Positive Currency Rates To Aid Ralph Lauren's Q3 Earnings

Zacks expects Ralph Lauren Corporation RL to beat expectations when it reports third-quarter fiscal 2018 results on Feb 1. The company posted positive earnings surprise of 4.7% in the last reported quarter.

Moreover, the company has delivered positive earnings surprises consistently in the trailing four quarters, with an average beat of 11.6%. Let's see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors' minds is whether this designer, marketer and distributor of premium lifestyle products will be able to deliver a positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is pegged at $1.84, reflecting year-over-year decline of 1.1%. We note that earnings estimate for the current quarter has trended up in the last seven days. Moreover, analysts polled by Zacks expect revenues of $1.65 billion, down about 3.9% from the year-ago quarter.

Ralph Lauren Corporation Price and EPS Surprise

Ralph Lauren Corporation Price and EPS Surprise | Ralph Lauren Corporation Quote

Ralph Lauren has outperformed the industry in the past month, reflecting increased optimism on the stock ahead of the earnings release. The company's shares have surged 13.8%, compared with industry's growth of 7.1%.

Factors at Play

Ralph Lauren has a robust surprise trend with positive earnings surprises delivered in 11 straight quarters. Favorable geographic and channel mix shifts along with lower promotions and reduced product costs have been aiding bottom-line performance. Additionally, results in recent quarters have been gaining from foreign currency tailwinds.

The company's third-quarter and updated fiscal 2018 guidance clearly reflect the gains from recent positive movements in foreign currency rates. The company expects foreign currency to benefit revenue growth by nearly 160-170 basis points (bps) and operating margin by 10-20 bps in the third quarter. Furthermore, it now estimates foreign currency to aid revenue growth by nearly 80 bps, compared with the previous guidance of minimal negative impact. Moreover, foreign currency is now anticipated to have a minimum effect on operating margin, compared with 40-50 bps negative impact predicted earlier.

Looking ahead, management remains confident of Ralph Lauren's performance, based on its efforts related to global brand reorganization, constant infrastructural investments and e-commerce enhancements. Further, the company's efforts to evolve product and marketing bode well. All these factors make us optimistic about Ralph Lauren's upcoming results.

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