Stocks: Ralph Lauren Recovery Is Put at Risk by Prospect of Higher Costs -- WSJ
August 27 2019 - 3:02AM
Dow Jones News
By Michael Wursthorn
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 27, 2019).
Ralph Lauren Corp.'s U.S. turnaround is hanging by a thread,
putting its shares at risk of a deeper pullback.
Some analysts are cutting their financial forecasts for the
fashion company, predicting flat revenue and lower earnings for its
fiscal year as weaker tourist spending, tightening inventory at
department stores and tariffs pressure a brand that had already
been struggling with tepid demand.
The company's shares have slumped nearly 26% since the end of
June -- including Monday's 0.3% drop -- and are on pace for their
biggest quarterly decline in almost four years.
Analysts cut their forecasts for Ralph Lauren following the
latest escalation in U.S.-China trade tensions this month. For the
fiscal year ending in March, Bank of America Merrill Lynch analysts
predict little change in sales from the previous year and have cut
their earnings projections.
The company said last month, before the latest escalation in
tariffs, that it expected sales for the fiscal year to grow as much
as 3%.
Analysts across Wall Street now predict Ralph Lauren's earnings
to contract 0.7% for the quarter ending in September, after
initially forecasting positive growth just a month ago, according
to FactSet.
Additional tariffs are set to take effect on Chinese imports
next month, potentially forcing Ralph Lauren to absorb higher costs
or pass those on by raising prices. Neither of those options is
ideal for the struggling fashion designer, analysts said, since the
first will likely further crimp profit margins, while the latter
has the potential to alienate consumers.
Macy's Inc. already said earlier this month that customers don't
have an appetite for higher prices. The department store also said
it plans to cut back its inventory in the second half of the year,
another factor that would hurt sales of Ralph Lauren products,
analysts added.
In response, Bank of America cut Ralph Lauren's price target to
$76, a 9% decrease from where the shares closed on Monday.
A Ralph Lauren spokeswoman declined to comment further, but
pointed to the company's previously disclosed efforts to reduce its
dependency on China. As of July 2019, the company had less than a
quarter of its manufacturing based in China, down from about a
third in its last fiscal year.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
Corrections & Amplifications As of July 2019, Ralph Lauren
had less than a quarter of its manufacturing based in China, down
from about a third in its last fiscal year. An earlier version of
this article incorrectly stated that about a third of manufacturing
was currently based in China and that it would fall to less than a
quarter by July 2020. (Aug. 26)
(END) Dow Jones Newswires
August 27, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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