M Macys Inc

By Michael Wursthorn 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 27, 2019).

Ralph Lauren Corp.'s U.S. turnaround is hanging by a thread, putting its shares at risk of a deeper pullback.

Some analysts are cutting their financial forecasts for the fashion company, predicting flat revenue and lower earnings for its fiscal year as weaker tourist spending, tightening inventory at department stores and tariffs pressure a brand that had already been struggling with tepid demand.

The company's shares have slumped nearly 26% since the end of June -- including Monday's 0.3% drop -- and are on pace for their biggest quarterly decline in almost four years.

Analysts cut their forecasts for Ralph Lauren following the latest escalation in U.S.-China trade tensions this month. For the fiscal year ending in March, Bank of America Merrill Lynch analysts predict little change in sales from the previous year and have cut their earnings projections.

The company said last month, before the latest escalation in tariffs, that it expected sales for the fiscal year to grow as much as 3%.

Analysts across Wall Street now predict Ralph Lauren's earnings to contract 0.7% for the quarter ending in September, after initially forecasting positive growth just a month ago, according to FactSet.

Additional tariffs are set to take effect on Chinese imports next month, potentially forcing Ralph Lauren to absorb higher costs or pass those on by raising prices. Neither of those options is ideal for the struggling fashion designer, analysts said, since the first will likely further crimp profit margins, while the latter has the potential to alienate consumers.

Macy's Inc. already said earlier this month that customers don't have an appetite for higher prices. The department store also said it plans to cut back its inventory in the second half of the year, another factor that would hurt sales of Ralph Lauren products, analysts added.

In response, Bank of America cut Ralph Lauren's price target to $76, a 9% decrease from where the shares closed on Monday.

A Ralph Lauren spokeswoman declined to comment further, but pointed to the company's previously disclosed efforts to reduce its dependency on China. As of July 2019, the company had less than a quarter of its manufacturing based in China, down from about a third in its last fiscal year.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

Corrections & Amplifications As of July 2019, Ralph Lauren had less than a quarter of its manufacturing based in China, down from about a third in its last fiscal year. An earlier version of this article incorrectly stated that about a third of manufacturing was currently based in China and that it would fall to less than a quarter by July 2020. (Aug. 26)

(END) Dow Jones Newswires

August 27, 2019 02:47 ET (06:47 GMT)

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