Ralph Lauren's Margin Expansion: Sustainable Upside Ahead?

Ralph Lauren Corporation RL in the third quarter of fiscal 2026 exceeded expectations on revenue and profitability, driven by strong, broad-based performance across regions, channels and product categories. This supported higher-quality sales and margin expansion, offsetting U.S. tariff impacts. Adjusted gross margin rose 140 basis points (bps) to 69.8%, and the adjusted operating margin reached 20.7%, while profit rose 21%, which was driven by AUR growth, a favorable mix and lower cotton costs.

AUR increased 18% in the fiscal third quarter, exceeding expectations due to strong full-price selling, reduced discounting, targeted pricing and a favorable mix. Robust early-season demand across all regions allowed further pullback on holiday promotions. The company now expects high single- to low double-digit AUR growth in the fiscal fourth quarter, with flexibility to reduce discounting further based on trends. Lower cotton costs more than offset higher U.S. tariffs and increased labor and non-cotton material costs. The company remains on track to deliver a 175 bps benefit over the two years spanning fiscal 2025 and 2026.

The company is focused on harnessing advanced technology, AI and analytics to serve consumers better and improve business efficiency. “Ask Ralph,” its AI-powered shopping assistant launched in September, is delivering valuable insights amid rapidly evolving consumer behavior. Customers are shifting from traditional search to natural language product conversations, with styling and outfit discovery accounting for more than 50% of total engagement, highlighting the growing role of AI-driven interactions.

Looking ahead, full-year operating margin is expected to expand 100-140 bps, above prior guidance of 60-80 bps, supported by balanced margin expansion and expense leverage. Gross margin is projected to rise 40-80 bps, driven by AUR growth and favorable mix, offsetting increasing U.S. tariff pressures. Ralph Lauren’s margin expansion appears sustainable, supported by strong AUR growth, disciplined discounting, cost tailwinds and AI-driven efficiency.

The Zacks Rundown for RL

Shares of this Zacks Rank #2 (Buy) company have gained 8.8% in the past six months against the industry’s decline of 2.3%.

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From a valuation standpoint, RL trades at a forward price-to-earnings ratio of 19.27X, higher than the industry’s average of 17.16X.

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The Zacks Consensus Estimate for RL’s current and next fiscal year earnings implies a year-over-year rise of 31.8% and 11%, respectively.

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Other Stocks to Consider

Some other top-ranked stocks have been discussed below:

Columbia Sportswear Company COLM engages in the design, development, marketing, and distribution of outdoor, active, and lifestyle products in the United States, Latin America, the Asia Pacific, Europe, the Middle East, Africa, and Canada. At present, COLM flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for COLM’s current fiscal-year sales implies growth of 2%, and the same for earnings indicates a decline of 6.2% from the year-ago figures. COLM delivered a trailing four-quarter earnings surprise of 25.2%, on average.

Kontoor Brands, Inc. KTB, a lifestyle apparel company, designs, manufactures, procures, sells, and licenses apparel, footwear, and accessories, primarily under the Wrangler, Lee, and Helly Hansen brands. At present, KTB carries a Zacks Rank of 2.

The Zacks Consensus Estimate for KTB’s current fiscal-year sales and earnings implies growth of 9.2% and 15.6%, respectively, from the year-ago figures. KTB delivered a trailing four-quarter earnings surprise of 13.9%, on average.

Crocs, Inc. CROX designs, develops, manufactures, markets, distributes, and sells casual lifestyle footwear and accessories for men, women, and kids. At present, CROX carries a Zacks Rank of 2.

The Zacks Consensus Estimate for CROX’s current fiscal-year sales and earnings implies growth of 0.4% and 7%, respectively, from the year-ago figures. CROX delivered a trailing four-quarter earnings surprise of 16.6%, on average.

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Columbia Sportswear Company (COLM): Free Stock Analysis Report

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Crocs, Inc. (CROX): Free Stock Analysis Report

Kontoor Brands, Inc. (KTB): Free Stock Analysis Report

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