Goldman Bullish On Ralph Lauren's Turnaround Plan

Ralph Lauren Corp RL reported better-than-expected Q1 EPS, driven by robust revenues and gross margins, while reaffirming its FY guidance.

Goldman Sachs’ Lindsay Drucker Mann maintained a Buy rating on the company, while raising the price target from $113 to $120.

Compelling Plan

“While we acknowledge RL’s turnaround is fraught with uncertainty and there is still much work to be done, today’s release gives us confidence that – at a minimum – management has a handle on the current trajectory, as well as a compelling plan to set the business on a strong path forward,” Mann mentioned.

Related Link: Low Expectations For Ralph Lauren Make For An Easy Beat

The analyst also believes that despite the tough environment for brands and retailers, Ralph Lauren’s conservative 2H guidance would provide a “built in cushion,” since downward earnings revisions have stabilized due to management already having “written off” guidance for EBIT and sales from the businesses it expects to trim.

“Weaker comp trends in 1Q disappointed, but we note some green shoots as well, most encouragingly the better underlying gross margin performance, although inventory charges likely inflated that figure in the period,” Mann went on to say.

Bullish Stance

For the longer term, the analyst expressed bullish sentiments regarding the company’s “Way Forward” plan, which is focused on returns and includes meaningful improvements to the design and merchandising process, as well as adding greater speed and culling weak brands and distribution.

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