Ralph Lauren (RL): Unlocking Value Through Global Expansion and Direct-to-Consumer

Ralph Lauren delivered stronger-than-expected fiscal Q1 2025 results despite ongoing economic headwinds and currency pressures. Sales increased by 1%, surpassing the forecasted 1% decline, though North American sales dropped by 4%, reflecting a 13% decline in wholesale as the company exited underperforming department stores. Strong growth in Europe and Asia, up 6% and 4% respectively, offset domestic weakness. The adjusted operating margin reached 14.3%, beating expectations by 60 basis points. Adjusted EPS of $2.70 also exceeded projections by $0.29. We believe the companys expectation to achieve a gross margin expansion of 50 to 100 basis points, largely driven by a favorable shift in product mix toward international and full-price direct-to-consumer segments is achievable. Growth in average unit retail (AUR) is expected to more than offset headwinds from increased labor and non-cotton raw material costs, along with the benefits of favorable cotton prices. Ralph Lauren maintained its fiscal 2025 outlook, with projected 2%-3% constant-currency sales growth and an adjusted operating margin of 13.5%, despite potential negative currency impacts. The company’s pricing power continues to drive strong margins, even amid fluctuating demand. Ralph Lauren’s strategic shift towards a direct-to-consumer model is reducing reliance on U.S. department stores and bolstering profitability. With 3%-5% annual growth anticipated in Europe and Asia, the brand is well-positioned for international expansion, where premium pricing and lower discounting strengthen margins. Initiation of Coverage :Earnings Review F1Q25, Forecasts,DCF, Valuation, Peer Analysis, ESG & Risks