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On Tuesday, Citi research updated its outlook on Ralph Lauren shares (NYSE:RL), increasing the price target to $255 from the previous target of $230, while maintaining a Neutral rating on the stock. The luxury fashion retailer, currently valued at $15.38 billion, has shown impressive momentum with a 74.77% return over the past year. According to InvestingPro analysis, the stock is trading near its 52-week high of $257.41. The adjustment came as Citi analysts anticipate Ralph Lauren's third-quarter earnings per share (EPS) to surpass both the consensus estimate and the company's own guidance. Citi's estimate stands at $4.59 compared to the consensus of $4.51 and the guidance range of $4.35 to $4.45.
The analysts project that Ralph Lauren's sales will rise by 4.9%, which is higher than the consensus of a 3.9% increase and above the company's guidance of 3.5% to 4.5%. This growth is attributed in part to strong direct-to-consumer (DTC) sales globally. The company maintains impressive gross profit margins of 67.51%, demonstrating strong pricing power in the luxury segment. Additionally, e-commerce sales in the EMEA region were reportedly boosted by a shift in the timing of Boxing Day.
Citi's analysts also believe that Ralph Lauren's management is likely to raise its annual guidance by approximately the amount of the third-quarter beat, suggesting an increase from $11.55-$11.65 to a new range of $11.74-$11.84. This adjustment would be in line with the consensus estimate of $11.77. The report commended the company's management for navigating the business effectively and maintaining global brand momentum.
Despite the positive forecast, Citi analysts noted that Ralph Lauren's stock had already seen a significant increase of 30% over the last three months. Given the stock's current valuation, trading at a P/E ratio of 22.98, the firm suggests that investor expectations are high, which may limit the stock's potential for further gains on the back of these results. InvestingPro analysis suggests the stock is currently overvalued, with 14 additional exclusive insights available to subscribers. Investors can access the comprehensive Pro Research Report, part of InvestingPro's coverage of 1,400+ US equities, for deeper analysis before the next earnings release on February 6, 2025.
In other recent news, Ralph Lauren has seen a wave of analyst attention due to its robust financial performance. Raymond (NSE:RYMD) James downgraded the company's stock rating from "Outperform" to "Market Perform," citing concerns about changes to foreign exchange rates potentially impacting financial performance in the second half of fiscal year 2025 and full fiscal year 2026.
Jefferies, on the other hand, raised its price target for Ralph Lauren to $280, noting consistent sales growth and a double-digit earnings per share algorithm. Argus initiated a Buy rating on Ralph Lauren shares, setting a 12-month price target of $250, while Telsey Advisory Group increased its price target to $247, maintaining an Outperform rating.
Ralph Lauren's recent financial performance demonstrated a 6% revenue growth and a rise in direct-to-consumer sales. This has been attributed to effective pricing strategies and reduced discounting, leading to a 10% increase in retail comparable sales and average unit retail. The company also added 1.5 million new customers, primarily from younger demographics.
Despite a 7% increase in operating expenses due to marketing investments, Ralph Lauren's adjusted gross margins improved to 67.1%. The company has also revised its full-year revenue outlook to a growth range of 3% to 4%. In terms of regional performance, Ralph Lauren reported a 10% revenue increase in Asia.
Finally, Bernstein analysts noted a strong start to the holiday quarter for the U.S. Apparel & Specialty Retail sector, including Ralph Lauren. This positive start has been attributed to a later than expected drop in temperatures and a recovery in spending among higher-income U.S. consumers.
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