Ralph Lauren Corp. (NYSE: RL) did the thing companies are supposed to do on Thursday: it beat estimates and raised its full-year outlook. And the stock fell anyway, down 7.91% to $379.46 at the time of publication. Welcome to the part of the earnings cycle where guidance for the next quarter matters more than the quarter you just reported.

The luxury fashion company reported better-than-expected second-quarter fiscal 2027 results, with strong growth in Asia, higher margins and continued demand for premium products. But softer third-quarter revenue guidance weighed on investor sentiment, and that was that.

Ralph Lauren Beats Earnings and Revenue Estimates

Ralph Lauren reported adjusted earnings of $4.64 per share, beating Wall Street's estimate of $4.26.

Revenue rose 9% year over year on a reported basis and 10% in constant currency to $2.183 billion, topping Wall Street's $2.122 billion estimate. Sales growth also exceeded management's earlier mid-single-digit forecast.

On a constant-currency basis, adjusted gross margin expanded 220 basis points to 70.2%. Adjusted operating margin expanded 140 basis points to 15.5%.

Average unit retail prices rose 9%, supported by premium products, selective price increases and fewer promotions. The company ended the quarter with $1.8 billion in cash and short-term investments and $1.2 billion in debt. Inventory fell 8% in constant currency, while the company repurchased about $250 million in shares.

China Leads Regional Growth

Asia revenue surged 28%, driven by growth of more than 35% in China. North America revenue increased 6%, supported by stronger retail and wholesale sales.

Europe is where the story gets less fun. Revenue there grew 3% in constant currency and 1% on a reported basis, while comparable retail sales declined 1%.

Ralph Lauren warned that inflation and rising living costs are pressuring price-sensitive European consumers, particularly those shopping at outlet stores. CEO Patrice Louvet said price-sensitive consumers face greater pressure, while weaker store traffic has prompted the company to lower its regional growth forecast.

CFO Justin Picicci said Europe's operating environment was more challenging than expected, citing weaker retail traffic, declining consumer confidence and broader cost-of-living pressures.

Global direct-to-consumer comparable sales rose 10%, supported by growth across physical stores and digital channels. Core products, which account for more than 70% of the business, recorded 10% growth.

Ralph Lauren Expands AI Investments

Ralph Lauren is investing in artificial intelligence and analytics to improve efficiency and personalize shopping experiences. The company began testing WhatsApp Concierge, a digital shopping assistant. Following an earlier test with OpenAI, Ralph Lauren is also expanding advertising on the platform during the holiday season.

Ralph Lauren Raises Full-Year Outlook

Ralph Lauren raised its fiscal 2027 constant-currency revenue growth forecast to 6%-7%, up from 5%-6%. It also raised its fiscal 2027 adjusted operating margin expansion forecast to 80-100 basis points in constant currency, up from its previous forecast of 60-80 basis points.

The company expects low-teen revenue growth in Asia and low-to-mid-single-digit growth in North America. However, it lowered its European growth forecast to low single digits.

Management expects first-half growth to outpace second-half growth due to tougher comparisons, marketing investments and shipment timing.

Ralph Lauren Forecasts Slower Third-Quarter Revenue Growth

Ralph Lauren expects third-quarter revenue to grow approximately 3%-4% in constant currency, reflecting slower growth after its strong first-half performance.

Average unit retail growth is expected to slow to mid-single digits, compared with an 18% increase in the year-earlier holiday quarter. Wholesale shipment shifts and reduced off-price sales are expected to cut revenue growth by about one percentage point.

That is the number investors latched onto. A beat-and-raise quarter is nice, but when the next quarter's growth looks like a deceleration, the market starts doing math on what the holiday season will actually look like.