Bank Of America Upgrades Ralph Lauren From Underperform To Neutral

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At its June 7 Analyst Day, Ralph Lauren Corp RL announced a multi-year “Way Forward” plan, through which the company intends to refocus and evolve its operating model and core brands.

Robert F. Ohmes of Bank of America Merrill Lynch upgraded the rating on the company from Underperform to Neutral, while raising the price target from $80 to $96.

Guidance

Ralph Lauren lowered its F1Q17 sales guidance to the mid-single digits, with an operating margin decline of 110–160 bps, as compared to F1Q16.

FY2017 sales were guided to a decline in the low double digits, with operating margin of 10 percent.

Related Link: Ralph Lauren: Harder, Better, Faster, Stronger?

The company also guided to annual cost savings of $180–$220 million in FY17, in addition to its earlier annual cost savings guidance of $125 million and after restructuring charges of $400 million and inventory related charges of $150 million.

‘Way Forward’

According to the Bank of America report, “RL’s multi-year “Way Forward” plan includes a rationalization of inventory and SKUs as RL liquidates inventory, closes stores, harmonizes pricing and significantly reduces headcount in F17.”

The analyst expects the key initiatives implemented this year to help the company return to growth in FY19, driven by a reset in sales and operating margin base.

The FY17 EPS estimate has been lowered from $6.20 to $5.45 to reflect the revised guidance. The FY18 EPS estimate has been reduced from $7.10 to $6.00.

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Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsBank of America Merrill LynchRobert F. Ohmes
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