A downgrade and a lackluster forecast hurt Ralph Lauren Corp.’s stock Wednesday as shares of the company slipped 0.7 percent to $93.36 in late morning, Big Board trading.
The fashion firm on Tuesday unveiled a plan to restructure operations that include another 8 percent in job cuts in the current fiscal year – on top of the 5 percent that was cut last year – and the planned closure of 50+ stores.
Miller Tabak + Co. analyst Rick Snyder downgraded the stock to “Hold” from “Buy,” citing the lack of visibility and the duration of a possible turnaround. He said that before the firm’s investor day presentation, 2017 was presumed to be a transition year and 2018 was believed to the year for a return to revenue growth and margin expansion. “We now believe that 2108 will a stabilization year that will feature flat revenues and some gross margin expansion. We anticipate the gross margin expansion in that year will result in a more normalized rate after inventories are purged in 2017,” he said. The analyst noted that the company expects a return to revenue growth in 2019, but added that market share gains and improved margins aren’t expected until 2020.
And while Snyder agreed that some steps, such as shortening lead times and reducing inventories, are the right ones to take, he also expressed concerns over the lack of financial specifics from the company. “Management was unable or unwilling to offer any specifics on the path to the planned mid-teen operating margin in 2020 other than ‘SG&A will be lower.’ Instead of offering any guidance on metrics, management repeatedly told the audience that the plan was evolving….We understand that Ralph Lauren is in transition, but the lack of visibility provided yesterday reduces the potential investment strategy to ‘hope’ in our opinion,” Snyder concluded.
Bebe Stores Inc. shares shot up 38.6 percent to 48 cents in Nasdaq trading after the company said it entered into joint venture with brand management firm Bluestar Alliance. The joint venture is for ownership of Bebe’s intellectual property assets, with Bluestar contributing $35 million, which was transferred from the joint venture to Bebe’s coffers. That gives Bebe some breathing room and liquidity. Under the terms of the agreement, Bluestar would license out the brands Bebe and Bebe Sport, with half of the royalties from the licensing going to the JV. Periodically, the licensing fees would be disbursed to Bebe, giving it funds to grow and operate its retail stores and e-commerce site.
Shares of Lululemon rose 1.4 percent to $69.10 in Nasdaq trading Wednesday even though the company posted first-quarter earnings per share results that missed Wall Street’s expectations by 1 cent. Net income slipped 5 percent to $45.3 million on a revenue gain of 17 percent to $495.5 million. The company did boost projections and now expects 2016 revenues at $2.31 billion to $2.35 billion. That’s up from the $2.29 billion to $2.34 billion revenue range the company forecasted in March.
The U.S. equity markets in general were trading up Wednesday, with the Dow Jones Industrial Average up 0.3 percent to 17,987.00, the S&P 500 up 0.2 percent to 2,116.70 and the Nasdaq Composite up 0.2 percent to 4,971.77.