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Is Ralph Lauren’s CEO being overly conservative regarding Covid recovery?

By Angela Gonzalez-Rodriguez

21 May 2021

Business |

Image: Ralph Lauren, U.S. website

Ralph Lauren (NYSE:RL) shares shred almost 10 percent Thursday after the fashion retailer’s CEO Patrice Louvet warned in a call with analysts that “We’re not completely done with Covid.” The company restored their dividend, suspended due to the pandemic, but it wasn’t enticing enough for investors to either buy or hold onto their shares.

“This fiscal year, we fundamentally repositioned our company for long-term success—accelerating our digital and marketing capabilities, eliminating structural headwinds, focusing our brand portfolio and realigning our cost structure—all while continuing our brand elevation journey around the world,” Louvet said in the earnings release.

After more than a year worth of uncertainty, Louvet’s comments added weariness within the global luxury industry, which otherwise seems to be making a quick rebound as the pandemic eases in Europe and the U.S. It’s worth recalling that The luxury industry was among the worst affected in the pandemic as world economies went into multiple lockdowns at various intervals and companies like Ralph Lauren were forced to temporarily shut their stores.

Analysts call Ralph Lauren’s forecast ultra conservative

The high-fashion retailer said it expects 2022 revenue to increase approximately 20 percent to 25 percent in constant currency. For the ongoing quarter, it is expected to increase approximately 140 percent to 150 percent in constant currency over last year. In contrast, analysts polled by Thomson Reuters (TSX:TRI) expect net sales to surge 84 percent, to 1.13 billion dollars for the quarter and 31.1 percent, to 5.66 billion dollars for the year.

Addressing Ralph Lauren’s forecast, Credit Suisse (NYSE:CS) analyst Michael Binetti pointed out it was “Ultra conservative,” as reported by Reuters.

The company’s fourth quarter revenue increased 1 percent, to 1.29 billion dollars, driven by 35 percent growth in Asia revenue. North America revenue in the fourth quarter decreased 10 percent, to 569 million dollars. On a reported basis, net loss in the fourth quarter was 74 million dollars.

Ralph Lauren’s shares are back to pre-pandemic levels after the stock gained circa 75 percent in the past months. Although the news was actually fairly upbeat, investors sold the stock, highlighted ‘The Motley Fool’, which wondered if Thursday’s price decline could be explained by the fact that the retailer didn’t live up to the high turnaround expectations built into its stock price over the past few months. Additionally, management did note that top-line weakness in some markets is likely to linger into the first quarter of fiscal 2022 thanks to ongoing coronavirus impacts.

Image:Ralph Lauren, U.S. website