An Options Trade on This Outperforming Fashion Stock

Ralph Lauren isn’t chasing trends and that’s exactly its strength. The brand’s iconic Rhinelander Mansion store on Madison Avenue in Manhattan’s Upper East Side stands as a symbol of elevated “preppy” or “ivy league” style, a look rooted in tradition and sophistication.

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One advantage of staying anchored in classic, upper-class fashion is its enduring relevance. At the 2025 Pebble Beach Concours d’Elegance, many attendees embraced attire that would have looked familiar a century ago just like the original owners of the 1924 Hispano-Suiza that took home Best in Show this year.

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For context, Ralph Lauren himself has twice won this prestigious automotive honor, first with his 1938 Bugatti in 1990 and later with his 1930 “Count Trossi” Mercedes-Benz roadster in 1993.

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Durability in style translates into stability in business. Ralph Lauren’s customer base affluent, well-educated consumers aged 25-54 in major metropolitan and suburban areas gives the company strong pricing power and resilience against economic swings.

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Two years ago, CEO Patrice Louvet highlighted this strategic shift, noting: “Value-oriented consumers are becoming a smaller segment of our base as we attract more higher-value clients.”

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Ralph Lauren recently reported impressive fiscal second-quarter results. Revenue came in at $1.72 billion, up 13.7% year-over-year, surpassing expectations. Adjusted EPS hit $3.77, also ahead of forecasts.

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Over the trailing 12 months, revenue climbed 9.6%, supported by robust 69% gross margins, rising comparable store sales, and a rebound in wholesale channels. Analysts expect EPS to increase from $10.31 in FY2024 to $11.92 in FY2025, signaling strong earnings momentum.

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Looking ahead, free cash flow yield for FY2026 is projected just under 4.7% (Ralph Lauren’s fiscal year ends March 31), while Wall Street forecasts more than 13.5% growth in free cash flow for FY2027.

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Despite these strong fundamentals, Ralph Lauren shares have dipped about 1.9% since releasing earnings on Aug. 7. The issue isn’t operations it’s valuation. The stock has delivered a staggering 337% total return over the past five years and now trades nearly 50% above its historical earnings multiple. At these levels, shares may remain range-bound in the near term, particularly ahead of the next earnings release.

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For investors who see limited short-term upside or downside, this could present an opportunity for an options-based strategy. Selling an October 270/330 strangle could yield about $7.20 in premium, roughly 2.4% of the current stock price over 6½ weeks equivalent to an annualized return of nearly 19.5%, with an appealing probability of profit.

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Of course, this strategy carries risks. If the stock drops sharply, you could end up owning shares at the $270 put strike, less the premium received an 11.5% discount to today’s price. On the flip side, a major rally could leave you short at the $330 call strike plus premium, about 13.5% above the current level which is already near record highs. However, given the stock’s recent 65% climb and its lofty valuation, such dramatic moves seem unlikely over the next six weeks.

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