Ralph Lauren Beats Earnings, Gaps Down

Polo Ralph Lauren Corp. (RL), designer and manufacturer of stylish goods and apparel, reported earnings Wednesday morning.  While the numbers came in strong, shares gapped down at the open and continued to trade near their lows throughout the day.  The high-end retailer reported EPS of $1.10 for the quarter, up $0.05 year-over-year and solidly ahead of the $1.01 Wall St. consensus.  The company also forecasted shallower revenue declines for FY 2010 than they had reported in the past.  However, concerns about RL’s Asia operations and a $1.20 whisper-number seem to highlight the factors weighing on shares post-report.

RL had actually been among the strongest large-cap US companies throughout the January “correction.”  Shares were up 5% for 2010 as of Tuesday’s close, a period in which the S&P managed to shed greater than 4%.  The stock toed it’s 50-day moving average throughout all of last week before bouncing up leading into Wednesday’s report, but upon the earnings release shares gapped below the important technical indicator.  RL hasn’t traded this far below it’s 50-day MA since July.

Perhaps of greatest concern is the huge volume RL is seeing in reaction to the report.  This many shares have not changed hands in a single day in almost nine months, indicating significant institutional selling.  S&P reiterated a Strong Buy opinion on the stock Wednesday afternoon, but I’d wait for some support in the $71 – $75 range before considering jumping into this one.  Generally when you see selling this heavy, especially off of near-term highs, it’s a signal to look for greener pastures.  Furthermore, with the broad market still experiencing what we might, for now, describe as a brief correction, now is not the time to buy stocks that are showing such significant weakness.

Disclosure: No holdings in RL.