What happened
Ralph Lauren (NYSE: RL) stock fell harder than the market on Monday, dropping 12% by 3:30 p.m. ET compared to a 2.7% slump in the S&P 500. That move put the stock below the broader market's 11% loss so far in 2022.
Investors sold off shares in response to increasing pessimism about the retailer's short-term prospects due to its exposure to the European market.
So what
An analyst at Wedbush downgraded Ralph Lauren's stock and lowered the firm's price target to $127 per share from $150 per share. The downgrade was due to the company's reliance on sales growth in Europe, which may weaken because of geopolitical strife .
Image source: Getty Images.
To be sure, Ralph Lauren credited its gains in Europe for helping it deliver much of its overall growth in recent months. Sales there have expanded by over $500 million in the past three quarters, and operating income has nearly tripled to $350 million, the company revealed in early February. Growth in Europe was 50% in the holiday quarter .
Now what
It is reasonable to assume that Ralph Lauren will be impacted by economic disruptions in Europe. Geopolitical turbulence there might threaten the fiscal 2022 outlook that management issued in early February calling for sales to jump about 40% while operating margin improves to 13% of sales.
Yet that's no reason to abandon the retailer's stock. Ralph Lauren's operating momentum was impressive through late December and, while the short-term outlook is cloudier today, the retailer should continue winning market share in premium apparel niches across its three key markets of Europe, Asia, and North America.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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