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The Ratings Game: Ralph Lauren is back in style and showing increased top-line potential

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Demand is picking up for Ralph Lauren Corp. fashions, which is increasing analyst confidence in sales growth at the luxury lifestyle company.

Ralph Lauren
RL,
+3.51%

had been undergoing a turnaround strategy prior to COVID-19. During the pandemic, the company, like so many others in the apparel space, experienced declines as vacations, parties and working at the office came to a halt.

“While many have remained skeptical of the company’s top-line recovery prospects, recent checks are now pointing to a material acceleration in trends at Ralph Lauren,” wrote Wells Fargo in a note.

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“Further, while nearly every apparel stock in our coverage universe continues to demonstrate strong momentum over the past several weeks, Ralph Lauren appears to be experiencing outsized demand on both an absolute and relative basis.”

Wells Fargo rates Ralph Lauren shares overweight with a $150 price target, up from $132.

Confidence in the improving digital trends and checks, as well as a number of upcoming drivers prompted an upgrade of Ralph Lauren shares to outperform from market perform at Cowen.

Cowen analysts raised the price target on Ralph Lauren to $152 from $110.

“The backdrop across softlines and department stores through back to school supports higher sales, AUR [average unit retail] and EBIT margin than consensus models as inventory levels are improved, distribution channels rationalized, and SG&A structures lowered,” analysts led by John Kernan wrote. (EBIT refers to earnings before interest and tax and SG&A refers to selling, general and administrative expenses.)

Cowen notes a $200 million reduction in SG&A at Ralph Lauren.

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“Wardrobe building into FY22 is a positive for the current environment where discretionary spend may shift to more formal apparel relative to the comfort/athletic trends that dominated 2020,” Cowen said.

Both analyst groups also turn to online data, which shows more eyeballs on Ralph Lauren offerings in recent weeks.

Ralph Lauren stock rose 3.2% in Wednesday trading. Shares have gained 28.2% for the year to date. The S&P 500 index
SPX,
+0.04%

is up 11.5% for 2021 so far.

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