, Club Monaco and Rugby stores which fetch higher margins to the company compared to concession retail stores in domestic market. It was on a large part due to increased international operations that Ralph Lauren was able to post a solid margin growth of 1.2% last quarter, despite the overall apparel industry struggling with shrinking margins because of increasing production costs.

Now with a shadow of doubt over both European and Chinese economies, the focus of this quarter’s earnings has concentrated around Ralph Lauren’s international growth. While the general consensus in the market is that Ralph Lauren’s international growth saga may be a far too overstretched, the real picture will come in front once the company comes out with its Q2 results on November 9th.

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1. Ralph Lauren to announce Q2 earnings on 9th November, Source: Ralph Lauren IR [↩]