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Ralph Lauren ‘s 50% rally in the past four months has gone too far, too fast, according to BMO Capital Markets, which downgraded the stock Friday to underperform. “Although we believe RL has among the group’s strongest brand/management team who essentially architected the Sell Less, Charge More strategy, shares are almost back to pandemic-peaks despite lowered results,” analyst Simeon Siegel wrote in a client note. “Asia margin strength appears to be masking materially worsening domestic & European margins,” which now sit below pre-pandemic levels. Siegel suspects the decline of North American margins may be due to increased marketing spending, supply chain pressures, and consumer questions regarding the average selling price of items. To be sure, BMO did raise its price target “given the inflection in FX.” Yet the new price target of $100 implies 19.49% downside from the previous closing price of $124.21. BMO questions whether the current level of Ralph Lauren shares—which are close to pandemic peaks—can be sustained, given the changes in consumer spending during 2021. “Sentiment for retail has clearly eroded since then as CY21’s perfect trifecta of 1) stimulus-driven capacity to spend, 2) pent-up demand driven desire to spend and 3) higher prices given lack of industry-wide inventory devolved into a weaker consumer and over-purchases by companies and shoppers alike, making us question whether it makes sense that RL shares currently sit so close to pandemic peaks given questions on relatively worse macro and micro circumstances,” the note added. Shares for Ralph Lauren fell 3.23% in Friday premarket trading following the call. Siegel also cited recent insider selling by CEO Patrice Louvet. “Hard to Imagine he’s selling into bad news,” the analyst wrote. Ralph Lauren reports results on February 9. —CNBC’s Michael Bloom contributed to this report.
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