On Friday, Telsey Advisory Group adjusted its outlook on Ralph Lauren (NYSE:RL) shares, raising the price target to $247 from the previous $207, while reiterating an Outperform rating. The company's recent earnings report exceeded expectations, attributed to robust sales and gross margin improvements, which balanced out increased spending in selling, general, and administrative (SG&A) expenses.
Ralph Lauren's positive performance was highlighted by revenue growth across all key regions, including Asia, Europe, and North America, at a time when other consumer companies are facing challenges.
The company's low-teens revenue increase in China was particularly noteworthy. Ralph Lauren also provided third-quarter guidance that surpassed current market expectations and revised its fiscal year 2025 (FY25) forecast upwards, signaling confidence amidst a complex global economic landscape.
The company demonstrated growth in comparable store sales and operating margins in all three regions during the first quarter. Moreover, average unit retail (AUR) saw a significant 10% increase, continuing a trend from the previous year. This success is seen as a testament to the company's strategic initiatives aimed at enhancing the brand and attracting new, younger, high-value customers.
Ralph Lauren has shown consistent operational momentum, with earnings surpassing estimates for the fourth consecutive quarter of fiscal year 2024 (FY24) and continuing into the first half of FY25.
The company's strategies, which include brand elevation, winning in key cities, and expanding into new categories, are expected to support continued top-line growth, gross margin leverage, and operating margin expansion, all while investing in the long-term vitality of the brand.
The new stock price target of $247 reflects an 18.3 times multiple on Telsey's next twelve months (NTM) earnings per share (EPS) estimate. This is in comparison to the apparel sector's one-year average NTM multiple of 19.2 times and Ralph Lauren's recent NTM multiple of 17.1 times.
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