Ralph Lauren shares fall 7.4% despite Q2 profit beat

Ralph Lauren (RL) raised its fiscal 2027 revenue forecast after second-quarter results.

Shares fell 7.4% at 3:59 p.m. ET, from a $412.06 close. Adjusted earnings of $4.64 per diluted share topped the $4.39 consensus estimate.

Here's how the company did:

• Adjusted EPS: $4.64 vs. $3.79 a year earlier, against $4.39 expected
• Reported EPS: $4.87 vs. $3.32 a year earlier
• Revenue: $2.19 billion vs. $2.01 billion a year earlier, against $2.19 billion expected

Revenue grew 9.1% as reported and 10% in constant currency, with foreign currency cutting growth by about 50 basis points.

Comparable store sales rose 10% globally, and average unit retail (AUR) rose 9%. It opened 22 owned and partnered stores in the quarter.

Chief Executive Patrice Louvet said the quarter was “enabling us to raise our Fiscal 2027 outlook once again.”

Segment results

North America revenue rose 6% to $885 million. Wholesale revenue in the region rose 8%, including about 4 points from earlier shipment timing from the second half of fiscal 2027.

Europe revenue rose 1% to $696 million, or 3% in constant currency. Asia revenue rose 28% to $571 million, with comparable store sales up 24% and China revenue up more than 35%.

Operating income was $186 million in North America at a 21.0% margin, $204 million in Europe at a 29.4% margin, and $157 million in Asia at a 27.4% margin. Asia's margin was up 240 basis points from a year earlier. Europe's margin was flat, with currency adding 80 basis points.

Costs, charges and margins

Gross margin was 74.2% on a reported basis, up 620 basis points, primarily because of tariff refunds received in the quarter. Adjusted gross margin was 70.5%, up 250 basis points, driven by AUR growth, favorable geographic mix and lower product costs.

Tariff refund recoveries of $82.3 million were excluded from adjusted gross profit. Reported operating expenses were $1.3 billion, up 13%. Adjusted operating expenses were $1.2 billion, up 11%, at 54.8% of revenue compared with 53.9% a year earlier.

Restructuring and other charges, net, totaled $63.2 million. The company also made $33.2 million in charitable donations using tariff refund proceeds, and Next Generation Transformation project charges were $23.9 million.

Reported operating income was $364 million, a 16.6% margin. Adjusted operating income was $345 million, a 15.7% margin and 160 basis points above the prior year. The effective tax rate was about 20% on a reported basis and 19% on an adjusted basis.

Guidance

For fiscal 2027, the company now expects constant currency revenue growth of 6% to 7% on a 52-week comparable basis, up from a range of 5% to 6% previously. It now expects operating margin to expand about 80 to 100 basis points in constant currency, up from its prior outlook, driven primarily by gross margin expansion.

For the third quarter, the company expects constant currency revenue growth of 3% to 4%. That outlook includes about 1 point of negative impact from wholesale timing shifts and strategic off-price reductions. Operating margin is expected to expand 50 to 70 basis points in constant currency, with gross margin gains more than offsetting higher holiday marketing investments.

Fiscal 2027 is a 53-week year, with the extra week expected to add about 1 point to revenue growth. The full-year tax rate is expected to be 21% to 22%, and the third-quarter rate 23% to 24%. Capital expenditures are expected to be about 4% to 5% of revenue.

Cash and capital returns

Cash and short-term investments were $1.82 billion at quarter end, and total debt was $1.24 billion. Inventory was $1.15 billion, down 9% from a year earlier.

The company repurchased about $250 million of Class A common stock in the quarter, for $500 million year to date, completing its share repurchase plans for fiscal 2027. Including dividends, it returned more than $600 million to shareholders in the fiscal year to date.